UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017
or
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 333-179079
AIRBORNE WIRELESS NETWORK |
(Exact name of registrant as specified in its charter) |
Nevada |
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27-4453740 |
(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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4115 Guardian Street, Suite C, Simi Valley, California |
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93063 |
(Address of principal executive offices) |
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(Zip Code) |
(805) 583-4302
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES o NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x YES o NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
o |
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Accelerated filer |
x |
Non-accelerated filer |
o |
(Do not check if a smaller reporting company) |
Smaller reporting company |
o |
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Emerging growth company |
x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o YES x NO
The number of shares outstanding of each of the issuer’s classes of common stock, as of January 9, 2018, was 94,371,899.
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3 |
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Management’s Discussion and Analysis of Financial Condition or Plan of Operation |
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2 |
PART I - FINANCIAL INFORMATION
INTERIM FINANCIAL STATEMENTS
NOVEMBER 30, 2017
(UNAUDITED)
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Page |
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F-1 |
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F-2 |
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F-3 |
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F-4 |
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3 |
AIRBORNE WIRELESS NETWORK
(Unaudited)
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November 30, |
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August 31, |
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2017 |
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2017 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ | 164,293 |
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$ | 217,694 |
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Prepaid expenses and other assets |
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645,240 |
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285,284 |
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Total Current Assets |
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809,533 |
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502,978 |
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Property and equipment, net |
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31,716 |
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25,348 |
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Total Assets |
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$ | 841,249 |
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$ | 528,326 |
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Liabilities and Stockholders’ Equity (Deficit) |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ | 580,171 |
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$ | 421,749 |
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Accrued interest |
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27,153 |
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- |
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Convertible notes payable, net of unamortized debt discount of $658,308 and $0, respectively |
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1,931,817 |
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- |
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Derivative liabilities |
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3,253,221 |
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- |
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Total Current Liabilities |
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5,792,362 |
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421,749 |
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Total Liabilities |
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5,792,362 |
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421,749 |
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Commitments and Contingencies (note 10) |
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Stockholders’ Equity (Deficit) |
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Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding |
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- |
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- |
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Common stock, $0.001 par value, 350,000,000 shares authorized; 91,829,771 and 90,589,154 shares issued and outstanding as of November 30, 2017 and August 31, 2017, respectively |
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91,830 |
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90,589 |
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Additional paid-in capital |
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42,142,582 |
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37,144,817 |
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Accumulated deficit |
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(47,185,525 | ) |
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(37,128,829 | ) |
Total Stockholders’ Equity (Deficit) |
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(4,951,113 | ) |
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106,577 |
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Total Liabilities and Stockholders’ Equity (Deficit) |
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$ | 841,249 |
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$ | 528,326 |
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The accompanying notes are an integral part of these unaudited interim financial statements.
F-1 |
Table of Contents |
AIRBORNE WIRELESS NETWORK
(Unaudited)
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Three Months Ended, |
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November 30, |
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2017 |
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2016 |
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Revenue |
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$ |
- |
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$ |
- |
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Operating Expenses |
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Marketing and branding |
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1,089,280 |
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- |
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Depreciation |
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2,088 |
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- |
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General and administrative expenses |
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114,742 |
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85,497 |
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Management fees |
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- |
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11,635 |
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Professional fees |
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857,285 |
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208,733 |
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Research and development |
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285,889 |
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25,100 |
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Salaries and wages |
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229,215 |
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60,507 |
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Stock based compensation |
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5,962,525 |
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3,438,718 |
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Total operating expenses |
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8,541,024 |
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3,830,190 |
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Operating Loss |
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(8,541,024 |
) |
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(3,830,190 |
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Other expenses |
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Interest expense |
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(980,604 |
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(5 |
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Change in fair value of derivative liabilities |
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(535,068 |
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- |
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Total other expense |
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(1,515,672 |
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(5 |
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Net Loss |
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$ |
(10,056,696 |
) |
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$ |
(3,830,195 |
) |
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Net loss per common share – basic and diluted |
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$ |
(0.11 |
) |
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$ |
(0.05 |
) |
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Weighted average number of common shares outstanding |
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91,543,292 |
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75,136,448 |
The accompanying notes are an integral part of these unaudited interim financial statements.
F-2 |
Table of Contents |
AIRBORNE WIRELESS NETWORK
(Unaudited)
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Three Months Ended |
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November 30, |
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2017 |
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2016 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(10,056,696 |
) |
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$ |
(3,830,195 |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation |
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2,088 |
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- |
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Stock-based compensation |
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5,962,525 |
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3,438,718 |
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Amortization of debt discount included in interest expense |
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953,451 |
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- |
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Change in fair value of derivative liabilities |
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535,068 |
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- |
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(Increase) decrease in operating assets: |
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Prepaid expenses and other assets |
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(359,956 |
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(122,138 |
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Increase (decrease) in operating liabilities: |
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Accounts payable and accrued liabilities |
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158,422 |
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44,650 |
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Accrued interest |
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27,153 |
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- |
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Prepaid expenses and other assets |
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- |
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- |
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Net Cash Used in Operating Activities |
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(2,777,945 |
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(468,965 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Acquisition of property and equipment |
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(8,456 |
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(3,419 |
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Net Cash Used in Investing Activities |
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(8,456 |
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(3,419 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from related parties |
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- |
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39,615 |
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Proceeds from issuance of convertible notes |
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2,249,000 |
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- |
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Proceeds from issuance of common shares and warrants |
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484,000 |
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1,708,000 |
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Net Cash Provided by Financing Activities |
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2,733,000 |
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1,747,615 |
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Net increase (decrease) in cash and cash equivalents |
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(53,401 |
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1,275,231 |
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Cash and cash equivalents, beginning of period |
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217,694 |
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809 |
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Cash and cash equivalents, end of period |
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$ |
164,293 |
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$ |
1,276,040 |
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Supplemental cash flow information: |
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Cash paid for interest |
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$ |
- |
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$ |
5 |
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Cash paid for taxes |
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$ |
800 |
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$ |
800 |
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Non-cash financing transactions: |
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Original issuance discount and deferred financing cost |
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$ |
341,125 |
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$ |
- |
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Derivative liabilities recognized as debt discount |
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$ |
479,762 |
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$ |
- |
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Reclassification of derivative liability from additional paid in capital due to warrants |
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$ |
2,078,065 |
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$ |
- |
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Addition of new derivative liabilities recognized upon issuance of warrants |
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$ |
238,701 |
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$ |
- |
The accompanying notes are an integral part of these unaudited interim financial statements.
F-3 |
Table of Contents |
AIRBORNE WIRELESS NETWORK
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
NOVEMBER 30, 2017 AND 2016
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Airborne Wireless Network (the “Company”) is a Nevada corporation incorporated on January 5, 2011 under the name Ample-Tee. Effective on May 19, 2016, the Company’s corporate name was changed to Airborne Wireless Network. It is based in Simi Valley, California, USA. The Company’s fiscal year end is August 31.
We are an early stage company with the principal business strategy of developing, marketing and licensing a fully meshed, high-speed broadband airborne wireless network by linking commercial aircraft in flight. We call this network the “Infinitus Super HighwaySM” (“Infinitus”).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2017 are not necessarily indicative of the results that may be expected for the year ending August 31, 2018. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended August 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on November 14, 2017.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current year presentation.
Related Parties
We follow ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 9).
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of November 30, 2017 and August 31, 2017 the Company had $164,293 and $217,694 in cash and cash equivalents, respectively.
F-4 |
Table of Contents |
Intangible Assets
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other.” The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over 3 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
The Company issued 40 million shares of common stock for the acquisition of certain intellectual property. Due to the lack of readily available market information and that the shares represented approximately 54% of the outstanding common stock on issuance, the Company hired an independent third party firm to perform a valuation on the acquired intangible assets. It was determined that the intellectual property had no value because future economic benefit could not be determined.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, prepaid expense, deferred financing cost, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The Company adopted ASC Topic 820, Fair Value Measurements (““ASC Topic 820”“), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement
The following table summarizes fair value measurements by level at November 30, 2017, and August 31, 2017, measured at fair value on a recurring basis:
November 30, 2017 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Liabilities |
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Derivative Liabilities |
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$ | - |
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$ | - |
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$ | 3,253,221 |
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$ | 3,253,221 |
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August 31, 2017 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Liabilities |
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Derivative Liabilities |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
- |
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F-5 |
Table of Contents |
Research and Development Expenses
We follow ASC 730-10, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $285,889 and $25,100 were incurred for the three months ended November 30, 2017 and 2016, respectively.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Stock-based compensation of $5,962,525 and $3,438,718 were incurred for the three months ended November 30, 2017 and 2016, respectively.
Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
NOTE 3 – PREPAID EXPENSES
Prepaid expenses relate to prepayment made for future services in advance and will be expensed over time as the benefit of the services is received in the future, expected within one year.
Prepaid expenses consisted of the following at November 30, 2017 and August 31, 2017
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November 30, |
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August 31, |
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2017 |
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2017 |
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Legal and regulatory fees |
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$ | 57,073 |
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$ | 94,573 |
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Marketing and branding |
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579,967 |
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164,667 |
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Rent expense |
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8,200 |
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22,250 |
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Professional fees |
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- |
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3,794 |
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$ | 645,240 |
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$ | 285,284 |
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NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at November 30, 2017 and August 31, 2017:
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November 30, |
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August 31, |
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2017 |
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2017 |
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Trade Payables |
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$ | 552,277 |
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$ | 334,132 |
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Credit Card Payable |
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481 |
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56,501 |
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Payroll Liabilities |
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21,933 |
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25,636 |
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Other Payable |
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5,480 |
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5,480 |
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Total accounts payable and accrued liabilities |
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$ | 580,171 |
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$ | 421,749 |
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F-6 |
Table of Contents |
NOTE 5 – EQUITY
Authorized Stock
The Company is authorized to issue an aggregate of 350,000,000 common shares and 10,000,000 shares of preferred stock, each with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought.
Issuances
During the three months ended November 30, 2017, the Company issued 1,240,617 shares of common stock, as follows:
·
431,080 units for aggregate proceeds of $484,000. Each unit consisted of one share of common stock and one share purchase warrant. The warrants were valued at $519,649 using the Black-Scholes option valuation model. Each share purchase warrant is exercisable for a period range from one to five years from issuance, at a price range of $0.91 to $2.05 per share.
·
145,482 shares of common stock to strategic service providers, for services valued at $191,857.
·
30,000 shares of common stock to a consultant, for services valued at $38,500.
·
634,055 shares of common stock in conjunction with the issuance of convertible notes. The common shares were valued at $780,742 based on quoted market prices of the Company’s stock on date of share issuance.
As at November 30, 2017 and August 31, 2017, the Company had 91,829,771 and 90,589,154 shares of common stock issued and outstanding, respectively.
Warrants
The below table, summarizes warrant activity during the three months ended November 30, 2017 and the year ended August 31, 2017:
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Number of Shares |
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|
Weighted- Average Exercise Price |
| ||
Balances as of August 31, 2016 |
|
|
- |
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|
$ | - |
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Granted |
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4,229,998 |
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|
1.52 |
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Exercised |
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(1,152,000 | ) |
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1.25 |
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Forfeited |
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|
- |
|
|
|
- |
|
Balances as of August 31, 2017 |
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3,077,998 |
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|
$ | 1.63 |
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Granted |
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584,080 |
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|
1.75 |
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Exercised |
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|
- |
|
|
|
- |
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Forfeited |
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|
- |
|
|
|
- |
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Balances as of November 30, 2017 |
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3,662,078 |
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|
$ | 1.63 |
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F-7 |
Table of Contents |
The fair value of each warrant on the date of grant is estimated using the Black Scholes option valuation model. The following weighted-average assumptions were used for options granted during the three months ended November 30, 2017 and 2016:
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Three Months Ended November 30, |
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2017 |
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|
2016 |
| ||
Exercise price |
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$ |
0.83 - $3.25 |
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$ | 1.25 |
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Expected term |
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1 - 5 years |
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5.72 – 7.93 years |
| ||
Expected average volatility |
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176% - 189 |
% |
|
179% - 180 |
% | ||
Expected dividend yield |
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|
- |
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|
- |
|
Risk-free interest rate |
|
1.42% - 2.01 |
% |
|
1.17% - 1.83 |
% |
The following table summarizes information relating to outstanding and exercisable warrants as of November 30, 2017:
Warrants Outstanding |
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Warrants Exercisable |
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Weighted Average |
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Number |
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Remaining Contractual |
|
Weighted Average |
|
|
Number |
|
|
Weighted Average |
| ||||
of Shares |
|
|
life (in years) |
|
Exercise Price |
|
|
of Shares |
|
|
Exercise Price |
| ||||
|
3,662,078 |
|
|
2.24 years |
|
$ | 1.63 |
|
|
|
3,662,078 |
|
|
$ | 1.63 |
|
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at November 30, 2017, for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of November 30, 2017, the aggregate intrinsic value of warrants outstanding was approximately $34,356 based on the closing market price of $1.17 on November 30, 2017.
The Company determined that warrants qualify for derivative accounting, as a result of the issuance of the convertible note on September 15, 2017, which led to no explicit limit to the number of shares to be delivered upon future settlement of the conversion options. On September 15, 2017, the Company revalued the fair value on the 3,415,498 units of share purchase warrants granted prior to September 15, 2017 at $2,937,553 based on Black Scholes option valuation model and reclassified previously determined fair value of $2,078,065 on the date of grant for each warrant unit from additional paid-in capital to derivative liabilities, resulting in loss on warrants of $859,448 included in change in fair value of derivatives liabilities (see Note 8).
NOTE 6 – STOCK COMPENSATION PLANS
In the ordinary course of business, the Company may issue stock options to employees, officers and directors from time to time. Fair values of the stock option awards are based on the associated value of the services rendered, where reasonably determinable.
During the year ended August 31, 2016, the Company granted the following stock options:
· |
On August 7, 2016, the Company granted options to an employee to purchase 50,000 shares of our common stock at a price of $0.50 per share, that do not expire. The option had a value of $21,500. | |
· |
On August 19, 2016, the Company granted options to an employee to purchase an aggregate of 4,500,000 shares of our common stock at a price of $0.75 per share, with 1/3 of the shares vesting on August 19, 2017, $1.25 per share for 1/3 of the shares vesting on August 19, 2018, and $2.00 per share for 1/3 of the shares vesting on August 19, 2019. The options expire 5 years after the date of vesting, unless the employee is terminated pursuant to his employment agreement. The options had an aggregate value totaling $2,528,880. Total compensation cost expected to be recognized in future periods for unvested options at November 30, 2017 amounted to $785,223. During the three months ended November 30, 2017 and 2016, the Company charged to operations stock-based compensation expense of $175,136 and $385,298, respectively. |
F-8 |
Table of Contents |
During the year ended August 31, 2017, the Company granted the following stock options:
· |
On October 7, 2016, the Company granted options to an employee to purchase an aggregate of 4,500,000 shares of our common stock at a price of $0.75 per share for 1/3 of the shares vesting on October 7, 2017, $1.25 per share for 1/3 of the shares vesting on October 7, 2018, and $2.00 per share for 1/3 of the shares vesting on October 7, 2019. The options expire 5 years after the date of vesting, unless the employee is terminated pursuant to his employment agreement. The options had an aggregate value totaling $3,571,773. Total compensation cost expected to be recognized in future periods for unvested options at November 30, 2017 amounted to $1,242,238. During the three months ended November 30, 2017 and 2016, the Company charged to operations stock-based compensation expense of $368,050 and $322,927, respectively. | |
· |
On November 1, 2016, the Company granted options to an employee to purchase an aggregate of 4,500,000 shares of our common stock at a price of $0.75 per share for 1/3 of the shares vesting on November 1, 2017, $1.25 per share for 1/3 of the shares vesting on November 1, 2018, and $2.00 per share for 1/3 of the shares vesting on November 1, 2019. The options expire 5 years after the date of vesting, unless the employee is terminated pursuant to his employment agreement. The options had an aggregate value totaling $3,960,769. Total compensation cost expected to be recognized in future periods for unvested options at November 30, 2017 amounted to $1,452,885. During the three months ended November 30, 2017 and 2016, the Company charged to operations stock-based compensation expense of $498,563 and $192,311, respectively. | |
· |
On January 1, 2017, the Company granted options to an employee to purchase an aggregate of 3,750,000 shares of our common stock at a price of $1.25 per share for 1/3 of the shares vesting immediately on January 1, 2017, $1.75 per share for 1/3 of the shares vesting on January 1, 2018, and $2.50 per share for 1/3 of the shares vesting on January 1, 2019. The options expire 5 years after the date of vesting, unless the employee is terminated pursuant to his employment agreement. The options had an aggregate value totaling $5,143,711. Total compensation cost expected to be recognized in future periods for unvested options at November 30, 2017 amounted to $1,082,763. During the three months ended November 30, 2017, the Company charged to operations stock-based compensation expense of $641,202. | |
· |
On January 1, 2017, the Company granted options to an employee to purchase an aggregate of 50,000 shares of our common stock at a price of $1.25 per share vesting immediately on January 1, 2017. The options expire December 31, 2021, unless the employee is terminated pursuant to her employment agreement. The options had an aggregate value totaling $67,894. | |
· |
On February 1, 2017, the Company granted options to an employee to purchase an aggregate of 6,000,000 shares of our common stock at a price of $2.00 per share for 1/3 of the shares vesting on January 1, 2018, $2.75 per share for 1/3 of the shares vesting on January 1, 2019, and $3.25 per share for 1/3 of the shares vesting on January 1, 2020. The options expire 5 years after the date of vesting, unless the employee is terminated pursuant to his employment agreement. The options had an aggregate value totaling $11,134,303. Total compensation cost expected to be recognized in future periods for unvested options at November 30, 2017 amounted to $5,121,512. During the three months ended November 30, 2017, the Company charged to operations stock-based compensation expense of $1,811,801. |
· |
On July 31, 2017, the Company granted options to an employee to purchase an aggregate of 5,000,000 shares of our common stock at a price of $2.00 per share for 1/4 of the shares vesting immediately on July 31, 2017, $2.25 per share for 1/4 of the shares vesting on January 1, 2018, $2.50 per share for 1/4 of the shares vesting on January 1, 2019 and $2.75 per share for 1/4 of the shares vesting on January 1, 2020. The options expire 5 years after the date of vesting, unless the employee is terminated pursuant to his employment agreement. The options had an aggregate value totaling $9,436,160. Total compensation cost expected to be recognized in future periods for unvested options at November 30, 2017 amounted to $4,328,168. During the three months ended November 30, 2017, the Company charged to operations stock-based compensation expense of $2,050,448. |
F-9 |
Table of Contents |
Stock option activity during the three months ended November 30, 2017 and the year ended August 31, 2017 were as follows:
|
|
Options Outstanding |
| |||||||||||||
|
|
Number of |
|
|
Weighted- Average Exercise Price |
|
|
Fair Value on |
|
|
Intrinsic |
| ||||
Balances as of August 31, 2016 |
|
|
4,550,000 |
|
|
$ | 1.32 |
|
|
$ | 2,550,380 |
|
|
$ | 663,500 |
|
Granted |
|
|
23,800,000 |
|
|
|
1.97 |
|
|
|
33,314,610 |
|
|
|
- |
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balances as of August 31, 2017 |
|
|
28,350,000 |
|
|
$ | 1.86 |
|
|
$ | 35,864,990 |
|
|
$ | 663,500 |
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balances as of November 30, 2017 |
|
|
28,350,000 |
|
|
$ | 1.86 |
|
|
$ | 35,864,990 |
|
|
$ | 663,500 |
|
The following table summarizes information relating to exercisable stock options as of November 30, 2017:
Options Exercisable |
||||||
|
|
|
|
| ||
Number |
|
|
Weighted Average |
| ||
of Shares |
|
|
Exercise Price |
| ||
|
4,100,000 |
|
|
$ | 1.29 |
|
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the stock options at November 30, 2017. As of November 30, 2017, the aggregate intrinsic value of stock options outstanding was approximately $1,923,500 based on the closing market price of $1.17 on November 30, 2017.
Weighted-average grant-date fair value for non-vested stock options as of November 30, 2017 and August 31, 2017 were listed as follows:
|
|
|
|
|
Weighted-Average |
| ||
|
|
|
|
|
Grant Date |
| ||
|
|
|
|
|
Fair Value |
| ||
|
|
Shares |
|
|
Per Share |
| ||
Unvested, August 31, 2016 |
|
|
4,500,000 |
|
|
$ | 0.55 |
|
Granted |
|
|
23,800,000 |
|
|
|
1.40 |
|
Vested |
|
|
(4,050,000 | ) |
|
|
4.01 |
|
Forfeited |
|
|
- |
|
|
|
- |
|
Unvested, August 31, 2017 |
|
|
24,250,000 |
|
|
$ | 0.81 |
|
Granted |
|
|
- |
|
|
|
- |
|
Vested |
|
|
(3,000,000 | ) |
|
|
1.85 |
|
Forfeited |
|
|
- |
|
|
|
- |
|
Unvested, November 30, 2017 |
|
|
21,250,000 |
|
|
$ | 0.66 |
|
F-10 |
Table of Contents |
The aggregate fair value of stock options vested during the three months ended November 30, 2017 and the year ended August 31, 2017 were $5,545,200 and $16,234,693, respectively. As of November 30, 2017, the total unrecognized compensation cost related to unvested stock options was $14,012,789, which is expected to be recognized in the future periods.
The fair value of each option on the date of grant is estimated using the Black Scholes option valuation model. The following weighted-average assumptions were used for options granted during the nine months ended November 30, 2017 and 2016:
|
|
Three Months Ended |
| |||||
|
|
November 30, |
| |||||
|
|
2017 |
|
|
2016 |
| ||
Expected term |
|
4.09 - 6.48 years |
|
|
1 year |
| ||
Expected average volatility |
|
177%-183 |
% |
|
196% - 203 |
% | ||
Expected dividend yield |
|
|
- |
|
|
|
- |
|
Risk-free interest rate |
|
1.17% - 2.25 |
% |
|
0.56% - 0.81 |
% |
NOTE 7 – CONVERTIBLE NOTES
The Company had the following convertible notes payable outstanding as of November 30, 2017 and August 31, 2017:
|
|
November 30, |
|
|
August 31, |
| ||
|
|
2017 |
|
|
2017 |
| ||
Convertible Notes - originated in September 2017 |
|
$ | 1,660,000 |
|
|
$ | - |
|
Convertible Notes - originated in October 2017 |
|
|
730,125 |
|
|
|
- |
|
Convertible Notes - originated in November 2017 |
|
|
200,000 |
|
|
|
- |
|
Less debt discount and debt issuance cost |
|
|
(658,308 | ) |
|
|
- |
|
|
|
|
1,931,817 |
|
|
|
- |
|
Less current portion of convertible notes payable |
|
|
(1,931,817 | ) |
|
|
- |
|
Long-term convertible notes payable |
|
$ | - |
|
|
$ | - |
|
The Company recognized amortization expense related to the debt discount and deferred financing fees of $953,451 and $0 for the three months ended November 30, 2017 and 2016, respectively, which is included in interest expense in the statements of operations.
Convertible Notes – Issued during the three months ended November 30, 2017
During the three months ended November 30, 2017, the Company issued a total of $2,590,125 convertible notes with cash proceeds of $2,249,000, original issuance discount of $250,875 and financing fees of $90,250. The convertible notes were also provided with a total of 634,055 common shares and warrant units to purchase up to 78,000 shares of common stock at $1.75 exercise price. The terms of convertible notes are summarized as follows:
·
Term ranging from six months to one year;
·
Annual interest rates ranging from 0% to 12%;
F-11 |
Table of Contents |
·
Convertible at the option of the holders either at issuance or 180 days from issuance; and
·
Conversion prices are typically based on the discounted (70% discount) lowest trading prices of the Company’s shares during 20-25 days prior to the conversion, resulting in debt discount comprising derivative liabilities of $479,762 (see Note 8).
For the three months ended November 30, 2017 and 2016, the interest expense on convertible notes was $27,153 and $0, respectively. As of November 30, 2017 and August 31, 2017, the accrued interest payable was $27,153 and $0, respectively.
NOTE 8 – DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company accounts for warrants as a derivative liability due to there being no explicit limit to the number of shares to be delivered upon settlement of all conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of November 30, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in November 30, 2017 and August 31, 2017:
|
|
Three Months November 30, |
|
|
Year Ended August 31, |
| ||
Expected term |
|
0.01- 4.92 years |
|
|
|
- |
| |
Expected average volatility |
|
74% - 350 |
% |
|
|
- |
| |
Expected dividend yield |
|
|
- |
|
|
|
- |
|
Risk-free interest rate |
|
0.98%-2.14 |
% |
|
|
- |
|
The following table summarizes the derivative liabilities included in the balance sheet at November 30, 2017:
Fair Value Measurements Using Significant Observable Inputs (Level 3) |
| |||
Balance - August 31, 2017 |
|
$ |
- |
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discounts |
|
401,387 |
| |
Addition of new derivative liabilities recognized as day one loss on derivatives from convertible notes |
|
140,251 |
| |
Addition of new derivative liabilities from reclass of warrants from additional paid in capital |
|
2,078,065 |
| |
Addition of new derivative liabilities recognized upon issuance of warrants |
|
238,701 |
| |
Addition of new derivative liabilities recognized as day one loss on derivatives from warrants |
|
859,488 |
| |
Gain on change in fair value of the derivative liabilities |
|
(464,671 |
) | |
Balance – November 30, 2017 |
|
$ |
3,253,221 |
F-12 |
Table of Contents |
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes and warrants that became convertible as of November 30, 2017 amounted to $3,253,221. During the three months ended November 30, 2017, $401,387 of the value assigned to the derivative liability was recognized as a debt discount to the convertible notes, $140,251 was recognized as a “day 1” derivative loss on convertible notes, $2,078,065 of new derivative liabilities recognized from reclass of additional paid in capital, $238,701 of new derivative liabilities was recognized upon issuance of warrants, $859,488 was recognized as a “day 1” derivative loss on warrants, and $464,671 was recorded as gain on change in fair value of derivative liability, respectively.
The following table summarizes the loss on derivative liability included in the income statement for the three months ended November 30, 2017 and 2016, respectively.
|
Three Months Ended |
|||||||
|
November 30, |
|||||||
|
2017 |
|
2016 |
| ||||
Day one loss due to derivative liabilities on convertible notes and warrants |
|
$ |
999,739 |
|
$ |
- |
| |
Gain on change in fair value of the derivative liabilities |
|
(464,671 |
) |
|
- |
| ||
Loss on change in the fair value of derivative liabilities |
|
$ |
535,068 |
|
$ |
- |
NOTE 9 – RELATED PARTY TRANSACTIONS
On February 1, 2017, the Company paid $49,200 for housing occupied by our Chief Executive Officer (see Note 10).
During the three months ended November 30, 2017 and 2016, the Company incurred management fees of $0 and $11,635, respectively, to directors and officers of the Company.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Anti-Dilution Agreements
Pursuant to our agreement with Air Lease Corporation entered into in January 2017, in consideration of the services to be provided by Air Lease Corporation, we issued to Air Lease Corporation 7,700,000 shares of common stock representing 10% of our common stock outstanding at that date. The agreement with Air Lease Corporation provides full ratchet anti-dilution protection to Air Lease Corporation. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Air Lease Corporation without further consideration additional shares of our common stock or other class or series of capital stock so that Air Lease Corporation will continue to own 10% of the outstanding shares of common stock and each other class or series of capital stock. Through November 30, 2017, we had issued 8,665,140 shares of common stock to Air Lease Corporation and were obligated to issue an additional 518,658 shares of common stock.
Pursuant to our agreement with Jet Midwest Group entered into in October 2016, in consideration of the services to be provided by Jet Midwest Group, we issued to Jet Midwest Group 1,250,000 shares of common stock representing 1.6% of our common stock outstanding at that date. The agreement with Jet Midwest Group provides full ratchet anti-dilution protection to Jet Midwest Group. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Jet Midwest Group without further consideration additional shares of our common stock or other class or series of capital stock so that Jet Midwest Group will continue to own 1.6% of the outstanding shares of common stock and each other class or series of capital stock. Through November 30, 2017, we had issued 1,250,000 shares of common stock to Jet Midwest Group and were obligated to issue an additional 219,508 shares of common stock.
F-13 |
Table of Contents |
Consulting agreement
On July 31, 2017, the Company engaged Brighton Capital, Ltd. (“Brighton”), for a three (3) year term, to render strategic advisory services. Pursuant to our agreement with Brighton, in consideration of the services to be provided by Brighton, we are to issue 410,000 shares of common stock and 1,000,000 warrants over a three year term. We issued 50,000 shares of common stock and 100,000 warrants upon execution of this agreement, and are to issue 10,000 shares of common stock and 25,000 warrants per month for thirty-six (36) months, with the first issuance beginning August 1, 2017. Through November 30, 2017, we had issued 90,000 shares of common stock and 200,000 warrants to Brighton. The warrants, as issued, shall immediately vest and have a term of five (5) years with an exercise price of $1.90. The warrants will have a cashless feature if the shares underlying the warrants are not effective for resale by March 1, 2018.
Other
On August 3, 2016, we acquired from Apcentive, Inc. (“Apcentive”) all of Apcentive’s right, title and interest in and to U.S. Patent No. 6,285,878 B1 and all related supporting materials, continuations, amendments, updates and contemplated updates and amendments and the trademark “Infinitus Super HighwaySM.” In consideration for the patent and the trademark, we issued a number of shares of our common stock to Apcentive and agreed to pay Apcentive a future royalty equal to 1.5% of the net cash we receive from the promotion, marketing, sale, licensing, distribution and other exploitation of the patent. We are further required to issue an additional 20 million shares of common stock to Apcentive if we do not spend, on matters relating to the patent and trademark, a cumulative total of $5 million on or before August 3, 2019. The purchase agreement requires that we spend at least $1 million on or before August 3, 2017 (which goal has been met), a total of at least $2 million on or before August 3, 2018 and a total of at least $5 million on or before August 3, 2019. As of November 30, 2017, the Company has not made a contingency for these events.
Lease Commitment
In June 2016, we signed a lease agreement that commenced on July 1, 2016 for our corporate office headquarters with approximately 1,500 sq ft., at 4115 Guardian Street, Simi Valley, California 93063. The lease expired on August 31, 2017 and our monthly rent was $1,750 (plus HVAC charges), payable in equal monthly installments. In August 2017, the lease was extended by two years commencing September 1, 2017 at $1,803 per month (plus HVAC charges) for the first year and $1,857 per month (plus HVAC charges) for the second year.
On February 1, 2017, the Company signed an operating lease for a residence to be used by our Chief Executive Officer, located in Moorpark, California. The lease term commenced on February 1, 2017 and expires on January 31, 2018. Our monthly rent is $4,100, payable in equal monthly installments. On February 1, 2017, the Company prepaid the $49,200, for the full term of the lease. As at November 30, 2017, we recognized $8,200 as a prepaid expense.
Total net rent expense related to our operating leases for the three months ended November 30, 2017 and 2016, was $5,355 and $5,250 respectively.
Future minimum payments under the non-cancelable portion of our operating leases as of November 30, 2017 are as follows:
Year ending August 31, |
|
|
| |
2018 |
|
$ | 36,727 |
|
2019 |
|
|
22,284 |
|
2020 |
|
|
- |
|
2021 |
|
|
- |
|
2022 |
|
|
- |
|
Thereafter |
|
|
- |
|
Total |
|
$ | 59,011 |
|
F-14 |
Table of Contents |
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to November 30, 2017 and through the date that these financials were made available, the Company had the following subsequent events:
We issued units consisting of an aggregate of 528,950 shares of common stock and warrants to purchase 528,950 shares of common stock, exercisable for three years from issuance at a price range of $0.81 to $1.10 per share, for aggregate gross proceeds of $359,498.
We issued 1,482,200 shares of common stock upon the exercise of warrants for proceeds of $963,430. We subsequently issued 1,482,200 replacement warrants, exercisable for three years from issuance at exercise price of $0.81.
We issued convertible notes with an aggregate principal amount of $1,300,975. The Convertible Notes were issued with maturity dates ranging from six months to one year, annual interest rates of 0% to 8% and conversion prices equal to 70% of the lowest trading price of the Company’s Common Stock for the 25 days prior to the conversion date. In conjunction with these convertible notes, the Company issued 223,722 shares of common stock and warrants to purchase 18,000 shares of common stock, exercisable in five years at $1.75 per share.
Pursuant to our agreement with Brighton Capital, Ltd. (see Note 10), we issued 20,000 shares of common stock and a total of 50,000 warrants at an exercise price of $1.90 per share for a term of five years.
Pursuant to our agreement with Air Lease Corporation, we are now obligated to issue an additional 375,717 shares of common stock through January 4, 2018, after issuing 393,512 shares on December 15, 2017.
Pursuant to our agreement with Jet Midwest Group, we are now obligated to issue an additional 57,021 shares of common stock through January 4, 2018, after issuing 199,172 shares on December 15, 2017.
On December 28, 2017, the Company appointed Kevin L. Spence as its Chief Financial Officer, effective January 1, 2018. Pursuant to his employment agreement, the Company agreed to grant stock options to purchase at least 1,750,000 shares of the Company’s common stock on the effective date of the Employment Agreement, and on January 15 of each of 2018, 2019 and 2020, so long as he remains employed by the Company on those dates, at a per share exercise price of $0.01 above the closing price of the Company’s common stock for the January 2018 grant, $1.75 for the January 2019 grant and $2.50 for the January 2020 grant, in each case in accordance with the Company’s policies in effect from time to time and subject to approval of the board of directors.
On December 30, 2017, the Company expanded the size of its board of directors from two members to six, and elected Samuel Gulko, Karen Laustsen, James H. Leach and James C. Witham (the “new directors”) to fill the newly created vacancies on the Company’s board of directors, effective on such date. Also on December 30, 2017, the Company’s board of directors created three new committees of the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. In connection with the election of the new directors, Messrs. Gulko, Leach and Witham were appointed to serve on the audit committee, Ms. Laustsen and Messrs. Gulko and Leach were appointed to serve on the compensation committee and Messrs. Gulko, Leach and Witham were appointed to serve on the nominating and corporate governance committee. Each new director will receive an annual grant of an option to purchase 100,000 shares of the Company’s common stock, which such initial options having an exercise price equal to $1.98 per share and being fully vested and exercisable as of the grant date.
F-15 |
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. All statements other than statements of historical or current facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, proposed new products and services, research and development costs, granting of regulatory approvals, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products and services, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “would,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, and except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, prospective investors should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in, or implied by, the forward-looking statements due to a variety of factors, including, but not limited to:
|
· |
our financial performance, including our history of operating losses; |
|
· |
our ability to obtain additional funding to continue our operations; |
|
· |
our ability to successfully develop, implement and commercialize the Infinitus Super HighwaySM (“Infinitus”); |
|
· |
our ability to enter into agreements with airlines that permit us to install our equipment on their aircraft; |
|
· |
our ability to enter into agreements with potential customers and purchasers; |
|
· |
changes in the regulatory environments of the United States and other countries in which we intend to operate; |
|
· |
our ability to attract and retain key management and other personnel; |
|
· |
competition from new market entrants and new technologies; |
|
· |
our ability to identify and pursue development of appropriate products; and |
|
· |
risks, uncertainties and assumptions described under Section 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017 and in any subsequent filings with the Securities and Exchange Commission (the “SEC”) and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this quarterly report. |
Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events or otherwise, except as required by law. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. We qualify all of our forward-looking statements by these cautionary statements.
4 |
Table of Contents |
As used in this quarterly report, the terms the “Company,” “we,” “us,” and “our” refer to Airborne Wireless Network, a Nevada corporation.
The Company
Airborne Wireless Network was formed as a Nevada corporation on January 5, 2011, with the name “Ample-Tee” to engage in the business of promoting, marketing, selling, and distributing hard to find ergonomic products for the physically disabled.
On October 20, 2015, our current President, Treasurer and Secretary, J. Edwards Daniels, acquired control of the Company by purchasing from Lawrence Chenard, our former president, 84,400,000 shares of our common stock for a purchase price of $250,000 (80,000,000 of which shares were delivered by Mr. Daniels to the Company for cancellation without consideration in August 2016).
On May 19, 2016, we changed our name to “Airborne Wireless Network” to better align our name with our intention to develop and deliver next generation global connectivity.
On August 3, 2016, we acquired from Apcentive, Inc. (“Apcentive”) all of Apcentive’s right, title and interest in and to U.S. Patent No. 6,285,878 B1 and all related support materials, continuations, amendments, updates and contemplated updates and amendments and the trademark “Infinitus Super Highway.” In exchange for that patent and trademark, we issued to Apcentive a number of shares of our common stock and agreed to pay Apcentive a future royalty equal to 1.5% of the net cash we receive from the promotion, marketing, sale, licensing, distribution and other exploitation of that patent.
We are an early stage company with the principal business strategy of developing, marketing and licensing a fully meshed, high-speed broadband airborne wireless network by linking aircraft in flight. We call this network the “Infinitus Super Highway.” To our knowledge, no fully meshed commercial broadband airborne network exists in the world today.
We expect that Infinitus will provide a broadband wireless communication infrastructure by using and modifying existing, small, lightweight, low-power relay station equipment and antennae that will be installed onboard aircraft. Each equipped aircraft would have a broadband wireless communication link to one or more neighboring aircraft and/or ground stations. These aircraft would form a chain of seamless airborne repeaters or routers providing broadband wireless communication gateways along the entire flight path, essentially creating a digital superhighway in the sky. If a link was interrupted, the signal would be redirected to the next participating aircraft or ground station in the chain -- in other words, there would be multiple, simultaneous data connections and thus the system would not rely on a single link.
We intend to act as a wholesale carrier, licensing our bandwidth to, among others, data service providers (such as major telecommunications companies and other Internet service providers) that provide broadband services to end users, to government agencies and to companies that desire a more robust private broadband network. We do not plan to license or sell Infinitus directly to consumers. We anticipate that Infinitus will enable our future customers to minimize their infrastructure development time and costs, and increase the reliability of their broadband communications systems.
Our principal executive office is located at 4115 Guardian Street, Suite C, in Simi Valley, California 93063 and our telephone number is (805) 583-4302. Our fiscal year end is August 31.
Results of Operations
The following summary of our results of operations should be read in conjunction with our financial statements included elsewhere in this quarterly report.
To date, we have not earned any revenue from operations.
5 |
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Three Months Ended November 30, 2017 and 2016
Our operating results for the three months ended November 30, 2017 and 2016, and the changes between those periods for the respective items, are summarized as follows:
|
Three Months Ended |
|||||||||||
|
November 30, |
| ||||||||||
Statement of Operations Data: |
|
2017 |
|
2016 |
|
Change |
||||||
| ||||||||||||
Revenue |
|
$ |
- |
|
$ |
- |
|
$ |
- |
| ||
Total operating expenses |
|
8,541,024 |
|
3,830,190 |
|
4,710,834 |
| |||||
Other expenses |
|
1,515,672 |
|
5 |
|
1,515,667 |
| |||||
Net loss |
|
$ |
10,056,696 |
|
$ |
3,830,195 |
|
$ |
6,226,501 |
We did not earn revenue for the three months ended November 30, 2017 or 2016.
We incurred a net loss of $10.1 million for the three months ended November 30, 2017 as compared to a net loss of $3.8 million for the same period in 2016. The increase in net loss was due to an increase in operating expenses and other expenses. The increase in operating expenses was mainly attributed to the development of Infinitus starting in August 2016, stock-based compensation expense relates to common stock and warrants issued to consultants and debt holders, and professional fees for consulting, legal and accounting services. The increase in other expenses relates to change in fair value on derivative liabilities and interest expense from the issuance of convertible notes during the three months ended November 30, 2017.
We expect that operating costs will continue to be incurred at an elevated level in future periods as we continue to develop Infinitus.
Our operating expenses for the three months ended November 30, 2017 and 2016, and the changes between those periods for the respective items, are summarized as follows:
|
Three Months Ended |
|||||||||||
|
November 30, |
| ||||||||||
Operating Expenses: |
|
2017 |
|
2016 |
|
Change |
||||||
| ||||||||||||
Marketing and branding |
|
$ |
1,089,280 |
|
$ |
- |
|
$ |
1,089,280 |
| ||
Depreciation |
|
2,088 |
|
- |
|
2,088 |
| |||||
General and administrative expenses |
|
114,742 |
|
85,497 |
|
29,245 |
| |||||
Management fees |
|
- |
|
11,635 |
|
(11,635 |
) | |||||
Professional fees |
|
857,285 |
|
208,733 |
|
648,552 |
| |||||
Research and development |
|
285,889 |
|
25,100 |
|
260,789 |
| |||||
Salaries and wages |
|
229,215 |
|
60,507 |
|
168,708 |
| |||||
Stock-based compensation |
|
5,962,525 |
|
3,438,718 |
|
2,523,807 |
| |||||
Total operating expenses |
|
$ |
8,541,024 |
|
$ |
3,830,190 |
|
$ |
4,710,834 |
The principal reason for the increase in operating expenses was $5.9 million of stock-based compensation expenses incurred in the 2017 period compared to $3.4 million of stock-based compensation expenses incurred in the 2016 period. In the three months ended November 30, 2017, stock compensation expense included: (i) $165,000 in connection with the issuance of 125,146 shares of common stock to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $27,000 in connection with the issuance of 20,336 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; (iii) $39,000 in connection with the issuance of 30,000 shares of common stock and $94,000 in connection with the issuance of 75,000 shares of warrants to Brighton Capital Ltd. pursuant to our consulting agreement with that company; (iv) $5.5 million with respect to employee stock options; and (v) $93,000 in connection with the issuance of 118,580 shares of warrants to consultants. In the three months ended November 30, 2016, stock compensation expense attributed to $3.4 million from employee stock options.
6 |
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Marketing and branding expenses incurred relate to television and print advertising for branding purposes. During the three months ended November 30, 2017, the Company has increased its advertising and branding efforts and incurred $1.1 million advertising and branding expense; whereas, there were no such expenses incurred by the Company during the three months ended November 30, 2016.
Professional fees include fees to consultants, investor relations, and legal, accounting and compliance fees for our audit, SEC filings, securities offerings and contracts. During the three months ended November 30, 2017, the professional fees were $857,000 compared to $209,000 for the comparative period. The increase in professional fees mainly attributed to the increase in consulting fees related to business, strategic and software development and legal fees related to private placement and public offerings.
Research and development expenses incurred relate to the development of Infinitus starting in August 2016. During the three months ended November 30, 2017, research and development expense was $286,000, as compared to $25,000 during the same period in 2016.
General and administrative expenses include office, shipping, entertainment, travel, insurance and other miscellaneous expenses.
Our other expenses for the three months ended November 30, 2017 and 2016, and the changes between those periods for the respective items, are summarized as follows:
|
Three Months Ended |
|||||||||||
|
November 30, |
| ||||||||||
Other Expenses |
|
2017 |
|
2016 |
|
Change |
||||||
| ||||||||||||
Interest expense |
|
$ |
980,604 |
|
$ |
5 |
|
$ |
980,599 |
| ||
Change in fair value of derivative liabilities |
|
535,068 |
|
- |
|
535,068 |
| |||||
Total other expenses |
|
$ |
1,515,672 |
|
$ |
5 |
|
$ |
1,515,667 |
During the three months ended November 30, 2017, the Company has incurred $1,515,672 other expenses which include loss on change in fair value of derivative liabilities of $535,068 and interest expense of $980,604. The loss on change in fair value of derivative liabilities related to increase in the fair value of warrants and convertible notes calculated using Black Scholes option model and recorded as a derivative liability. The interest expense includes amortization of debt discount and interest incurred on convertible notes issued during the three months ended November 30, 2017. For the three months ended November 30, 2016, other expense only includes $5 interest expense.
7 |
Table of Contents |
Liquidity and Capital Resources
November 30, 2017 and August 31, 2017
|
|
November 30, |
|
|
August 31, |
| ||
Balance Sheet Data: |
|
2017 |
|
|
2017 |
| ||
|
|
|
|
|
|
| ||
Cash |
|
$ | 164,293 |
|
|
$ | 217,694 |
|
Working capital (deficiency) |
|
$ | (4,982,829 | ) |
|
$ | 81,229 |
|
Total assets |
|
$ | 841,249 |
|
|
$ | 528,326 |
|
Total liabilities |
|
$ | 5,792,362 |
|
|
$ | 421,749 |
|
Total stockholders’ equity (deficit) |
|
$ | (4,951,113 | ) |
|
$ | 106,577 |
|
Because we have not generated any revenues, we depend on proceeds from the sales of securities and loans to finance our operations. During the three months ended November 30, 2017, we relied primarily on proceeds from the issuances of securities, including the following: (i) $484,000 from the issuance of units that included an aggregate of 431,080 shares of common stock and warrants to purchase an additional 431,080 shares of common stock that expire in one to five years from the sale date at prices ranging from $0.91 to $2.05 per share; and (ii) $2.2 million from the issuance of convertible notes.
Accordingly, we must obtain additional financing to continue operations at our current level. We believe that we will be able to secure additional private and public financing in the future. We can give no assurance that we can obtain any additional financing, or if such financing is available, it would be available on terms generally as favorable as terms of recent financings.
Subsequent to November 30, 2017, we obtained $2,079,150 in additional capital. We issued units consisting of an aggregate of 528,950 shares of common stock and warrants to purchase 528,950 shares of common stock, exercisable for three years from issuance at a price range of $0.81 to $1.10 per share, for aggregate gross proceeds of $359,498. We issued 1,482,200 shares of common stock for the exercise of warrants for proceeds of $963,430. We then issued 1,482,200 replacement warrants, exercisable for three years from issuance at exercise price of $0.81. In addition, we issued convertible notes in the total amount of $1,300,975 which provides cash proceeds of $1,112,500. The Convertible Notes have maturity dates ranging from six months to one year, annual interest rate at 0% to 8% and a conversion price equal to 70% of the lowest trading price of the Company’s Common Stock for the 25 days prior to the conversion. In conjunction with these convertible notes, the Company issued 223,722 shares of common stock and warrants to purchase 18,000 shares of common stock, exercisable in five years at $1.75 per share.
Unless we are able to raise additional capital or begin to generate sufficient revenues to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to cease operations if additional financing is not available. In addition to our burn rate and ongoing research and development expenses, we anticipate expending significant funds in connection with an upcoming two-plane test utilizing two Cessnas (or equivalent planes) installed with Infinitus technology incorporating the laser underlying the Company’s patent application filed on July 25, 2017, and a larger airborne test involving up to approximately 20 commercial aircraft that we anticipate may occur during the next 12 to 18 months, assuming that sufficient progress has been made in the relevant software and hardware development and that we are able to obtain additional funding.
The following table sets forth certain information about our cash flow during the three months ended November 30, 2017 and 2016:
|
|
Three Months Ended |
|
|
|
| ||||||
|
|
November 30, |
|
|
|
| ||||||
Cash Flow Data: |
|
2017 |
|
|
2016 |
|
|
Change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Cash Flows used in Operating Activities |
|
$ | (2,777,945 | ) |
|
$ | (468,965 | ) |
|
$ | (2,308,980 | ) |
Cash Flows used in Investing Activities |
|
|
(8,456 | ) |
|
|
(3,419 | ) |
|
|
(5,037 | ) |
Cash Flows provided by Investing Activities |
|
|
2,733,000 |
|
|
|
1,747,615 |
|
|
|
985,385 |
|
Net Increase (decrease) in Cash During Period |
|
$ | (53,401 | ) |
|
$ | 1,275,231 |
|
|
$ | (1,328,632 | ) |
8 |
Table of Contents |
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the three months ended November 30, 2017, net cash flows used in operating activities were $2,777,945, consisting of a net loss of $10,056,696, which was reduced by adding back stock-based compensation of $5,962,525, loss on change in fair value of derivative liabilities of $535,068, amortization of debt discount of $953,451, depreciation of $2,088 and was increased from a net change in operating assets and liabilities of $174,381. Unless and until we general revenue from Infinitus, we expect to continue to generate net losses.
For the three months ended November 30, 2016, net cash flows used in operating activities were $468,965, consisting of a net loss of $3,830,195 and was reduced by stock -based compensation of $3,438,718 and an increase in accounts payable of $44,650 and was increased by an increase in prepaid expenses of $122,138.
Cash Flows from Investing Activities
For the three months ended November 30, 2017, we acquired $8,456 of office and computer equipment. For the three months ended November 30, 2016, we acquired $3,419 of office and computer equipment.
Cash Flows from Financing Activities
For the three months ended November 30, 2017, net cash flows provided by financing activities was $2,733,000, consisting of proceeds from issuance of convertible notes of $2,249,000 and proceeds from issuance of common stock and warrants of $484,000.
For the three months ended November 30, 2016, net cash flows provided by financing activities was $1,747,615, consisting of proceeds from issuance of common stock of $1,708,000 and loans from related parties of $39,615.
Off Balance Sheet Arrangement
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Application of Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
9 |
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The material estimates for our company are that of income tax valuation allowance recorded for deferred tax assets and stock-based compensation. We recorded stock-based compensation for options and warrants issued and the fair value of embedded conversion options that are convertible into a variable amount of shares. The fair values of options, warrants, and embedded conversion options are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model stated below. The specific quantitative variables are included in the notes to the consolidated financial statements. The estimated fair value of options is recognized as expense on the straight-line basis over the options’ vesting periods. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the expected life, dividend yield, expected volatility, and risk-free interest rate weighted-average assumptions used for options and warrants granted. Expected volatility for 2017 and 2016 was estimated using our common stock for convertible notes and the average historical volatility of three public companies offering services similar to ours for warrants and stock options. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. The expected life of options is based on the life of the instrument on grant date.
Basis of Accounting and Going Concern
Our unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP. In addition, the accompanying unaudited condensed financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We generated accumulated losses of approximately $47,185,525 through November 30, 2017 and have insufficient working capital and cash flows to support operations. These factors raise substantial doubt about our ability to continue as a going concern. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty.
Research and Development Expenses
We follow ASC 730-10, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $285,889 and $25,100 were incurred for the three months ended November 30, 2017 and 2016, respectively.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense totaled $5,962,525 and $3,438,718 for the three months ended November 30, 2017 and 2016, respectively.
Convertible Notes
Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method.
10 |
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Derivative Financial Instruments
The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used to estimate the fair value of the conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options.
Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.
Also, refer to Note 2 - Significant Accounting Policies and Note 8 - Derivative Liabilities in the unaudited financial statements that are included in this Report.
Recent accounting pronouncements
For discussion of recently issued accounting pronouncements, please see Note 2 to the unaudited condensed consolidated financial statements included in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company’s quantitative and qualitative disclosures about market risk as of November 30, 2017 from those disclosed in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by the SEC’s rules and forms and that such information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of November 30, 2017. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as a result of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of November 30, 2017.
11 |
Table of Contents |
The material weaknesses in our internal control over financial reporting as of November 30, 2017, are as follows:
1. |
We lack of formal policies and procedures necessary to adequately review significant accounting transactions. We utilize a third party independent contractor for the preparation of our financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in our day to day operations and may not be provided information from our management on a timely basis to allow for adequate reporting/consideration of certain transactions; |
|
|
2. | We do not have an audit committee with a financial expert and, thus, we lack the appropriate oversight within the financial reporting process; |
|
|
3. | Inadequate segregation of duties consistent with control objectives; |
|
|
4. | Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of U.S. GAAP and SEC disclosure requirements; and |
|
|
5. | Ineffective controls over period end financial disclosure and reporting processes. |
We intend to initiate measures to remediate the identified material weaknesses, including, but not necessarily limited to, the following:
|
· |
Establish a formal review process of significant accounting transactions that includes participation of our principal executive officer, principal financial officer and corporate legal counsel. |
|
· |
Form an audit committee (which formation occurred after the end of the period ended November 30, 2017) that will establish policies and procedures that will provide our Board of Directors with a formal review process that will among other things, assure that management controls and procedures are in place and being maintained consistently. |
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended November 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
12 |
Table of Contents |
None.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017, except as set forth below.
We have outstanding convertible notes with fluctuating conversion rates that are set at a discount to market prices of our common stock during the period immediately preceding conversion, which may result in material dilution to our common stockholders.
As of November 30, 2017, we had outstanding unsecured convertible notes issued to a number of unrelated third parties in the aggregate principal amount of approximately $2.4 million. These unsecured convertible notes are convertible into shares of our common stock at a price per share equal to 70% of the lowest price at which our common stock traded during the 20 or 25 days preceding the conversion date. This could result in material dilution to existing stockholders of our Company. Because the conversion price is based upon the trading prices of our common stock at the time of conversion, the number of shares of common stock into which the notes may be converted may increase without an upper bound. If the trading prices of the common stock are low when the conversion price of the convertible notes is determined, we would be required to issue a higher number of shares of our common stock to the converting noteholder, which could cause substantial dilution to our stockholders. In addition, if any or all of the holders of our convertible notes convert and then sell our common stock, this could result in an imbalance of supply and demand for our common stock and reduce our stock price. The further our stock price declines, the further the adjustment of the conversion price will fall and the greater the number of shares we will have to issue upon conversion, resulting in further dilution to our stockholders. Because a market price-based conversion formula can lead to dramatic stock price reductions and corresponding negative effects on both a company and its stockholders, convertible security financings with market price-based conversion ratios have colloquially been called “floorless,” “toxic,” “death spiral,” and “ratchet” convertibles.
13 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In addition to the unregistered sales of equity securities completed during the three months ended November 30, 2017 that were previously reported in Current Reports on Form 8-K filed with the SEC, the Company also completed the following unregistered sales of common equity.
From September 1, 2017 to October 17, 2017, we issued an aggregate of 431,080 units at an approximate price of $1.12 per unit for aggregate gross proceeds of $484,000. Each unit consists of one common share of the Company and an additional share purchase warrant exercisable for one share of common stock for a period of one to five years from issuance at a price range of $0.91 to $2.05 per share. Of the 431,080 units issued, 18,870 were issued to three (3) subscribers in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act and 412,210 units were issued to five (5) offshore subscribers pursuant to Regulation S under the Securities Act.
On or about September 5, 2017, as compensation for services to be provided, we issued to Brighton Capital 10,000 shares of our common stock valued at $1.60 per share. Brighton Capital represented that it is an accredited investor and the foregoing units were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
On or about October 5, 2017, as compensation for services to be provided, we issued to Brighton Capital 10,000 shares of our common stock valued at $0.96 per share. Brighton Capital represented that it is an accredited investor and the foregoing units were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
On September 20, 2017, we issued (i) 165,000 shares of our common stock as settlement of notes payable of $206,250; (ii) 165,000 shares of our common stock as settlement of notes payable of $206,250; and (iii) 100,000 shares of our common stock as settlement of notes payable of $138,000. The foregoing shares were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
On October 2, 2017, we issued 66,000 shares of our common stock as settlement of notes payable of $74,646. The foregoing shares were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
On October 10, 2017, we issued 82,500 shares of our common stock as settlement of notes payable of $78,375. The foregoing shares were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
On October 30, 2017, we issued 55,555 shares of our common stock as settlement of notes payable of $77,221. The foregoing shares were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
On or about November 11, 2017, as compensation for services to be provided, we issued to Brighton Capital 10,000 shares of our common stock valued at $1.29 per share. Brighton Capital represented that it is an accredited investor and the foregoing units were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
Pursuant to our agreement with Air Lease Corporation entered into in January 2017, in consideration of the services to be provided by Air Lease Corporation, we issued to Air Lease Corporation 7,700,000 shares of common stock representing 10% of our common stock outstanding at that date. The agreement with Air Lease Corporation provides full ratchet anti-dilution protection to Air Lease Corporation. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Air Lease Corporation without further consideration additional shares of our common stock or other class or series of capital stock so that Air Lease Corporation will continue to own 10% of the outstanding shares of common stock and each other class or series of capital stock. During the three months ended November 30, 2017, we were obligated to issue an additional 125,416 shares of common stock. The shares of common stock being issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act.
14 |
Table of Contents |
Pursuant to our agreement with Jet Midwest Group entered into in October 2016, in consideration of the services to be provided by Jet Midwest Group, we issued to Jet Midwest Group 1,250,000 shares of common stock representing 1.6% of our common stock outstanding at that date. The agreement with Jet Midwest Group provides full ratchet anti-dilution protection to Jet Midwest Group. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Jet Midwest Group without further consideration additional shares of our common stock or other class or series of capital stock so that Jet Midwest Group will continue to own 1.6% of the outstanding shares of common stock and each other class or series of capital stock. During the three months ended November 30, 2017, we were obligated to issue an additional 20,336 shares of common stock. The shares of common stock being issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to that exemption specified by the provisions of Section 4(a)(2) of the Securities Act .
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
None.
15 |
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Filing Date | |||||||||||
Amended and Restated Articles of Incorporation, effective as of July 31, 2017 |
8-K |
3.1 |
08/02/2017 | ||||||||||||
8-K |
3.2 |
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8-K |
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4.1 |
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09/29/2017 | |||||||||
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4.2 |
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09/29/2017 | |||||||||
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8-K |
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4.3 |
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09/29/2017 | |||||||||
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8-K |
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4.4 |
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09/29/2017 |
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4.5 |
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09/29/2017 | |||||||||
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8-K |
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4.6 |
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4.10 |
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4.11 |
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4.13 |
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4.14 |
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09/29/2017 | |||||||||
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4.15 |
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09/29/2017 |
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8-K |
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4.1 |
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10/06/2017 | |||||||||
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8-K |
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4.2 |
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10/06/2017 | |||||||||
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8-K |
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4.3 |
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10/06/2017 | |||||||||
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Promissory Note dated October 3, 2017, issued by Airborne Wireless Network to Lucas Hoppel |
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8-K |
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4.4 |
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10/06/2017 | ||||||||
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8-K |
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4.1 |
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11/03/2017 | |||||||||
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8-K |
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4.2 |
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11/03/2017 | |||||||||
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8-K |
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4.1 |
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12/05/2017 | |||||||||
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8-K |
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4.1 |
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12/29/2017 | |||||||||
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8-K |
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4.2 |
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8-K |
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4.3 |
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12/29/2017 | |||||||||
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Promissory Note due May 22, 2018, issued by Airborne Wireless Network to Lucas Hoppel |
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8-K |
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4.4 |
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12/29/2017 | ||||||||
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8-K |
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4.1 |
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01/02/2018 | |||||||||
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4.2 |
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01/02/2018 | |||||||||
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8-K |
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4.3 |
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01/02/2018 |
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8-K |
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4.4 |
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01/02/2018 | |||||||||
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8-K |
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4.5 |
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4.6 |
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4.7 |
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4.8 |
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8-K |
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4.9 |
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4.10 |
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4.11 |
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4.12 |
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01/02/2018 |
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10.2 |
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10.3 |
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10.4 |
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09/29/2017 |
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8-K |
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10.5 |
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8-K |
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10.1 |
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10.2 |
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10.1 |
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10.1 |
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10.3 |
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8-K |
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10.4 |
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01/02/2018 |
20 |
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Letter Acknowledgement, dated December 29, 2017 from Airborne Wireless Network to Adar Bays, LLC |
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8-K |
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10.5 |
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01/02/2018 | |||||||||
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8-K |
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10.1 |
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01/03/2018 | ||||||||||
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Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer |
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Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer |
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101.INS* |
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XBRL Instance Document |
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101.SCH* |
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XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase Document |
______________
* |
Filed herewith |
† |
Management contract or plan. |
21 |
Table of Contents |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AIRBORNE WIRELESS NETWORK |
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Dated: January 9, 2018 |
/s/ Michael J. Warren |
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Michael J. Warren |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Dated: January 9, 2018 |
/s/ Kevin L. Spence |
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Kevin L. Spence |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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22 |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael J. Warren, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Airborne Wireless Network; |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: January 9, 2018
/s/ Michael J. Warren |
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Michael J. Warren |
|
Chief Executive Officer and Director (Principal Executive Officer) |
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EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin L. Spence, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Airborne Wireless Network; |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: January 9, 2018
/s/ Kevin L. Spence |
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Kevin L. Spence |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Michael J. Warren, Chief Executive Officer, of Airborne Wireless Network, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | the quarterly report on Form 10-Q of Airborne Wireless Network for the period ended November 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Airborne Wireless Network |
Dated: January 9, 2018
/s/ Michael J. Warren |
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Michael J. Warren |
|
Chief Executive Officer and Director (Principal Executive Officer) |
|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Airborne Wireless Network and will be retained by Airborne Wireless Network and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Kevin L. Spence, President and Treasurer, of Airborne Wireless Network, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | the quarterly report on Form 10-Q of Airborne Wireless Network for the period ended November 30, 2017 (the ”Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Airborne Wireless Network |
Dated: January 9, 2018
/s/ Kevin L. Spence |
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Kevin L. Spence |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Airborne Wireless Network and will be retained by Airborne Wireless Network and furnished to the Securities and Exchange Commission or its staff upon request.
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Jan. 09, 2018 |
|
Document and Entity Information: | ||
Entity Registrant Name | AIRBORNE WIRELESS NETWORK | |
Entity Central Index Key | 0001537258 | |
Trading Symbol | abwn | |
Current Fiscal Year End Date | --08-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 94,371,899 | |
Document Type | 10-Q | |
Document Period End Date | Nov. 30, 2017 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 |
BALANCE SHEETS (Parentheticals) - USD ($) |
Nov. 30, 2017 |
Aug. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Amount of unamortized debt discount | $ 658,308 | $ 0 |
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized (in shares) | 350,000,000 | 350,000,000 |
Common stock, shares issued (in shares) | 91,829,771 | 90,589,154 |
Common stock, shares outstanding (in shares) | 91,829,771 | 90,589,154 |
STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Income Statement [Abstract] | ||
Revenue | $ 0 | $ 0 |
Operating Expenses | ||
Marketing and branding | 1,089,280 | |
Depreciation | 2,088 | |
General and administrative expenses | 114,742 | 85,497 |
Management fees | 11,635 | |
Professional fees | 857,285 | 208,733 |
Research and development | 285,889 | 25,100 |
Salaries and wages | 229,215 | 60,507 |
Stock based compensation | 5,962,525 | 3,438,718 |
Total operating expenses | 8,541,024 | 3,830,190 |
Operating Loss | (8,541,024) | (3,830,190) |
Other expenses | ||
Interest expense | (980,604) | (5) |
Change in fair value of derivative liabilities | (535,068) | |
Total other expense | (1,515,672) | (5) |
Net Loss | $ (10,056,696) | $ (3,830,195) |
Net loss per common share - basic and diluted (in dollars per share) | $ (0.11) | $ (0.05) |
Weighted average number of common shares outstanding (in shares) | 91,543,292 | 75,136,448 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
3 Months Ended |
---|---|
Nov. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND DESCRIPTION OF BUSINESS | NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Airborne Wireless Network (the “Company”) is a Nevada corporation incorporated on January 5, 2011 under the name Ample-Tee. Effective on May 19, 2016, the Company’s corporate name was changed to Airborne Wireless Network. It is based in Simi Valley, California, USA. The Company’s fiscal year end is August 31.
We are an early stage company with the principal business strategy of developing, marketing and licensing a fully meshed, high-speed broadband airborne wireless network by linking commercial aircraft in flight. We call this network the “Infinitus Super HighwaySM” (“Infinitus”). |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2017 are not necessarily indicative of the results that may be expected for the year ending August 31, 2018. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended August 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on November 14, 2017.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current year presentation.
Related Parties
We follow ASC 850,“Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 9).
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of November 30, 2017 and August 31, 2017 the Company had $164,293 and $217,694 in cash and cash equivalents, respectively. Intangible Assets
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other.” The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over 3 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
The Company issued 40 million shares of common stock for the acquisition of certain intellectual property. Due to the lack of readily available market information and that the shares represented approximately 54% of the outstanding common stock on issuance, the Company hired an independent third party firm to perform a valuation on the acquired intangible assets. It was determined that the intellectual property had no value because future economic benefit could not be determined.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, prepaid expense, deferred financing cost, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The Company adopted ASC Topic 820, Fair Value Measurements (““ASC Topic 820”“), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement
The following table summarizes fair value measurements by level at November 30, 2017, and August 31, 2017, measured at fair value on a recurring basis:
Research and Development Expenses
We follow ASC 730-10, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $285,889 and $25,100 were incurred for the three months ended November 30, 2017 and 2016, respectively.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Stock-based compensation of $5,962,525 and $3,438,718 were incurred for the three months ended November 30, 2017 and 2016, respectively.
Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
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PREPAID EXPENSES |
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Prepaid Expense, Current [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES | NOTE 3 – PREPAID EXPENSES
Prepaid expenses relate to prepayment made for future services in advance and will be expensed over time as the benefit of the services is received in the future, expected within one year.
Prepaid expenses consisted of the following at November 30, 2017 and August 31, 2017
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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
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Accounts Payable and Accrued Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at November 30, 2017 and August 31, 2017:
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EQUITY |
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Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY | NOTE 5 – EQUITY
Authorized Stock
The Company is authorized to issue an aggregate of 350,000,000 common shares and 10,000,000 shares of preferred stock, each with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought.
Issuances
During the three months ended November 30, 2017, the Company issued 1,240,617 shares of common stock, as follows:
As at November 30, 2017 and August 31, 2017, the Company had 91,829,771 and 90,589,154 shares of common stock issued and outstanding, respectively.
Warrants
The below table, summarizes warrant activity during the three months ended November 30, 2017 and the year ended August 31, 2017:
The fair value of each warrant on the date of grant is estimated using the Black Scholes option valuation model. The following weighted-average assumptions were used for options granted during the three months ended November 30, 2017 and 2016:
The following table summarizes information relating to outstanding and exercisable warrants as of November 30, 2017:
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at November 30, 2017, for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of November 30, 2017, the aggregate intrinsic value of warrants outstanding was approximately $34,356 based on the closing market price of $1.17 on November 30, 2017.
The Company determined that warrants qualify for derivative accounting, as a result of the issuance of the convertible note on September 15, 2017, which led to no explicit limit to the number of shares to be delivered upon future settlement of the conversion options. On September 15, 2017, the Company revalued the fair value on the 3,415,498 units of share purchase warrants granted prior to September 15, 2017 at $2,937,553 based on Black Scholes option valuation model and reclassified previously determined fair value of $2,078,065 on the date of grant for each warrant unit from additional paid-in capital to derivative liabilities, resulting in loss on warrants of $859,448 included in change in fair value of derivatives liabilities (see Note 8).
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STOCK COMPENSATION PLANS |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK COMPENSATION PLANS | NOTE 6 – STOCK COMPENSATION PLANS
In the ordinary course of business, the Company may issue stock options to employees, officers and directors from time to time. Fair values of the stock option awards are based on the associated value of the services rendered, where reasonably determinable.
During the year ended August 31, 2016, the Company granted the following stock options:
During the year ended August 31, 2017, the Company granted the following stock options:
Stock option activity during the three months ended November 30, 2017 and the year ended August 31, 2017 were as follows:
The following table summarizes information relating to exercisable stock options as of November 30, 2017:
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the stock options at November 30, 2017. As of November 30, 2017, the aggregate intrinsic value of stock options outstanding was approximately $1,923,500 based on the closing market price of $1.17 on November 30, 2017.
Weighted-average grant-date fair value for non-vested stock options as of November 30, 2017 and August 31, 2017 were listed as follows:
The aggregate fair value of stock options vested during the three months ended November 30, 2017 and the year ended August 31, 2017 were $5,545,200 and $16,234,693, respectively. As of November 30, 2017, the total unrecognized compensation cost related to unvested stock options was $14,012,789, which is expected to be recognized in the future periods.
The fair value of each option on the date of grant is estimated using the Black Scholes option valuation model. The following weighted-average assumptions were used for options granted during the nine months ended November 30, 2017 and 2016:
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CONVERTIBLE NOTES |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONVERTIBLE NOTES | NOTE 7 – CONVERTIBLE NOTES
The Company had the following convertible notes payable outstanding as of November 30, 2017 and August 31, 2017:
The Company recognized amortization expense related to the debt discount and deferred financing fees of $953,451 and $0 for the three months ended November 30, 2017 and 2016, respectively, which is included in interest expense in the statements of operations.
Convertible Notes – Issued during the three months ended November 30, 2017
During the three months ended November 30, 2017, the Company issued a total of $2,590,125 convertible notes with cash proceeds of $2,249,000, original issuance discount of $250,875 and financing fees of $90,250. The convertible notes were also provided with a total of 634,055 common shares and warrant units to purchase up to 78,000 shares of common stock at $1.75 exercise price. The terms of convertible notes are summarized as follows:
For the three months ended November 30, 2017 and 2016, the interest expense on convertible notes was $27,153 and $0, respectively. As of November 30, 2017 and August 31, 2017, the accrued interest payable was $27,153 and $0, respectively.
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DERIVATIVE LIABILITIES |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE LIABILITIES | NOTE 8 – DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company accounts for warrants as a derivative liability due to there being no explicit limit to the number of shares to be delivered upon settlement of all conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of November 30, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in November 30, 2017 and August 31, 2017:
The following table summarizes the derivative liabilities included in the balance sheet at November 30, 2017:
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes and warrants that became convertible as of November 30, 2017 amounted to $3,253,221. During the three months ended November 30, 2017, $401,387 of the value assigned to the derivative liability was recognized as a debt discount to the convertible notes, $140,251 was recognized as a “day 1” derivative loss on convertible notes, $2,078,065 of new derivative liabilities recognized from reclass of additional paid in capital, $238,701 of new derivative liabilities was recognized upon issuance of warrants, $859,488 was recognized as a “day 1” derivative loss on warrants, and $464,671 was recorded as gain on change in fair value of derivative liability, respectively.
The following table summarizes the loss on derivative liability included in the income statement for the three months ended November 30, 2017 and 2016, respectively.
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RELATED PARTY TRANSACTIONS |
3 Months Ended |
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Nov. 30, 2017 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 9 – RELATED PARTY TRANSACTIONS
On February 1, 2017, the Company paid $49,200 for housing occupied by our Chief Executive Officer (see Note 10).
During the three months ended November 30, 2017 and 2016, the Company incurred management fees of $0 and $11,635, respectively, to directors and officers of the Company.
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COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | NOTE 10 – COMMITMENTS AND CONTINGENCIES
Anti-Dilution Agreements
Pursuant to our agreement with Air Lease Corporation entered into in January 2017, in consideration of the services to be provided by Air Lease Corporation, we issued to Air Lease Corporation 7,700,000 shares of common stock representing 10% of our common stock outstanding at that date. The agreement with Air Lease Corporation provides full ratchet anti-dilution protection to Air Lease Corporation. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Air Lease Corporation without further consideration additional shares of our common stock or other class or series of capital stock so that Air Lease Corporation will continue to own 10% of the outstanding shares of common stock and each other class or series of capital stock. Through November 30, 2017, we had issued 8,665,140 shares of common stock to Air Lease Corporation and were obligated to issue an additional 518,658 shares of common stock.
Pursuant to our agreement with Jet Midwest Group entered into in October 2016, in consideration of the services to be provided by Jet Midwest Group, we issued to Jet Midwest Group 1,250,000 shares of common stock representing 1.6% of our common stock outstanding at that date. The agreement with Jet Midwest Group provides full ratchet anti-dilution protection to Jet Midwest Group. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Jet Midwest Group without further consideration additional shares of our common stock or other class or series of capital stock so that Jet Midwest Group will continue to own 1.6% of the outstanding shares of common stock and each other class or series of capital stock. Through November 30, 2017, we had issued 1,250,000 shares of common stock to Jet Midwest Group and were obligated to issue an additional 219,508 shares of common stock.
Consulting agreement
On July 31, 2017, the Company engaged Brighton Capital, Ltd. (“Brighton”), for a three (3) year term, to render strategic advisory services. Pursuant to our agreement with Brighton, in consideration of the services to be provided by Brighton, we are to issue 410,000 shares of common stock and 1,000,000 warrants over a three year term. We issued 50,000 shares of common stock and 100,000 warrants upon execution of this agreement, and are to issue 10,000 shares of common stock and 25,000 warrants per month for thirty-six (36) months, with the first issuance beginning August 1, 2017. Through November 30, 2017, we had issued 90,000 shares of common stock and 200,000 warrants to Brighton. The warrants, as issued, shall immediately vest and have a term of five (5) years with an exercise price of $1.90. The warrants will have a cashless feature if the shares underlying the warrants are not effective for resale by March 1, 2018.
Other
On August 3, 2016, we acquired from Apcentive, Inc. (“Apcentive”) all of Apcentive’s right, title and interest in and to U.S. Patent No. 6,285,878 B1 and all related supporting materials, continuations, amendments, updates and contemplated updates and amendments and the trademark “Infinitus Super HighwaySM.” In consideration for the patent and the trademark, we issued a number of shares of our common stock to Apcentive and agreed to pay Apcentive a future royalty equal to 1.5% of the net cash we receive from the promotion, marketing, sale, licensing, distribution and other exploitation of the patent. We are further required to issue an additional 20 million shares of common stock to Apcentive if we do not spend, on matters relating to the patent and trademark, a cumulative total of $5 million on or before August 3, 2019. The purchase agreement requires that we spend at least $1 million on or before August 3, 2017 (which goal has been met), a total of at least $2 million on or before August 3, 2018 and a total of at least $5 million on or before August 3, 2019. As of November 30, 2017, the Company has not made a contingency for these events.
Lease Commitment
In June 2016, we signed a lease agreement that commenced on July 1, 2016 for our corporate office headquarters with approximately 1,500 sq ft., at 4115 Guardian Street, Simi Valley, California 93063. The lease expired on August 31, 2017 and our monthly rent was $1,750 (plus HVAC charges), payable in equal monthly installments. In August 2017, the lease was extended by two years commencing September 1, 2017 at $1,803 per month (plus HVAC charges) for the first year and $1,857 per month (plus HVAC charges) for the second year.
On February 1, 2017, the Company signed an operating lease for a residence to be used by our Chief Executive Officer, located in Moorpark, California. The lease term commenced on February 1, 2017 and expires on January 31, 2018. Our monthly rent is $4,100, payable in equal monthly installments. On February 1, 2017, the Company prepaid the $49,200, for the full term of the lease. As at November 30, 2017, we recognized $8,200 as a prepaid expense.
Total net rent expense related to our operating leases for the three months ended November 30, 2017 and 2016, was $5,355 and $5,250 respectively.
Future minimum payments under the non-cancelable portion of our operating leases as of November 30, 2017 are as follows:
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SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 11 - SUBSEQUENT EVENTS
Subsequent to November 30, 2017 and through the date that these financials were made available, the Company had the following subsequent events:
We issued units consisting of an aggregate of 528,950 shares of common stock and warrants to purchase 528,950 shares of common stock, exercisable for three years from issuance at a price range of $0.81 to $1.10 per share, for aggregate gross proceeds of $359,498.
We issued 1,482,200 shares of common stock upon the exercise of warrants for proceeds of $963,430. We subsequently issued 1,482,200 replacement warrants, exercisable for three years from issuance at exercise price of $0.81.
We issued convertible notes with an aggregate principal amount of $1,300,975. The Convertible Notes were issued with maturity dates ranging from six months to one year, annual interest rates of 0% to 8% and conversion prices equal to 70% of the lowest trading price of the Company’s Common Stock for the 25 days prior to the conversion date. In conjunction with these convertible notes, the Company issued 223,722 shares of common stock and warrants to purchase 18,000 shares of common stock, exercisable in five years at $1.75 per share.
Pursuant to our agreement with Brighton Capital, Ltd. (see Note 10), we issued 20,000 shares of common stock and a total of 50,000 warrants at an exercise price of $1.90 per share for a term of five years.
Pursuant to our agreement with Air Lease Corporation, we are now obligated to issue an additional 375,717 shares of common stock through January 4, 2018, after issuing 393,512 shares on December 15, 2017.
Pursuant to our agreement with Jet Midwest Group, we are now obligated to issue an additional 57,021 shares of common stock through January 4, 2018, after issuing 199,172 shares on December 15, 2017.
On December 28, 2017, the Company appointed Kevin L. Spence as its Chief Financial Officer, effective January 1, 2018. Pursuant to his employment agreement, the Company agreed to grant stock options to purchase at least 1,750,000 shares of the Company’s common stock on the effective date of the Employment Agreement, and on January 15 of each of 2018, 2019 and 2020, so long as he remains employed by the Company on those dates, at a per share exercise price of $0.01 above the closing price of the Company’s common stock for the January 2018 grant, $1.75 for the January 2019 grant and $2.50 for the January 2020 grant, in each case in accordance with the Company’s policies in effect from time to time and subject to approval of the board of directors.
On December 30, 2017, the Company expanded the size of its board of directors from two members to six, and elected Samuel Gulko, Karen Laustsen, James H. Leach and James C. Witham (the “new directors”) to fill the newly created vacancies on the Company’s board of directors, effective on such date. Also on December 30, 2017, the Company’s board of directors created three new committees of the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. In connection with the election of the new directors, Messrs. Gulko, Leach and Witham were appointed to serve on the audit committee, Ms. Laustsen and Messrs. Gulko and Leach were appointed to serve on the compensation committee and Messrs. Gulko, Leach and Witham were appointed to serve on the nominating and corporate governance committee. Each new director will receive an annual grant of an option to purchase 100,000 shares of the Company’s common stock, which such initial options having an exercise price equal to $1.98 per share and being fully vested and exercisable as of the grant date. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Use of Estimates and Assumptions | Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Reclassifications | Reclassifications
Certain prior period amounts have been reclassified to conform with the current year presentation.
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Related Parties | Related Parties
We follow ASC 850,“Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 9).
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Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of November 30, 2017 and August 31, 2017 the Company had $164,293 and $217,694 in cash and cash equivalents, respectively.
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Intangible Assets | Intangible Assets
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other.” The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over 3 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
The Company issued 40 million shares of common stock for the acquisition of certain intellectual property. Due to the lack of readily available market information and that the shares represented approximately 54% of the outstanding common stock on issuance, the Company hired an independent third party firm to perform a valuation on the acquired intangible assets. It was determined that the intellectual property had no value because future economic benefit could not be determined.
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Fair Value of Financial Instruments | Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, prepaid expense, deferred financing cost, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The Company adopted ASC Topic 820, Fair Value Measurements (““ASC Topic 820”“), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement
The following table summarizes fair value measurements by level at November 30, 2017, and August 31, 2017, measured at fair value on a recurring basis:
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Research and Development Expenses | Research and Development Expenses
We follow ASC 730-10, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $285,889 and $25,100 were incurred for the three months ended November 30, 2017 and 2016, respectively.
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Stock-Based Compensation | Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Stock-based compensation of $5,962,525 and $3,438,718 were incurred for the three months ended November 30, 2017 and 2016, respectively.
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Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value measurements on a recurring basis |
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PREPAID EXPENSES (Tables) |
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Expense, Current [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of prepaid expenses |
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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable and Accrued Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of accounts payable and accrued liabilities |
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EQUITY (Tables) |
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of summary of warrant activity |
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Schedule of weighted-average assumptions for options granted |
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Schedule of outstanding and exercisable warrants |
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STOCK COMPENSATION PLANS (Tables) |
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of stock option activity |
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Schedule of outstanding and exercisable stock options |
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Schedule of weighted-average grant-date fair value for non-vested stock options |
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Schedule of weighted-average assumptions |
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CONVERTIBLE NOTES (Table) |
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of convertible notes payable outstanding |
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DERIVATIVE LIABILITIES (Table) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedges, Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of weighted-average assumptions |
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Schedule of derivative liabilities included in the balance sheet |
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Schedule of loss on derivative liability included in the income statement |
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COMMITMENTS AND CONTINGENCIES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Schedule of future minimum payments under the non-cancelable portion of our operating leases |
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ORGANIZATION AND DESCRIPTION OF BUSINESS (Detail Textuals) |
3 Months Ended |
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Nov. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
State of incorporation | Nevada |
Date of incorporation | Jan. 05, 2011 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
Nov. 30, 2017 |
Aug. 31, 2017 |
---|---|---|
Liabilities | ||
Derivative liabilities | $ 479,762 | |
Fair value | ||
Liabilities | ||
Derivative liabilities | 3,253,221 | $ 0 |
Level 1 | Fair value | ||
Liabilities | ||
Derivative liabilities | 0 | 0 |
Level 2 | Fair value | ||
Liabilities | ||
Derivative liabilities | 0 | 0 |
Level 3 | Fair value | ||
Liabilities | ||
Derivative liabilities | $ 3,253,221 | $ 0 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) - USD ($) shares in Millions |
3 Months Ended | |||
---|---|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
Aug. 31, 2017 |
Aug. 31, 2016 |
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Accounting Policies [Abstract] | ||||
Cash and cash equivalents | $ 164,293 | $ 1,276,040 | $ 217,694 | $ 809 |
Amortization period for customer relationships, brands and other non-contractual intangible assets | 3 years | |||
Common stock issued for acquisition of intellectual property (in shares) | 40 | |||
Percentage of outstanding common stock on issued for the acquisition of certain intellectual property | 54.00% | |||
Research and development costs | $ 285,889 | 25,100 | ||
Stock based compensation | $ 5,962,525 | $ 3,438,718 |
PREPAID EXPENSES (Details) - USD ($) |
Nov. 30, 2017 |
Aug. 31, 2017 |
---|---|---|
Prepaid Expense, Current [Abstract] | ||
Legal and regulatory fees | $ 57,073 | $ 94,573 |
Marketing and branding | 579,967 | 164,667 |
Rent expense | 8,200 | 22,250 |
Professional fees | 0 | 3,794 |
Total prepaid expenses | $ 645,240 | $ 285,284 |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($) |
Nov. 30, 2017 |
Aug. 31, 2017 |
---|---|---|
Accounts Payable and Accrued Liabilities, Current [Abstract] | ||
Trade Payables | $ 552,277 | $ 334,132 |
Credit Card Payable | 481 | 56,501 |
Payroll Liabilities | 21,933 | 25,636 |
Other Payable | 5,480 | 5,480 |
Total accounts payable and accrued liabilities | $ 580,171 | $ 421,749 |
EQUITY (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
Aug. 31, 2017 |
|
Weighted- Average Exercise Price | ||
Balances | $ 1.75 | |
Warrant | ||
Number of Shares | ||
Balances | 3,077,998 | 0 |
Granted | 584,080 | 4,229,998 |
Exercised | 0 | (1,152,000) |
Forfeited | 0 | 0 |
Balances | 3,662,078 | 3,077,998 |
Weighted- Average Exercise Price | ||
Balances | $ 1.63 | $ 0.00 |
Granted | 1.75 | 1.52 |
Exercised | 0.00 | 1.25 |
Forfeited | 0.00 | 0.00 |
Balances | $ 1.63 | $ 1.63 |
EQUITY (Details 2) - $ / shares |
3 Months Ended | |||
---|---|---|---|---|
Nov. 30, 2017 |
Aug. 31, 2017 |
May 31, 2017 |
Aug. 31, 2016 |
|
Stockholders' Equity [Line Items] | ||||
Warrants Outstanding, Weighted Average Exercise Price | $ 1.75 | |||
Warrant | ||||
Stockholders' Equity [Line Items] | ||||
Warrants Outstanding, Number of Shares | 3,662,078 | 3,077,998 | 0 | 0 |
Warrants Outstanding, Weighted Average Remaining Contractual life (in years) | 2 years 2 months 27 days | |||
Warrants Outstanding, Weighted Average Exercise Price | $ 1.63 | $ 1.63 | $ 0.00 | $ 0.00 |
Warrants Exercisable, Number of Shares | 3,662,078 | |||
Warrants Exercisable, Weighted Average Exercise Price | $ 1.63 |
STOCK COMPENSATION PLANS (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
Aug. 31, 2017 |
|
Number of Shares | ||
Balances | 28,350,000 | 4,550,000 |
Granted | 0 | 23,800,000 |
Exercised | 0 | 0 |
Forfeited | 0 | 0 |
Balances | 28,350,000 | 28,350,000 |
Weighted- Average Exercise Price | ||
Balances | $ 1.86 | $ 1.32 |
Granted | 0.00 | 1.97 |
Exercised | 0.00 | 0.00 |
Forfeited | 0.00 | 0.00 |
Balances | $ 1.86 | $ 1.86 |
Fair Value on Grant Date | ||
Balances | $ 35,864,990 | $ 2,550,380 |
Granted | 0 | 33,314,610 |
Exercised | 0 | 0 |
Forfeited | 0 | 0 |
Balances | 35,864,990 | 35,864,990 |
Intrinsic Value | ||
Balances | 663,500 | 663,500 |
Granted | 0 | 0 |
Exercised | 0 | 0 |
Forfeited | 0 | 0 |
Balances | $ 663,500 | $ 663,500 |
STOCK COMPENSATION PLANS (Details 1) |
Nov. 30, 2017
$ / shares
shares
|
---|---|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Options Exercisable, Number of Shares | shares | 4,100,000 |
Options Exercisable, Weighted Average Exercise Price | $ / shares | $ 1.29 |
STOCK COMPENSATION PLANS (Details 2) - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
Aug. 31, 2017 |
|
Shares | ||
Unvested, Balances | 24,250,000 | 4,500,000 |
Granted | 0 | 23,800,000 |
Vested | (3,000,000) | (4,050,000) |
Forfeited | 0 | 0 |
Unvested, Balances | 21,250,000 | 24,250,000 |
Weighted-Average Grant Date Fair Value Per Share | ||
Unvested, Balances | $ 0.81 | $ 0.55 |
Granted | 0.00 | 1.40 |
Vested | 1.85 | 4.01 |
Forfeited | 0.00 | 0.00 |
Unvested, Balances | $ 0.66 | $ 0.81 |
STOCK COMPENSATION PLANS (Details 3) |
3 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 1 year | |
Expected dividend yield | 0.00% | 0.00% |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 4 years 1 month 2 days | |
Expected average volatility | 177.00% | 196.00% |
Risk-free interest rate | 1.17% | 0.56% |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 6 years 5 months 23 days | |
Expected average volatility | 183.00% | 203.00% |
Risk-free interest rate | 2.25% | 0.81% |
CONVERTIBLE NOTES (Details) - USD ($) |
Nov. 30, 2017 |
Aug. 31, 2017 |
---|---|---|
Debt Instrument [Line Items] | ||
Convertible notes | $ 2,590,125 | |
Less debt discount and debt issuance cost | (658,308) | $ 0 |
Convertible Notes, Net | 1,931,817 | 0 |
Less current portion of convertible notes payable | (1,931,817) | 0 |
Long-term convertible notes payable | 0 | 0 |
Convertible Notes - originated in September 2017 | ||
Debt Instrument [Line Items] | ||
Convertible notes | 1,660,000 | 0 |
Convertible Notes - originated in October 2017 | ||
Debt Instrument [Line Items] | ||
Convertible notes | 730,125 | 0 |
Convertible Notes - originated in November 2017 | ||
Debt Instrument [Line Items] | ||
Convertible notes | $ 200,000 | $ 0 |
CONVERTIBLE NOTES (Detail Textuals) - USD ($) |
3 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Debt Instrument [Line Items] | ||
Convertible notes | $ 2,590,125 | |
Cash proceeds | 2,249,000 | |
Original issuance discount | 250,875 | |
Financing fees | $ 90,250 | |
Common shares and warrant units | 634,055 | |
Common stock shares called | 78,000 | |
Exercise price | $ 1.75 | |
Conversion after issuance days | 180 days | |
Discount percent | 70.00% | |
Derivative liabilities | $ 479,762 | |
Interest expense on convertible notes | 27,153 | $ 0 |
Accrued interest payable | $ 27,153 | 0 |
Minimum | ||
Debt Instrument [Line Items] | ||
Convertible note term | 6 months | |
Annual interest rate | 0.00% | |
Trading days prior to conversion | 20 days | |
Maximum | ||
Debt Instrument [Line Items] | ||
Convertible note term | 1 year | |
Annual interest rate | 12.00% | |
Trading days prior to conversion | 25 days | |
Interest expense | ||
Debt Instrument [Line Items] | ||
Amortization expense of debt discount and deferred financing fees | $ 953,451 | $ 0 |
DERIVATIVE LIABILITIES (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
Aug. 31, 2017 |
|
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Expected average volatility | 0.00% | |
Expected dividend yield | 0.00% | 0.00% |
Risk-free interest rate | 0.00% | |
Minimum | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Expected term | 4 days | |
Expected average volatility | 74.00% | |
Risk-free interest rate | 0.98% | |
Maximum | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Expected term | 4 years 11 months 1 day | |
Expected average volatility | 350.00% | |
Risk-free interest rate | 2.14% |
DERIVATIVE LIABILITIES (Details 2) - USD ($) |
3 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
Day one loss due to derivative liabilities on convertible notes and warrants | $ 999,739 | $ 0 |
Gain on change in fair value of the derivative liabilities | (464,671) | $ 0 |
Loss on change in the fair value of derivative liabilities | $ 535,068 |
DERIVATIVE LIABILITIES (Detail Textuals) - Level 3 - USD ($) |
3 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Aug. 31, 2017 |
|
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Fair value of the derivative liability | $ 3,253,221 | $ 0 |
Debt discount on convertible notes | 401,387 | |
Day 1 derivative loss on convertible notes | 140,251 | |
New derivative liabilities recognized from reclass of additional paid in capital | 2,078,065 | |
Addition of new derivative liabilities recognized upon issuance of warrants as stock based compensation expense | 238,701 | |
Day 1 derivative loss on warrants | 859,488 | |
Gain on change in fair value of the derivative liabilities | $ 464,671 |
RELATED PARTY TRANSACTIONS (Detail Textuals) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
Aug. 31, 2017 |
Feb. 01, 2017 |
|
Related Party Transaction [Line Items] | ||||
Prepaid rent | $ 8,200 | $ 22,250 | ||
Management fees | $ 11,635 | |||
Chief Executive Officer | ||||
Related Party Transaction [Line Items] | ||||
Prepaid rent | $ 49,200 | |||
Directors and Officers | ||||
Related Party Transaction [Line Items] | ||||
Management fees | $ 0 | $ 11,635 |
COMMITMENTS AND CONTINGENCIES (Details) |
Nov. 30, 2017
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2018 | $ 36,727 |
2019 | 22,284 |
2020 | 0 |
2021 | 0 |
2022 | 0 |
Thereafter | 0 |
Total | $ 59,011 |
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