NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
February
28, 2021
(Unaudited
and Not Reviewed)
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
Boatim
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. 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 control of one hundred percent of the issued and outstanding membership interests
of Boatim Europe. Boatim Europe commenced operations in February 2020 and is engaged in the business of providing software development,
marketing, and selling services for Boatim Inc.
We
acquired and further developed the Boatim software platform which is an online boat trading marketplace that combines data-driven
technology and our 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 February 28, 2022.
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 included in the Form 10-K. 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 six months ended February 28, 2022 are not necessarily indicative of the results that may be expected
for the year ending August 31, 2022.
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 February 28,
2022 and August 31, 2021.
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 income
(loss) (“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:
| Summary of Foreign Currency Translation | |
| | | |
| | |
| | |
February 28,
2022 | | |
August 31,
2021 | |
| Current
EUR: US$ exchange rate | |
| 1.1197 | | |
| 1.1771 | |
| Average
EUR: US$ exchange rate | |
| 1.1320 | | |
| 1.1951 | |
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 six months ended February 28, 2022 and for the fiscal year ended to August 31,
2021, a total of $0 and $321,562 in software development costs has been incurred, respectively.
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
during the six months ended February 28, 2022 and 2021, 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.
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.
Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury
stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. The
following potentially dilutive equity securities outstanding as of February 28, 2022 and August 31, 2021 were not included in
the computation of dilutive loss per common share because the effect would have been anti-dilutive:
| Schedule of anti-dilutive shares | |
| | | |
| | |
| | |
February 28, | | |
August 31, | |
| | |
2022 | | |
2021 | |
| Stock
warrants | |
| 10,796,232 | | |
| - | |
| Convertible
debt | |
| 12,720,680 | | |
| 9,494,188 | |
| Stock
options | |
| 2,750,000 | | |
| 1,750,000 | |
| Total | |
| 26,266,912 | | |
| 11,244,188 | |
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 classifications
in the consolidated statements of operations, as if such amounts were paid in cash.
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 was adopted by the Company on September 1, 2021. The Company evaluated and concluded
that the adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In
May 2021, the FASB issued ASU 2021-04 in response EITF consensus. This ASU addresses how the issuer should account for modifications
or exchanges of Freestanding Equity Classified Written Call Options. Freestanding written call options (such as warrants) are
sometimes issued to enhance the marketability of a company’s debt or common stock offering. Some of these warrants are classified
as equity in the issuer’s financial statements but are not accounted for as either stock compensation or derivatives. US
GAAP does not address how the issuer should account for modifications of these instruments. The FASB has approved an EITF consensus
to fill that void. Under the new guidance, if the modification does not change the instrument’s classification as equity,
the company that issued the warrants accounts for the modification as an exchange of the original instrument for a new instrument.
In general, if the fair value of the ‘new’ instrument is greater than the fair value of the ‘original’
instrument, the excess is recognized based on the substance of the transaction, as if the issuer had paid cash. The new rule is
effective for fiscal years beginning after December 15, 2021 for both public and private companies. Transition is prospective.
Early adoption is permitted, as discussed further below. The Company is evaluating whether this will have any impact of 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 no revenues for the six months ended February 28, 2022
and incurred recurring losses. In addition, the Company had a negative working capital as of February 28, 2022 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 related party to fund operating expenses.
In light of management’s efforts, 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
During
the fiscal year ended August 31, 2021, Cayo Ventures GmbH (“Cayo”), a related party, advanced a total of $1,216,420
to the Company. Cayo is owned by the former majority shareholder and former officer, Mr. Yves Toelderer. On June 07, 2021 and
June 08, 2021, the Company issued convertible notes in the amount of $696,000 and $441,000 to two unrelated parties, in exchange
for their assumption of related party loans owed to Cayo for the same amounts. There was no gain or loss on extinguishment recorded
on the old Cayo Venture loan. During the six months ended February 22, 2022 and 2021, Cayo Ventures advanced the Company a total
of $258,371 and $810,557, respectively. As of February 22, 2022 and August 31, 2021, the Company owed a total of $685,822 and
427,451, respectively, to Cayo, which includes $2,833 owed to Yves Toelderer. These loans are unsecured, non-interest bearing
and due on demand.
On
June 1, 2020, the Company entered into services agreement with Mr. Wolfgang Tippner, 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 six months ended February 22, 2022 and August 31, 2020, a total of $0 has been paid to Mr.
Tippner, respectively. As of February 22, 2022 and August 31, 2021, $120,000 in accrued compensation remains outstanding.
On
July 1, 2020, the Company entered into a service agreement with Mr. Patrick Burkert, 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. None of the bonus has been earned to date. Mr. Patrick Burkert
resigned as a member of the Board of Directors on February 12, 2021. During the six months ended February 22, 2022 and 2021,
a total of $0 and $38,794, respectively, has been paid to Mr. Burkert in cash compensation. As of February 22, 2021 and August
31, 2021, $0 in accrued cash compensation remains outstanding.
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 10. 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 six months ended February
22, 2022 a total of $43,992 has been paid to Mr. Salter in cash compensation. As of February 22, 2022 and August 31, 2021, $87,889
and $78,679 in accrued cash compensation remains outstanding, respectively. As of August 31, 2021, there was $0 earned or accrued
for a performance-based bonus. 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 1, 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. Salter on exercise of his options of $2,500. During the year
ended August 31, 2021, the Company recognized $31,331 of stock-based compensation expense for the options granted under this agreement.
On January 1, 2022, Mr. Salter resigned as head of business development and operations in Europe. During the six months ended
February 28, 2022 a total of $26,480 in cash compensation was paid to Mr. Salter under this agreement, and $23,558 of stock options
were granted.
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, 2021. The agreement calls for cash compensation in the amount of $3,000 per month to be paid monthly. During
the six months ended February 28, 2022 a total of $18,000 has been paid to Mr. Beckles in cash compensation. As of February 28,
2022 and August 31, 2021, $4,500 and $4,500 unpaid cash compensation is outstanding, respectively.
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. During the six months ended February 28, 2022 a total of $114,965 was earned
and $10,800 was paid to Mr. Johnson and $270,000 in stock based compensation has been earned but not issued to Mr. Johnson
to date. As of February 28, 2022, there was $0 earned or accrued for the incentive-based bonus. As of February 28, 2022 and
August 31, 2021, $104,165 and $20,833 unpaid cash compensation is outstanding, respectively. As of February 28, 2022, Mr. Johnson
is owed $30,103 in Company related expenses. This loan has no maturity and is non interest bearing.
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 based on the present value of the minimum rental payments.
Operating
Lease Obligations
On
August 1, 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 OneCoWork. The lease calls for rent payments of €2,340 plus VAT in monthly payments. The lease
begins August 01, 2019, is month to month with a six month permanency clause, of which management intends to renew. On April 30,
2021, the Company terminated this six person office lease and it was not renewed. As a result of the early termination of this
lease, the Company wrote off $6,842 in remaining operating lease obligation and right of use asset on April 30, 2021, in accordance
with ASC Topic 842.
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
begins April 20, 2020 is month to month with a six month permanency clause, of which management intends to renew. On April 30,
2021, the Company terminated this six-person office lease and it was not renewed. As a result of the early termination of this
lease, the Company wrote off $41,859 in remaining operating lease obligation on April 30, 2021, in accordance with ASC Topic 842.
On
December 1, 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 begins December 1, 2019, is month to month with a six month permanency clause, of which management intends
to renew. On April 30, 2021, the Company ended this nine person office lease and entered into an 8 person lease contract on May
1, 2021. As a result of the early termination of this lease, the Company wrote off $27,318 in remaining operating lease obligation
on April 30, 2021, in accordance with ASC Topic 842. This new lease calls for rent payments of €1,800 plus VAT in monthly
payments. In addition, the lease also includes the use of a flexible work desk for an additional €150 plus VAT. The lease
begins May 1, 2021, is month to month with no permanency clause, of which management intends to renew for 24 months. Management
has evaluated this new leasing arrangement and has classified this as an operating lease and has accounted for it as a separate
new lease contract due to the changes that were noted in this lease. The Company has elected to apply ASC Topic 842 to this lease,
because we intend to renew this lease for a term longer than 12 months. As a result of the adoption of ASC Topic 842, the Company
has recognized a right-of-use asset of $68,397 and operating lease liability of $68,397 on this lease. On November 07, 2021, the
Company terminated this eight-person office lease and it was not renewed. As a result of the early termination of this lease,
the Company wrote off $157,820 in remaining operating lease obligation on December 01, 2021, in accordance with “ASC Topic
842”.
On
October 06, 2021, the Company entered into an office lease for a one-person office space located at 100 Bayview Circle, Suite
100, New Port Beach, CA 92660 with INDUSTRIOUS NPB 100 BAYVIEW CIRCLE LLC. The lease calls for rent payments of $579 in monthly
payments. The lease begins October 07, 2021 is month to month with a six month permanency clause, of which management intends
to renew after at least two years.
On
November 17, 2021, the Company entered into an office lease for a nine-person office space located at Marina Port Vell Carrer
de l’Escar, 20, ES 08039 Barcelona Spain with Monday by Urbania. The lease calls for rent payments of €3,447 plus VAT
in monthly payments. The lease begins December 01, 2021 is month to month with a six month permanency clause, of which management
intends to renew after at least two years.
The
Company has recorded operating lease expense in the amount of $13,748 and $29,307 during the six months ended February 28, 2022
and February 29, 2021, respectively As of February 28, 2022, the Company had $124,510 ($55,743, August 31, 2021) in Right of Use
Asset and $124,510 (55,743, August 31, 2021) Operating lease liability. As of February 28, 2022, the discount rate for these
leases is 2.23% and the weighted average remaining term is 21 months.
Future
minimum operating lease payments at February 22, 2022 consist of:
| Summary of future minimum operating lease payments | |
| | |
| 2022 | |
$ | 31,485 | |
| 2023 | |
| 63,549 | |
| 2024 | |
| 14,583 | |
| Total
minimum lease payments | |
| 109,617 | |
| Less:
present value discount | |
| (1,089 | ) |
| Present
value of minimum lease payments | |
| 108,527 | |
| Current
portion of operating lease obligation | |
| 93,944 | |
| Operating
Lease obligation, less current portion | |
$ | 14,583 | |
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. On August 28, 2020, this loan was assigned to an unrelated third
party for the full amount of the loan. The loan is also unsecured, has not maturity and is non-interest. As of February 28, 2022
and August 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
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. During the second, third and fourth fiscal quarters ended August 31, 2021 the Company has
received tranches of $62,500, $45,000, $60,000, $110,000, $130,000, $83,000 and $48,100, 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 $45,000 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, the note in the amount of $48,100 matures on October
1, 2021 and the note in the amount of $83,000 matures on October 1, 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, the embedded conversion option of the notes issued under the September 22, 2020 issuances do not qualify
for derivative accounting under ASC 815-15, Derivatives and Hedging.
On
January 10, 2021 the holder of the note in the amount of $500,000 converted $500,000 of its note into 578,681 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
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.
On
June 7, 2021 and June 8, 2021, the Company issued convertible notes in the amount of $696,000 and $441,000 to two unrelated parties,
in exchange for their assumption of related party loans owed to Cayo for the same amounts. 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, the embedded conversion option does not qualify for derivative accounting
under ASC 815-15, Derivatives and Hedging.
On
January 4, 2022, the Company received $217,500 in exchange for a December 20, 2021 secured convertible note in the amount of $275,000
from an unrelated third party, This note, was issued with a $27,500 original issue discount, a $27,500 one time interest charge
and a $2,500 charge for legal fees. The note matures 12 months after the issuance date and bears a 10% interest rate. The note
is convertible at any time at a fixed price of $0.13 or the finalized price in a Reg A offering and in the event of default
notice a conversion price of $0.01 per share. Due to these provisions, this convertible notes not qualify for derivative accounting
under ASC 815-15, Derivatives and Hedging. In addition the Company issued to the note holder 2,750,000 common stock as commitment
shares as well as 1,100,000 warrants shares to purchase common stock at a exercise price of $0.25 per share. The Company
also recorded a discount totaling $217,500 consisting of the fair value of the warrants($24,919), the commitment shares($123,802)
and a beneficial conversion feature($68,779).
On
January 7, 2022, the Company received $143,166 in exchange for a December 22, 2021 secured convertible note in the amount of
$166,666 from an unrelated third party, This note, was issued with a $16,666 original issue discount, $3,333 one commission
charge and a $3,500 charge for legal fees. The note matures eight months from the date of issuance and bears a 5% interest
rate. The note is convertible at any time at a fixed price of $0.15 or the finalized price in a Reg A offering and in the
event of default notice a conversion price of $0.01 per share. Due to these provisions, the embedded conversion option does
not qualify for derivative accounting under ASC 815-15, Derivatives and Hedging. In addition the Company issued to the
note holder 1,810,145 common stock as commitment shares as well as 724,058 warrants shares to purchase common stock at a
exercise price of $0.25 per share. The Company also recorded a discount totaling $143,166 consisting of the fair value of the
warrants($24,919), the commitment shares($123,802) and a beneficial conversion feature($44,188).
A
summary of value changes to the notes for the six months ended February 28, 2022 is as follows:
| Summary of convertible notes | |
| | |
| Carrying
value of Convertible Notes at August 31, 2021 | |
$ | 1,613,556 | |
| New
principal | |
| 441,666 | |
| Total
principal | |
| 2,055,222 | |
| Less:
conversion of principal | |
| - | |
| Less:
discount related to fair value of the beneficial conversion feature | |
| 360,666 | |
| Less:
discount related to original issue discount | |
| 44,167 | |
| Less:
deferred financing fees | |
| | |
| Add:
amortization of discount and deferred financing fees | |
| 99,379 | |
| Carrying
value of Convertible Notes at February 28, 2022 | |
$ | 1,712,935 | |
As
of February 28, 2022, the was a total unamortized discount remaining in the amount of $281,672 with a remaining life of 470
days or 16 months. As of February 28, 2022, the if converted price on each convertible note was $0.13 to $0.17 and the if converted
number of shares totaled 26,266,912 common shares.
Warrants
One
January 20, 2022, The Company entered in common stock purchase warrant agreement with an unrelated party to purchase up to 1,750,000
warrant shares with an exercise price of $0.001 per share and valued at $317,641. These warrants may also be exercised, in whole
or in part, at such time by means of a cashless exercise in which the holder shall be entitled to receive a number of warrant
shares equal to the VWAP on the trading day immediately preceding the date of the applicable Notice of exercise and the exercise
price of this warrant and the number of warrant shares that would be exercised by means of cash. The warrants expire January 20,
2023.
One
January 20, 2022, The Company entered in common stock purchase warrant agreement with an unrelated party to purchase up to
1,750,000 warrant shares with an exercise price of $0.001 per share and valued at $317,641. These warrants may also be
exercised, in whole or in part, at such time by means of a cashless exercise in which the holder shall be entitled to receive
a number of warrant shares equal to the VWAP on the trading day immediately preceding the date of the applicable Notice of
exercise and the exercise price of this warrant and the number of warrant shares that would be exercised by means of cash.
The warrants expire January 20, 2023.
As
of February 28, 2022, the if converted number of common shares of these warrants totaled 2,750,000 shares of common stock.
NOTE
8 – COMMON STOCK
On
October 26, 2021, the Company issued 875,000 common shares to an unrelated third party vendor for marketing services valued at
$0.415 per share for a total $363,126.
On
November 12, 2021, the Company issued 1,055,556 common shares to an unrelated third party vendor for marketing services valued
at $0.36 per share for a total $380,000.
On
January 4, 2022, the Company received $217,500 in exchange for a December 20, 2021 secured convertible note in the amount of $275,000
from an unrelated third party, As part of the note agreement, the Company is required to issue to the note holder 2,750,000 common
stock as commitment shares.
On
January 7, 2022, the Company received $143,166 in exchange for a December 22, 2021 secured convertible note in the amount of $166,666
from an unrelated third party, As part of the note agreement, the Company is required to issue to the note holder 1,810,145
common stock as commitment shares as well as 724,058 warrants shares to purchase common stock at a exercise price of $0.25 per
share.
On
February 15, 2022, the Company filed a Reg 1A offering statement with the Securities and Exchange Commission (SEC) offering up
to 41,666,667 of common stock to investors at an overing price of $0.12 per share. During the period ending February 28, 2022,
the company received a total of $100,010 in common stock subscriptions for the aforementioned common stock.
As
of February 28, 2022, and August 31, 2020, a total of 58,271,539 and 51,780,838 shares of common stock were issued and outstanding,
respectively.
NOTE
9 – SHARE-BASED COMPENSATION
Stock
Options
During
the six months ended February 28, 2022, 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 six months ended February 28, 2022:
| Summary of Stock option activity | | |
| | | |
| | |
| | | |
Options
Outstanding | | |
Weighted-Average Exercise
Price | |
| Balance
as of August 31, 2021 | | |
| 175,000 | | |
$ | 0.10 | |
| Grants | | |
| 100,000 | | |
| 0.10 | |
| Exercised | | |
| - | | |
| - | |
| Forfeited | | |
| - | | |
| - | |
| Balance
as of February 28, 2022 | | |
| 275,000 | | |
$ | 0.10 | |
The
total share-based compensation expense in connection with issuance of stock options recognized during the six months ended February
28, 2022 was $23,558. 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 February
28, 2022:
| Summary of weighted average assumptions | |
| | |
| Expected term (years) | |
| 1.25 years | |
| Expected stock price volatility | |
| 110-195 | % |
| Weighted-average risk-free rate | |
| 0.10-0.20 | % |
| 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 February 28, 2022:
| Summary of stock option vested | |
| | | |
| | | |
| | |
| | |
Number
of Options | | |
Weighted-Average Remaining Contractual
Life (in
Years) | | |
Weighted-Average Exercise
Price | |
| Outstanding | |
| 275,000 | | |
| 0.09 | | |
$ | 0.10 | |
| Exercisable | |
| 275,000 | | |
| 0.09 | | |
$ | 0.10 | |
| Expected
to vest | |
| 0 | | |
| 0.09 | | |
$ | 0.10 | |
Restricted
Stock Awards
The
following summarizes the restricted stock activity for the six months ended February 28, 2022:
| Summary of restricted stock activity | | |
| | | |
| | |
| | | |
| | |
Weighted-Average | |
| | | |
Shares | | |
Exercise
Price | |
| Balance
as of August 31, 2021 | | |
| 450,000 | | |
$ | 1.25 | |
| Shares
of restricted stock granted | | |
| - | | |
| - | |
| Exercised | | |
| - | | |
| - | |
| Cancelled | | |
| - | | |
| 1.25 | |
| Balance
as of February 28, 2022 | | |
| 450,000 | | |
$ | 1.25 | |
| Schedule of restricted stock awards | |
| | | |
| | |
| | |
February 28, | | |
August 31, | |
| Number
of Restricted Stock Awards | |
2022 | | |
2021 | |
| Vested | |
| 450,000 | | |
| 450,000 | |
| Non-vested | |
| - | | |
| - | |
| | |
| 450,000 | | |
| 450,000 | |
As
of February 28, 2022 and August 31, 2021, there was unrecognized compensation cost of $0, related to non-vested share-based compensation,
respectively, which is expected to be recognized over the next year. In addition, none of the restricted share awards presented
above has been issued or outstanding as of February 28, 2022.
Warrants
One
January 20, 2022, The Company entered into two separate common stock purchase warrant agreement with an two unrelated third parties
to purchase up to 1,750,000 warrant shares each with an exercise price of $0.001 per share. The warrants totaling 3,500,000 shares
were valued at $635,282. These warrants may also be exercised, in whole or in part, at such time by means of a cashless exercise
in which the holder shall be entitled to receive a number of warrant shares equal to the VWAP on the trading day immediately preceding
the date of the applicable Notice of exercise and the exercise price of this warrant and the number of warrant shares that would
be exercised by means of cash. The warrants expire January 20, 2023.
NOTE
10 – SUBSEQUENT EVENTS
On
March 23, 2022, a third party investor exercise their warrants and the company received $1,750 in exchange for 1,750,000
shares of common stock. On March 29, 2022, a third party investor exercise their warrants and the company received
$1,740 in exchange for 1,750,000 shares of common stock. During the period March 01, 2022 thru April 28, 2022, the company
issued a total of 1,250,083 shares of common stock also received a total of $50,000 in cash from common stock subscriptions.
On
March 21, 2022, the Company entered into an employment agreement with Ms. Taylor Gripentrog, as an Assistant Director of Brand
Development. The agreement provides for a base salary of $34,000 per year and an annual incentive bonus equal to 30% of the base
salary. Ms. Gripentrog was also entitled to a signing of $2,000. In accordance with the terms of the employment agreement, Ms.
Gripentrog is to receive 22 days paid vacation as well as $69 per day for expenses.