Washington,
D.C. 20549
This report of South Beach Spirits for the year
ended February 28, 2018 contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations
of historical fact, such statements constitute forward-looking statements which, by definition, involve risks and
uncertainties. Where, in any forward-looking statement, the Company
expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished.
The following are factors that could cause actual
results or events to differ materially from those anticipated, and include but are not limited to: general economic, financial
and business conditions; changes in and compliance with governmental regulations; changes in tax laws; and the costs and effects
of legal proceedings. You should not rely on forward-looking statements in this quarterly report. This quarterly report contains
forward-looking statements that involve risks and uncertainties. We use words such as "ANTICIPATES," "BELIEVES,"
"PLANS," "EXPECTS," "FUTURE," "INTENDS" and similar expressions to identify these forward-looking
statements. Investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this
report. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons,
including the risks faced by South Beach Spirits.
ITEM 1.
BUSINESS
South Beach Spirits was incorporated in the State
of Nevada on August 10, 2012 under the name "CME REALTY, INC." and its year-end is February 28. The Company's initial
plan of operations was to engage in providing real estate services for the Las Vegas residential market. The Company was unable
to implement this plan of operations for a number of reasons, including without limitation, the inability to raise sufficient capital.
In light of the foregoing, on February 13, 2015,
Carlos Espinosa, the principal shareholder and sole director and executive officer of the Company, sold 50,000,000 shares of the
Company's common stock held by him (the "CME SHARES") to Kenneth McLeod for $252,000. The CME Shares represented 74.13%
of the Company's issued and outstanding common stock. Contemporaneously therewith, Mr. Espinosa resigned as an officer of the Company
and appointed Mr. McLeod as a director, President and Secretary-Treasurer of the Company. Subsequently, Mr. Espinosa resigned as
a director of the Company. As a result of the foregoing, a "CHANGE IN CONTROL" of the Company was deemed to have taken
place.
On March 17, 2015, the Company implemented a five-for-one
split of our common stock in the form of a stock dividend to shareholders on record at the close of business on March 9, 2015.
In connection therewith, shareholders as of that date received four additional shares of the Company's common stock for each share
held by them as of the record date. Unless otherwise indicated, all share numbers and per-share numbers in this report have been
retroactively adjusted to give effect to the March 2015 stock split.
On April 22, 2015, the Company entered into a letter
of intent to acquire all of the capital stock of Rock N' Roll Imports, Inc., a California corporation ("RNR") engaged
in alcoholic beverage development, marketing and distribution in exchange for (a) the issuance of 50,000,000 shares of the Company's
common stock and (b) the contemporaneous contribution to the Company's capital of the CME Shares held by Mr. McLeod. On August
6, 2015, the Company terminated the letter of intent with RNR as a result of the inability to agree upon the terms of definitive
transaction documentation.
On July 10, 2015, the Company approved, authorized
and adopted an amendment to the Company's Articles of Incorporation to change its name from "CME REALTY, INC." to "SOUTH
BEACH SPIRITS, INC." The name change was effective on September 9, 2015. In furtherance of its plan to focus on opportunities
in developing and marketing spirts, on August 25, 2015 the Company entered into an Asset Purchase Agreement to acquire the worldwide
intellectual property and related assets of V Georgio Vodka, an ultra-premium brand of traditional and flavored vodkas from Victor
G. Harvey, Sr., the brand's founder and a limited liability company owned by him, in exchange for 1,400,000 "restricted"
shares of the Company's common stock and $1,000,000 in cash, payable over a scheduled payment period. In connection with the proposed
transaction, 25,000,000 "RESTRICTED" shares of common stock were to be returned by the Company's principal shareholder
for cancellation. A subsidiary of the Company, formed to exploit the V Georgio brand also, entered into an employment agreement
with Victor G. Harvey, Sr. to serve as CEO of the subsidiary for an initial period of three years with a base salary of $120,000
per annum. The employment agreement contained confidentiality, non-competition and non-solicitation covenants. Subsequent thereto,
the Company learned of certain breaches of material representations and warranties made by Mr. Harvey in the Asset Purchase Agreement,
as well as breaches in his duties as the subsidiaries CEO. On October 13, 2015, Mr. Harvey resigned his position and the Company
terminated the transaction.
On August 25, 2015, the Company also entered into
an employment agreement with Vincent Prince, to serve as its CFO for an initial period of three years with a base salary of $120,000
per annum. The employment agreement contains confidentiality, non-competition and non-solicitation covenants.
Contemporaneously therewith, the Company entered
into a consulting agreement with LandAmerica Holdings & Investments Group, LLC, and its principal Vincent Prince, for services
rendered since March 1, 2015 and prior to the date of the employment agreement, with respect to business development, strategic
planning, evaluating business opportunities in the alcoholic beverage industry, assisting management in structuring and potential
business development opportunities, and providing such other corporate advisory consulting services as management requested. In
consideration for the performance of the services, the Company has agreed to pay the consultant a fee of $175,000 for services
completed on the Company's behalf.
On September 29, 2015, the Company authorized an
increase in the number of members of the Company's Board of Directors to three, and appointed Martin D. Ustin to serve as a member
of the Board until the next annual meeting or until his successor is duly elected.
On October 1, 2015, Kenneth McLeod, the Company's
former President returned 25,000,000 shares of "RESTRICTED" common stock held by him to the Company for cancellation
and sold 25,000,000 shares of "RESTRICTED" common stock held by him to Vincent Prince, resulting in an additional "change
in control" having taken place. Contemporaneously therewith, Mr. McLeod resigned as CEO and director of the Company, but remains
with the Company in a nonmanagerial position. As previously agreed upon, he converted the entire debt owed to him into 188,000
shares of the Company's common stock.
On October 19, 2015, the Company was served with
a pro se legal action filed by Victor G. Harvey, Sr. and his wholly-owned limited liability company, V Georgio Enterprises, LLC,
in Circuit Court, Broward County, Florida, alleging certain breaches of the Company's payment obligations under the Asset Purchase
Agreement and related agreements entered into with the Company. The complaint sought, somewhat inconsistently, injunctive relief
for damages incurred by the plaintiffs because of such breaches. On December 8, 2015, the Court dismissed the complaint on various
grounds, with leave to refile. The Company has been advised that the plaintiffs have refiled an amended complaint (which has not
been served) with the Court. South Beach intends to vigorously defend against the allegations of the complaint, as well as counterclaim
against the plaintiffs and/or take other action to redress the damage suffered by the Company as a result of the plaintiffs' breach
of the agreements.
On October 19, 2015, the Company entered into an Equity
Purchase Agreement and Convertible Promissory Note with Premier Venture Partners, LLC. Per the Equity Purchase Agreement, Premier
agrees to invest up to seven million dollars ($7,000,000) to purchase the Company's common stock, par value $0.001 per share. The
Convertible Promissory Note states that Premier will pay to SBES the amount of $70,000 at 5% annual interest. At November 30, 2015,
no investment has been made.
On October 29, 2015, the Company entered into a 10%
Convertible Promissory Note with Typeset Co-Investment, LLC, up to $170,000 in three tranches, which includes a 10% original issued
discount ("OID") and reimbursement of expenses incurred for due diligence and legal fees related to the transaction.
As of November 30, 2015, the Company had booked a loan of $55,458 which includes an OID of $5,000 expense reimbursement of $3,750,
and interest of $458.34.
On November 3, 2015, the Company entered into a 10%
Convertible Promissory Note with Iconic Holdings, LLC for up to $110,000 to be repaid or converted into the Company's common stock.
This note includes a 10% OID and reimbursement of expenses incurred for due diligence and legal fees related to the transaction.
At November 30, 2015, the Company had booked a loan of $27,729, which includes an OID of $2,500 expense reimbursement of $1,875,
and interest of $229.
On November 27, 2015, the Company entered into a
Securities Purchase Agreement and an 8% Convertible Redeemable Note with Adar Bays. The Securities Purchase Agreement calls for
the issuance of two Convertible Redeemable Notes in the amount of $35,000 each, at 8%. As of November 30, 2015, no funds were
received. On December 3, 2015, the Company entered into a letter of intent to acquire a 50% equity interest in Striped Pig Distillery,
LLC, from certain of its members, in exchange for the issuance of 1,500,000 "RESTRICTED" shares of SBES common stock.
In addition, the letter of intent contemplates SBES making a $300,000 cash working capital contribution to Striped Pig.
ITEM 1A.
RISK FACTORS
Not Applicable
for Smaller Reporting Company.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not Applicable
for Smaller Reporting Company.
ITEM 2.
PROPERTIES
The
Company does not own or lease any property at the present time and has no agreements to acquire or lease any property. Our executive
offices are located at 224 Datura Street, West Palm Beach, Florida 33401.
ITEM 3.
LEGAL PROCEEDINGS
We are not
a party to any legal proceedings that we believe will have a material adverse effect upon the conduct of our business or our financial
position.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
The auditors’ report and accompanying notes are an integral part of these financial statements.
The auditors’ report and accompanying notes are an integral part of these financial statements.
The auditors’ report and accompanying notes are an integral part of these financial statements.
The auditors’ report and accompanying notes are an integral part of these financial statements.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 2018 AND FEBRUARY 28, 2017
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
South Beach Spirits, Inc. (the “Company”) was incorporated
in the state of Nevada on August 10, 2012 under the name “CME Realty, Inc.” and its year-end is February 28. The Company's
initial plan of operations was to engage in providing real estate services for the Las Vegas residential market. The Company was
unable to implement this plan of operations for a number of reasons, including without limitation, the inability to raise sufficient
capital.
In light of the foregoing, on February 13, 2015, Carlos Espinosa,
the principal shareholder and sole director and executive officer of the Company, sold 50,000,000 shares of the Company's common
stock held by him (the "CME Shares") to Kenneth McLeod for $252,000. The CME Shares represented 74.13% of the Company's
issued and outstanding common stock. Contemporaneously therewith, Mr. Espinosa resigned as an officer of the Company and appointed
Mr. McLeod as a director, President and Secretary-Treasurer of the Company. Subsequently, Mr. Espinosa resigned as a director of
the Company. As a result of the foregoing, a "change in control" of the Company was deemed to have taken place.
On March 17, 2015, the Company implemented a five-for-one split
of our common stock in the form of a stock dividend to shareholders on record at the close of business on March 9, 2015. In connection
therewith, shareholders as of that date received four additional shares of the Company’s common stock for each share held
by them as of the record date. Unless otherwise indicated, all share numbers and per-share numbers in this report have been retroactively
adjusted to give effect to the March 2015 stock split.
On April 22, 2015, the Company entered into a letter of intent
to acquire all of the capital stock of Rock N' Roll Imports, Inc., a California corporation ("RNR") engaged in alcoholic
beverage development, marketing and distribution in exchange for (a) the issuance of 50,000,000 shares of the Company’s common
stock and (b) the contemporaneous contribution to the Company’s capital of the CME Shares held by Mr. McLeod. On July 31,
2015, the Company terminated the letter of intent with RNR as a result of the inability to agree upon the terms of definitive transaction
documentation.
On July 10, 2015, the Company approved, authorized and adopted
an amendment to the Company's Articles of Incorporation to change its name from "CME Realty, Inc." to "South Beach
Spirits, Inc." The name change was effective on September 9, 2015.
In furtherance of its plan to focus on opportunities in developing
and marketing spirts, on August 25, 2015 the Company entered into an Asset Purchase Agreement to acquire the worldwide intellectual
property and related assets of V Georgio Vodka, an ultra-premium brand of traditional and flavored vodkas from Victor G. Harvey,
Sr., the brand's founder and a limited liability company owned by him, in exchange for 1,400,000 "restricted" shares
of the Company's common stock and $1,000,000 in cash, payable over a scheduled payment period. In connection with the proposed
transaction, 25,000,000 "restricted" shares of common stock were to be returned by the Company's principal shareholder
for cancellation. A subsidiary of the Company, formed to exploit the V Georgio brand also, entered into an employment agreement
with Victor G. Harvey, Sr. to serve as CEO of the subsidiary for an initial period of three years with a base salary of $120,000
per annum. The employment agreement contained confidentiality, non-competition and non-solicitation covenants. Subsequent thereto,
the Company learned of certain breaches of material representations and warranties made by Mr. Harvey in the Asset Purchase Agreement,
as well as breaches in his duties as the subsidiaries CEO. On October 13, 2015, Mr. Harvey resigned his position and the Company
terminated the transaction.
On August 25, 2015, the Company also entered into an employment
agreement with Vincent Prince, to serve as its CFO for an initial period of three years with a base salary of $120,000 per annum.
The employment agreement contains confidentiality, non-competition and non-solicitation covenants. Contemporaneously therewith,
the Company entered into a consulting agreement with LandAmerica Holdings & Investments Group, LLC, and its principal Vincent
Prince, for services rendered since March 1, 2015 and prior to the date of the employment agreement, with respect to business development,
strategic planning, evaluating business opportunities in the alcoholic beverage industry, assisting management in structuring and
potential business development opportunities, and providing such other corporate advisory consulting services as management requested.
In consideration for the performance of the services, the Company has agreed to pay the consultant a fee of $175,000 for services
completed on the Company’s behalf.
On September 29, 2015, the Company authorized an increase in
the number of members of the Company’s Board of Directors to three, and appointed Martin D. Ustin to serve as a member of
the Board until the next annual meeting or until his successor is duly elected.
On October 1, 2015, Kenneth McLeod, the Company’s former
President returned 25,000,000 shares of “restricted” common stock held by him to the Company for cancellation and sold
25,000,000 shares of “restricted” common stock held by him to Vincent Prince, resulting in an additional “change
in control” having taken place. Contemporaneously therewith, Mr. McLeod resigned as CEO and director of the Company, but
remains with the Company in a non-managerial position.
On October 19, 2015, the Company was served with a pro se legal
action filed by Victor G. Harvey, Sr. and his wholly-owned limited liability company, V Georgio Enterprises, LLC, in Circuit Court,
Broward County, Florida, alleging certain breaches of the Company's payment obligations under the Asset Purchase Agreement and
related agreements entered into with the Company. The complaint sought, somewhat inconsistently, injunctive relief for damages
incurred by the plaintiffs because of such breaches. On December 8, 2015, the Court dismissed the complaint on various grounds,
with leave to refile. The Company has been advised that the plaintiffs have refiled an amended complaint (which has not been served)
with the Court. South Beach intends to vigorously defend against the allegations of the complaint, as well as counterclaim against
the plaintiffs and/or take other action to redress the damage suffered by the Company as a result of the plaintiffs’ breach
of the agreements.
On February 16, 2016, the Company applied to the Nevada Secretary
of State to increase the number of authorized common shares from 75,000,000 to 250,000,000. On February 24, 2016, the Company filed
a Definitive Form 14C with the SEC announcing this increase. No preferred shares have been authorized or issued, and the Company
has made no change to the par value.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a working capital deficit of $150,000 as of February 29, 2018
and a history of losses including net a loss of $62,516 for the year ending February 29, 2018. Losses have resulted in an accumulated
deficit of $2,384,072 as of February 29, 2018. From inception through February 29, 2017, the Company has had no revenue producing
operations and has not commenced its business plan. These conditions raise substantial doubt regarding the Company’s ability
to continue as a going concern. In view of these matters, the Company's ability to continue as a going concern is dependent upon
the Company's ability to begin operations and to achieve a level of profitability. The Company intends on financing its future
development activities and its working capital needs largely from the sale of public equity securities with some additional funding
from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient
to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company
be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS
OF PRESENTATION
The financial statements present the balance sheets, statements
of operations, stockholders' deficit and cash flows of the Company. These financial statements are presented in United States dollars
and have been prepared in accordance with accounting principles generally accepted in the United States.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company
considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalent. At February
29, 2018 and February 28, 2017, the Company had $0 and $0, respectively, in cash.
ADVERTISING
Advertising costs are expensed as incurred. During the years
ended February 29, 2018 and February 28, 2017, no advertising costs were incurred.
PROPERTY
The Company does not own any property.
In May 2015, the Company entered into a rental agreement with a related party for office space at $500 per month. This agreement
was cancelled in favor of a new lease agreement entered into in November 2015, also with a related party. As of February 29, 2018,
the Company had paid a total of $6,000 in rental expense.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those estimates.
REVENUE AND COST RECOGNITION
The Company recognizes revenues at the later of (a) the
time of sale or (b) when title passes to the buyers, all significant contractual obligations have been satisfied and collection
of the resulting receivable is reasonably assured.
INCOME TAXES
The Company follows the liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets
and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years
in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the date of enactment or substantive enactment.
NET LOSS PER SHARE
Basic loss per share includes no dilution and is computed by
dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive
loss per share reflects the potential dilution of securities that could share in the losses of the Company. Diluted loss excludes
all dilutive potential shares if their effect is anti-dilutive. During the years ended February 29, 2018 and February 28, 2017,
outstanding convertible notes and warrants were excluded as their effect would have been anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
The company has evaluated all the recent accounting pronouncements
and believes that none of them will have a material effect on the company's financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined the estimated fair value of financial
instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments
classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.
NOTE 4 - RELATED PARTY
On February 28, 2014 the Company recorded a debt to the former
majority shareholder of CME Realty, Inc., Carlos Espinoza, related to the acquisition of CME realty, Inc. and a change of ownership
control. The debt totaled $6,060. The debt was increased to $27,202 through borrowings of $22,150 and repayments of $1,008 during
the year ended February 28, 2015 and was fully forgiven during the year and accounted for as a capital transaction.
On March 1, 2015, the Company approved compensation to the (former)
President at $1,250 per week for services performed. On October 1, 2015, Mr. McLeod resigned as CEO and director of the Company,
but remains with the Company in a non-managerial position. For the years ended February 29, 2016 and February 28, 2015, the Company
has paid $54,350 and $0, respectively.
Pursuant to the Asset Purchase Agreement with Victor G. Harvey,
Sr. and V Georgio Enterprises, the Company issued 1,400,000 common shares valued at $447,860 and a $1,000,000 note payable that
bears no interest and matures May 21, 2016. The Company has paid $90,000 towards the note and had an amount due to seller of $910,000
as of February 29, 2016. In connection with this transaction, the Company recorded an intangible asset in the amount of $1,447,860
during the year ended February 29, 2016.
The note to Victor G. Harvey, Sr. was renegotiated and settled
for $350,000 in cash and stock and the value of the intangible asset was reduced to $350,000.
The Company has accrued $175,000 payable to LandAmerica Holdings & Investments Group, LLC, an affiliate of Vincent Prince,
for business development consulting services performed between March 1, 2015 through August 31, 2015. The accrual of $175,000
was converted to a note payable during the year ended February 29, 2016 which bears no interest and matured September 24, 2015.
The Company repaid $25,000 towards this note during the year ended February 29, 2016 and at February 28, 2018 and February 28,
2017, the outstanding balance under the loan was $150,000 and $150.000, respectively.
During the year ended February 29, 2016, a shareholder loaned
the Company $49,400 and paid expenses on behalf of the Company in the amount of $52,381 which was converted from payables to a
note payable during fiscal 2016. These loans are not secured, are due on demand, and carry no interest. At February 28, 2018 and
February 28, 2017, the outstanding balance under this note was $0 and $0, respectively.
In May 2015, the Company entered into a
rental agreement with a related party for office space at $500 per month. This agreement was cancelled in favor of a new lease
agreement entered into in November 2015, also with a related party. As of February 28, 2018, the Company had paid a total of $6,000
in rental expense.
NOTE 5 - CAPITAL STOCK
The Company is authorized to issue an aggregate of 3,000,000,000
common shares with a par value of $0.001 per share and 500,000 shares of Class A Preferred stock. At February 28, 2018 and February
28, 2017, 1,062,650,079 and 106,099,580 common shares were issued and outstanding, respectively and 500,000 shares Class A preferred
stock has been issued and outstanding.
On September 18, 2015, the company issued 1,400,000 “restricted"
shares of common stock valued at $447,860 to Victor Harvey Sr. pursuant to the August 25, 2015 Asset Purchase Agreement.
On October 1, 2015, a former officer returned 25,000,000 shares
of “restricted” common stock held by him to the Company and sold 25,000,000 shares of “restricted” common
stock held by him to Vincent Prince, resulting in an additional “change in control” having taken place; 108,000 shares
were returned to him pursuant to his separation agreement.
NOTE 6 - LOANS PAYABLE
During the year ended February 29, 2016, a non-related party
loaned and/or paid expenses on behalf of the Company in the amount of $114,583. The Company repaid $1,000 during the year. These
loans are not secured, are due on demand, and carry no interest. As of February 28, 2018 and February 28, 2017, the outstanding
balance owed under this loan was $0 and $0 respectively.
On October 29, 2015, the Company entered into a 10% Convertible
Promissory Note with Typenex Co-Investment, LLC, up to $170,000 in three tranches, which includes a 10% OID and reimbursement of
expenses incurred for due diligence and legal fees related to the transaction. The conversion price per share shall be $0.40. If
Market Cap falls below $10 million, the conversion price shall equal to the lower of $0.40 and the market price as of date of conversion.
On October 29, 2015, the Company had received proceeds of $46,250 under this note, net of original issue discounts and financing
costs of $13,750 which were recognized as a discount to the note. After a series on stock conversions, at February 28, 2018, the
outstanding principal balance under this note was $22,789.
On November 3, 2015, the Company entered into a 10% Convertible
Promissory Note with Iconic Holdings, LLC for up to $110,000 to be repaid or converted into the Company's Common Stock. This note
includes a 10% other financing expense and reimbursement of expenses incurred for due diligence and legal fees related to the transaction.
The conversion price per share shall be lower of $0.05 or 50% of the lowest trading price during the 25 consecutive trading days
prior to the date of notice of conversion. On November 3, 2015, the Company received proceeds of $23,125 under this note, net of
an original issue discount of $2,500 and expense reimbursement of $1,875 which were recognized as a discount to the note. After
a series on stock conversions, at February 28, 2018, the outstanding principal balance under this note was $27,000.
On November 27, 2015, the Company entered into a Securities
Purchase Agreement and an 8% Convertible Redeemable Note with Adar Bays, LLC. The Security Purchase Agreement calls for the issuance
of a Convertible Redeemable Notes in the amount of $35,000 at 8% interest per annum, and include $2,000 in loan expenses. On December
3, 2015, the note was issued and the Company received proceeds of $33,000, net of an original issue discount of $2,000 which was
recognized as a discount to the note. The note has a maturity date of November 27, 2016. The holder of the note is entitled, any
time after 6 months, to convert the face amount of the note to the Company’s common stock at a conversion price equal to
50% of the lowest trading price as reported on National Quotation Bureau OTCQB, or any exchange on which the shares may be traded
in the future, for the 25 prior trading days leading up to and including the date of the Notice of Conversion. In no event shall
the holder be allowed to effect a conversion if the total number of shares held by the holder exceeds 9.9% of the outstanding common
shares of the Company. After a series on stock conversions, at February 28, 2018, the outstanding principal balance under this
note was $35,000.
On December 16, 2015, the Company entered into a Securities
Purchase Agreement and a 10% Convertible Redeemable Note with EMA Financial, LLC. The Security Purchase Agreement calls for the
issuance of a Note in the amount of $40,000 at 10% interest per annum, including loan expenses of $5,500. On December 31, 2015,
the note was issued and the Company received proceeds of $34,500, net of an original issue discount of $5,500 which was recognized
as a discount to the note. The note has a maturity date of December 16, 2016. The Holder shall have the right, as of March 16,
2016, to convert any or all of the outstanding amount due under this Note into fully paid and non-assessable shares of common
stock, at the conversion price determined by the lower of: a) the closing sale price on the principal market on the trading day
immediately preceding the closing date, and b) 55.% of the lowest sale price during the 25 consecutive trading days immediately
preceding the conversion date, unless the Company’s share price at any time loses the bid (ex: 0.0001 on the ask with zero
market makers on the bid on level 2). In that case, the conversion price may be reduced to a fixed conversion price of $0.00001
(if lower than the conversion price otherwise), and provided that the conversion price shall be the sale price of such security
on the principal securities exchange or trading market or, if no sale price is available, the average of the closing bid prices
of any market makers for such security that are listed in the “pink sheets”. If such sale price cannot be calculated
for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined
by the Borrower and the Holder. If the borrower’s common stock is not trading, for any reason, or if the closing sale price
at any time falls below $0.91, then such 55% figure specified above shall be reduced to 40%, and additional conditions apply.
In no event shall the holder be entitled to convert shares owned by the holder it and its affiliates which would result in more
than 4.9% of the outstanding common shares of the Company. After a series on stock conversions, at February 28, 2018, the outstanding
principal balance under this note was $36,500.
On February 16, 2016, the Company entered into a Securities
Purchase Agreement and a 10% Convertible Redeemable Note with APG Capital Holdings, LLC. The Security Purchase Agreement calls
for the issuance of two Convertible Redeemable Notes in the amount of $38,500 each, at 10% interest per annum with a 10% OID. On
February 18, 2016, the first of these notes was issued and the Company received proceeds of $33,000, net of an original issue discount
of $5,500 which was recognized as a discount to the note. The note has a maturity date of February 16, 2017. The agreement provides
for the conversion of the note into common stock equal to 55% of the lowest trading price of the Company’s common stock for
the last 25 trading days prior to conversion. On February 16, 2016, the Company authorized the transfer agent to reserve 9,333,000
common shares per the agreement. The Company has agreed to maintain a reserve of four times the discount amount of the note at
all times. The back end note will be issued with a three times reserve when funded. After a series on stock conversions, at February
28, 2018, the outstanding principal balance under this note was $0.
NOTE 7 - INCOME TAXES
The Company provides for income taxes under ASC 740, “Income
Taxes”. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred
tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities
and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation
allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
The components of the Company's deferred tax asset and reconciliation
of income taxes computed at the statutory rate to the income tax amount recorded as of 2018 is as follows:
|
|
|
February 29, 2018
|
|
|
February 28, 2017
|
|
|
|
|
|
|
|
|
|
|
Net operating Loss Carry Forward
|
|
$
|
853,010
|
|
|
$
|
823,489
|
|
|
Effective Tax Rate
|
|
|
34%
|
|
|
|
34%
|
|
|
Deferred Tax Assets
|
|
|
290,023
|
|
|
|
279,986
|
|
|
Less: Valuation Allowance
|
|
|
(290,023
|
)
|
|
|
(279,986
|
)
|
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The net federal operating loss carry forward will expire in
2036. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.
