UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period endedJanuary 31, 2017
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJuly 31, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number:000-54493
DTS8 COFFEE COMPANY, LTD.
(Exact name of registrant as specified in its charter)
| Nevada | 80-0385523 | |
| (State or other jurisdiction of | ||
incorporation or organization) | (I.R.S. Employer Identification No.) |
Suite 300 – 1055 West Hastings Street
Vancouver, British Columbia, Canada V6E 2E9
(Address of principal executive offices) (Zip Code)
(604) 609-6163
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:None
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. Yes [ ]No [X]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).Yes [X]No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 [ ] Accelerated filer [ ] Non-accelerated filer [ ]Smaller reporting company [X]
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. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSURS:
As of October 28,November 12, 2019, the registrant’s outstanding common stock consisted of 73,318,993 shares.
Table of Contents
| PART I – FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
| Item 4. | Controls and Procedures | |||
| PART II – OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | |||
| Item 2. | Unregistered Sales of Equity Securities | |||
| Item 3. | Defaults Upon Senior Securities | |||
| Item 4. | Mine Safety Disclosures | |||
| Item 5. | Other Information | |||
| Item 6. | Exhibits | |||
PART I – FINANCIAL INFORMATION
All references in this report to “we”, “us”, “our” and the “Company” are to DTS8 Coffee Company, Ltd., unless otherwise indicated.
All currency references in this report are to U.S. dollars unless otherwise indicated.
Forward-Looking Statements
This report contains forward-looking statements that involve risk and uncertainties. We use forward-looking statements that you can identify by words or terminology such as “may”, “should”, “could”, “predict”, “potential”, “continue”, “expect”, “anticipate”, “future”, “intend”, “plan”, “believe”, “estimate” and similar expressions (or the negative of these expressions). Except for historical information, this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. All statements other than statements of historical fact included in this report, including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section regarding our financial position, business strategy and other plans and objectives for future operations, and future product demand, supply, costs, marketing, transportation and pricing factors, are forward-looking statements. Actual results, levels of activity, performance, achievements and events may vary materially from those implied by the forward-looking statements.
Forward-looking statements are based on our current beliefs, expectations and assumptions. Any such statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. The various risks and uncertainties include, but are not limited to: changes in general economic conditions; changes in business conditions; fluctuations in consumer demand; the availability and costs of raw materials; increased competition; our lack of successful operating history; our history of continued losses; our inability to successfully implement our business plan; concentration of single product and sales; lack of significant industry experience; our inability to hire, train and retain qualified personnel; our inability to acquire customers; and natural disasters, adverse weather conditions, diseases, political and social instability in countries where we source raw materials. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto.
Except for our ongoing obligations to disclose material information under Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
DTS8 COFFEE COMPANY, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 2016
DTS8 COFFEE COMPANY, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 2017
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS
| July 31, 2016 | April 30, 2016 | January 31, 2017 | April 30, 2016 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash and cash equivalents | $ | 1,251 | $ | 7,275 | $ | 894 | $ | 7,275 | ||||||||
| Prepaid expenses | 23,385 | 525 | 62,596 | 525 | ||||||||||||
| TOTAL ASSETS | 24,636 | 7,800 | $ | 63,490 | $ | 7,800 | ||||||||||
| LIABILITIES & SHAREHOLDERS’ DEFICIT | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable and accruals | $ | 39,257 | $ | 78,952 | $ | 42,778 | $ | 78,952 | ||||||||
| Loans payable | 167,713 | - | 246,618 | - | ||||||||||||
| Convertible notes payable, net | 75,176 | 258,000 | 78,120 | 258,000 | ||||||||||||
| Derivative liabilities | 38,367 | 293,606 | 108,722 | 293,606 | ||||||||||||
| Total Current Liabilities | 320,513 | 630,558 | 476,238 | 630,558 | ||||||||||||
| Loans payable | $ | 508,777 | $ | 371,749 | 508,777 | 371,749 | ||||||||||
| Due to related parties | 148,749 | - | 182,049 | - | ||||||||||||
| Liabilities held for sale | - | 126,305 | - | 126,305 | ||||||||||||
TOTAL LIABILITIES | 1,167,064 | 1,128,612 | ||||||||||||||
TOTAL LIABILITIES | 978,039 | 1,128,612 | ||||||||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||||||||||
| Common stock, 75,000,000 shares authorized, $0.001 par value; 58,928,163 and 52,336,499 shares issued and outstanding as of July 31, 2016 and April 30, 2016, respectively | 58,928 | 52,336 | ||||||||||||||
| Common stock, 75,000,000 shares authorized, $0.001 par value; 63,928,163 and 52,336,499 shares issued and outstanding as of January 31, 2017 and April 30, 2016, respectively | 63,928 | 52,336 | ||||||||||||||
| Additional paid in capital | 8,460,392 | 8,294,622 | 8,560,392 | 8,294,622 | ||||||||||||
| Shares to be issued | 16,000 | - | ||||||||||||||
| Accumulated deficit | (9,472,723 | ) | (9,475,458 | ) | (9,743,894 | ) | (9,475,458 | ) | ||||||||
| Accumulated other comprehensive income (loss) | - | 7,688 | - | 7,688 | ||||||||||||
| TOTAL STOCKHOLDERS’ DEFICIT | (953,403 | ) | (1,120,812 | ) | (1,103,574 | ) | (1,120,812 | ) | ||||||||
| TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT | $ | 24,636 | $ | 7,800 | $ | 63,490 | $ | 7,800 | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Three Months Ended July 31, 2016 Unaudited | Three Months | Three Months Ended January 31, 2017 Unaudited | Three Months Ended January 31, 2016 Unaudited | Nine Months Ended January 31, 2017 Unaudited | Nine Months Ended Unaudited | |||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| General and administrative expenses | 30,461 | 73,176 | 75,284 | 82,427 | 206,165 | 784,945 | ||||||||||||||||||
| TOTAL OPERATING EXPENSES | 30,461 | 73,176 | 75,284 | 82,427 | 206,165 | 784,945 | ||||||||||||||||||
| LOSS FROM OPERATIONS | (30,461 | ) | (73,176 | ) | (75,284 | ) | (82,427 | ) | (206,165 | ) | (784,945 | ) | ||||||||||||
| Interest expense | 40,647 | 1,087 | (13,218 | ) | (110,293 | ) | (65,759 | ) | (176,762 | ) | ||||||||||||||
| Change in fair value of derivative liabilities | (190,877 | ) | - | (51,608 | ) | (269,477 | ) | 120,522 | (290,774 | ) | ||||||||||||||
| Other expenses | - | (131 | ) | - | (19,807 | ) | ||||||||||||||||||
| TOTAL OTHER INCOME (EXPENSES) | 150,230 | (1,087 | ) | (64,826 | ) | (379,901 | ) | 54,763 | (487,343 | ) | ||||||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS $ | 119,769 | (74,263 | ) | |||||||||||||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | (140,110 | ) | (462,328 | ) | (151,402 | ) | (1,272,288 | ) | ||||||||||||||||
| NET LOSS ON DISCONTINUED OPERATIONS | (117,034 | ) | (4,566 | ) | - | (21,907 | ) | (117,034 | ) | (32,964 | ) | |||||||||||||
| NET INCOME (LOSS) | $ | 2,735 | $ | (78,829 | ) | $ | (140,110 | ) | $ | (484,235 | ) | $ | (268,436 | ) | $ | (1,305,252 | ) | |||||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | 60 | - | 4,570 | - | 8,327 | ||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | (140,110 | ) | $ | (479,665 | ) | $ | (268,436 | ) | $ | (1,296,925 | ) | ||||||||||||
| $ | 2,735 | $ | 78,769 | |||||||||||||||||||||
| BASIC AND DILUTED NET LOSS PER COMMON SHARE $ | ||||||||||||||||||||||||
| BASIC AND DILUTED NET LOSS PER COMMON SHARE | ||||||||||||||||||||||||
| From continuing operations | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.03 | ) | ||||||
| From discontinued operations | $ | (0.00 | ) | $ | - | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED | 58,239,952 | 35,661,231 | 63,928,163 | 49,594,832 | 63,928,163 | 43,895,324 | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| F-2 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
DTS8 COFFEE COMPANY, LTD.
| Common Stock | Additional | Accumulated Other | Total | Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Paid-In Capital | Comprehensive Loss | Accumulated Deficit | Stockholders’ Deficit | Number of Shares | Amount | Additional Paid-In Capital | Shares to be issued | Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance as of April 30, 2015 | 34,791,666 | $ | 34,791 | $ | 7,057,409 | $ | (5,731 | ) | $ | (7,867,478 | ) | $ | (781,009 | ) | 34,791,666 | $ | 34,791 | $ | 7,057,409 | $ | - | $ | (5,731 | ) | $ | (7,867,478 | ) | $ | (781,009 | ) | ||||||||||||||||||||||
| Shares issued for cash | 2,500,000 | 2,500 | 47,500 | - | - | 50,000 | 2,500,000 | 2,500 | 47,500 | - | - | - | 50,000 | |||||||||||||||||||||||||||||||||||||||
| Shares issued for services | 9,500,000 | 9,500 | 733,900 | - | - | 743,400 | 9,500,000 | 9,500 | 733,900 | - | - | - | 743,400 | |||||||||||||||||||||||||||||||||||||||
| Share issued for the settlement of related party debt and payables | 3,542,857 | 3,543 | 244,457 | - | - | 248,000 | 3,542,857 | 3,543 | 244,457 | - | - | - | 248,000 | |||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | 2,001,976 | 2,002 | 79,158 | - | 81,160 | 2,001,976 | 2,002 | 79,158 | - | - | 81,160 | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the year ended April 30, 2016 | - | - | - | - | (1,607,980 | ) | (1,607,980 | ) | - | - | - | - | - | (1,607,980 | ) | (1,607,980 | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | 13,419 | - | 13,419 | - | - | - | - | 13,419 | - | 13,419 | |||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid-in capital | - | - | 132,198 | - | - | 132,198 | - | - | 132,198 | - | - | - | 132,198 | |||||||||||||||||||||||||||||||||||||||
| Balance as of April 30, 2016 | 52,336,499 | $ | 52,336 | $ | 8,294,622 | $ | 7,688 | $ | (9,475,458 | ) | $ | (1,120,812 | ) | 52,336,499 | $ | 52,336 | $ | 8,294,622 | $ | - | $ | 7,688 | $ | (9,475,458 | ) | $ | (1,120,812 | ) | ||||||||||||||||||||||||
| Shares issued for services | 1,000,000 | 1,000 | 27,000 | - | - | 28,000 | 6,000,000 | 6,000 | 127,000 | - | - | - | 133,000 | |||||||||||||||||||||||||||||||||||||||
| Shares issued for the settlement of related party debt and payables | 3,000,000 | 3,000 | 27,000 | 30,000 | 3,000,000 | 3,000 | 27,000 | - | 30,000 | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | 2,591,664 | 2,592 | 47,408 | 50,000 | 2,591,664 | 2,592 | 47,408 | - | 50,000 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment from discontinued operations | - | - | - | (7,688 | ) | - | (7,688 | ) | - | - | - | - | (7,688 | ) | - | (7,688 | ) | |||||||||||||||||||||||||||||||||||
| Net income for the three months ended July 31, 2016 | - | - | - | - | 2,735 | 2,735 | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares to be issued for debt settlement | - | - | - | 16,000 | - | - | 16,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the nine months ended January 31, 2017 | - | - | - | - | - | (268,436 | ) | (268,436 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid-in capital | - | - | 64,362 | - | - | 64,362 | - | - | 64,362 | - | - | - | 64,362 | |||||||||||||||||||||||||||||||||||||||
| Balance as of July 31, 2016 | 58,928,163 | $ | 58,928 | $ | 8,460,392 | $ | - | $ | (9,472,723 | ) | $ | (953,403 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of January 31, 2017 | 63,928,163 | $ | 63,928 | $ | 8,560,392 | $ | 16,000 | $ | - | $ | (9,743,894 | ) | $ | (1,103,574 | ) | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statementsstatement
| F-3 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended July 31, 2016 Unaudited | Three Months Ended | Nine Months Ended January 31, 2017 Unaudited | Nine Months Ended January 31, 2016 Unaudited | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
| Continuing Operations | ||||||||||||||||
| Net Income (loss) from continuing operations | $ | 119,769 | $ | (74,263 | ) | $ | (151,402 | ) | (1,272,288) | |||||||
| Adjustments to reconcile net loss to net cash used in continuing operating activities: | ||||||||||||||||
| Amortization of debt discount | - | 169,500 | ||||||||||||||
| Change in fair value of derivative liabilities | (190,877 | ) | - | (120,522 | ) | 290,774 | ||||||||||
| Financing costs | 5,718 | - | 28,456 | - | ||||||||||||
| Accrued interest on loans | 6,995 | - | 29,162 | 2,160 | ||||||||||||
| Shares issued for services | 4,615 | - | 70,404 | 540,500 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Prepaid expenses | 525 | - | 525 | - | ||||||||||||
| Due to related parties | - | 49,500 | - | 154,529 | ||||||||||||
| Accounts payable and accruals | (39,695 | ) | (26,074 | ) | (36,174 | ) | (132,111 | ) | ||||||||
| NET CASH USED IN CONTINUING OPERATING ACTIVITIES | (92,950 | ) | (50,837 | ) | (179,551 | ) | (246,936 | ) | ||||||||
| CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES | ||||||||||||||||
| Shares issued for cash | - | 50,000 | - | 50,000 | ||||||||||||
| Proceeds (repayments) of convertible notes | (132,824 | ) | - | (129,880 | ) | 200,000 | ||||||||||
| Proceeds (repayments) of related parties | 28,500 | (103,207 | ) | 61,800 | (116,318 | ) | ||||||||||
| Proceeds from notes payable | 191,250 | - | 241,250 | - | ||||||||||||
| NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES | 86,926 | (53,207 | ) | |||||||||||||
| NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES | 173,170 | 133,682 | ||||||||||||||
| CASH FLOW FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| Net cash provided by (used in) discontinued operating activities | (117,034 | ) | 28,755 | |||||||||||||
| Net cash Provided by (used in) discontinued operating activities | (117,034 | ) | 67,739 | |||||||||||||
| Net cash provided by (used in) discontinued investing activities | 117,034 | 120 | 117,034 | (9,880 | ) | |||||||||||
| NET CASH USED BY DISCONTINUED OPERATIONS | - | 28,875 | ||||||||||||||
| NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS | - | 57,859 | ||||||||||||||
| NET INCREASE (DECREASE) IN CASH | (6,024 | ) | (75,169 | ) | (6,831 | ) | (55,395 | ) | ||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 7,275 | 85,665 | 7,275 | 85,665 | ||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 1,251 | $ | 10,496 | $ | 894 | $ | 30,270 | ||||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||||
| Shares issued for conversion of notes and accrued interests | 50,000 | - | 50,000 | 56,160 | ||||||||||||
| Shares issued for services | 28,000 | - | ||||||||||||||
| shares issued for related party debt | - | 248,000 | ||||||||||||||
| Reclassification of derivative liabilities to additional paid-in capital | 64,362 | - | 64,362 | 91,509 | ||||||||||||
| Share issued for services | 133,000 | - | ||||||||||||||
| Debt discount from derivative liabilities | - | 254,000 | ||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| F-4 |
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULYJANUARY 31, 20162017 AND 20152016
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
DTS8 Coffee Company, Ltd. (the “Company”) was incorporated in the State of Nevada on March 27, 2009 under the name Berkeley Coffee & Tea, Inc. On April 30, 2012, the Company acquired 100% of the issued and outstanding capital stock of DTS8 Holdings Co., Ltd. (“DTS8 Holdings”), a corporation organized and existing under the laws of Hong Kong, and which owns DTS8 Coffee (Shanghai) Co., Ltd. (“DTS8 Coffee”), a wholly owned foreign subsidiary entity (“WOFE”) corporation organized and existing under the laws of the People’s Republic of China.
In March 2013, the Company established a 100% owned subsidiary of DTS8 Coffee called DTS8 Coffee (Huzhou) Co. Ltd. (“DTS8 Huzhou”) in Huzhou, Zhejiang Province, China. DTS8 Huzhou is a coffee roaster equipped with the standard procedures to ensure that it meets regulatory requirements for food safety and sanitation in China. Effective May 1, 2016, the Company disposed of its former wholly-owned subsidiaries in China and incurred a loss in the amount of $117,034 to the statement of operations and comprehensive loss.
The Company’s head office is located at Suite 300, 1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9.
NOTE 2 – BASIS OF PRESENTATION
The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for annual financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”). In the opinion of management, the financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the results for the years presented.
The accompanying interim consolidated financial statements have been prepared to present the consolidated statements of financial position, the consolidated statements of operations and comprehensive loss, consolidated statements of changes in stockholders’ deficit and consolidated cash flows of the Company for the period ended JulyJanuary 31, 2016,2017, for inclusion in the Company’s Form 10-Q for purposes of complying with the rules and regulations of the SEC as required by Article 8 of Regulation S-X. The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) using Company specific information where available and allocations and estimates where data is not maintained on the Company specific basis within its books and records. Due to the allocations and estimates used to prepare the financial statements, they may not reflect the financial position, cash flows and results of operations of the Company in the future or its operations, cash flows and financial position.
The preparation of financial statements in accordance with US GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues, goodwill impairment and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s financial position and results of operations.
NOTE 3 – GOING CONCERN UNCERTAINTY
The accompanying interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of the business. The Company has disposed of the majority of its assets, incurred material losses from operations and has an accumulated deficit. At JulyJanuary 31, 2016,2017, the Company had a working capital deficit of $295,877$412,748 in addition to limited cash, no revenue and disposition of its operations. For the threenine months ended JulyJanuary 31, 2016,2017, the Company sustained net losses and generated negative cash flows from operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated 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 may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and there is no assurance that the Company will be able to obtain such financings or obtain them on favorable terms.
| F-5 |
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULYJANUARY 31, 20162017 AND 20152016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to US GAAP and have been consistently applied in the preparation of the financial statements.
Basis of Preparation
The accompanying interim consolidated financial statements have been prepared to present the consolidated statements of financial position, the consolidated statements of operations and comprehensive loss, consolidated statements of changes in stockholders’ deficit and consolidated cash flows of the Company for the threenine months ended JulyJanuary 31, 2016,2017, and have been prepared in accordance with US GAAP.
Basis of Consolidation
The accompanying interim consolidated financial statements include the accounts of the Company, and its former direct and indirect wholly-owned subsidiaries, DTS8 Holdings, DTS8 Coffee, and DTS8 (Huzhou).Huzhou. All significant inter-company transactions and balances were eliminated upon consolidation.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues, goodwill impairment and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, bank indebtedness and accounts receivable. During the period ended JulyJanuary 31, 2016,2017, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the United States of America, which management believes aren’t of high credit quality. With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally did not require collateral for accounts receivable and maintained an allowance for doubtful accounts of accounts receivable if necessary. As of JulyJanuary 31, 2016,2017, the Company hadhas no accounts receivable.
Cash and Cash Equivalents
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. As at JulyJanuary 31, 20162017 and April 30, 2016, cash and cash equivalents consistconsisted of cash only.
Receivables and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at net realizable value and do not bear interest. The Company evaluates its allowance for doubtful accounts based upon knowledge of its customers and their compliance with credit terms. The evaluation process includes a review of customers’ accounts on a regular basis. The review process evaluates all account balances with amounts outstanding for more than 60 days and other specific amounts for which information obtained indicates that the balance may be uncollectible. As of JulyJanuary 31, 20162017 and April 30, 2016, there was no allowance for doubtful accounts. Based on management’s best estimate of the amount of probable credit losses in accounts receivable. The Company does not have any off-balance-sheet credit exposure related to its customers. As of JulyJanuary 31, 2016,2017, from the disposition of its operations during the year, the Company had no accounts receivable.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULYJANUARY 31, 20162017 AND 20152016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Inventories
Inventories are stated at the lower of cost or market. The cost for inventories is determined using the first-in, first-out method. The cost includes all expenditures incurred in bringing the goods to the point of sale and putting them in a sellable condition. In assessingthe ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts and orders in hand. In addition, the Company estimates net realizable value based on intended use, current market value and inventory aging analyses. The Company writes down inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and their estimated market value based upon assumptions about future demand and market conditions. Inventories principally consist of green coffee beans, roasted coffee beans and packing supplies. As of JulyJanuary 31, 2016,2017, from the disposition of its operations during the year, the Company had no inventory.
Property and Equipment
Property and equipment are recorded at cost. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line basis over their estimated useful lives as set out below. Major remodels and improvements are capitalized. Maintenance and repairs that do not improve or extend the life of the respective assets are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.
| Useful life | Residue value | |||||
| Machinery equipment | 10 years | % | ||||
| Office equipment | 5 years | % | ||||
| Production equipment | 5 years | % | ||||
| Vehicles | 4 years | % | ||||
| Leasehold Improvements | 3 years | % | ||||
Impairment of Long-Lived Assets
The Company accounts for impairment of property and equipment in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the Company to evaluate a long-lived asset for recoverability when there is an event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value. There was no impairment of long-lived assets for the periodperiods ended JulyJanuary 31, 2016.2017.
Fair Value of Financial Instruments
ASC 820 “Fair Value Measurements and Disclosures”, adopted January 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The Company’s financial instruments include cash and cash equivalents, current receivables and payables, and derivative liabilities. These financial instruments are measured at their respective fair values. The three levels are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or 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 assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
The Company has determined that certain convertible notes covered by these financial statements qualifies as derivative financial instruments under the provisions of Financial Accounting Standards Board (“FASB”) ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”. See Note 13 for more details.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Estimating the fair value of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. The assumptions used to value the Company’s derivatives will have a direct effect on the fair values. In addition, valuation techniques are sensitive to changes in the trading market price of the Company’s common stock and its estimated volatility and interest rate changes and other variables or market conditions not within the Company’s control that can significantly affect management’s estimates of fair value and changes in fair value. Because derivative financial instruments are initially and subsequently carried at fair value, the Company’s net income may include significant charges or credits as these estimates and assumptions change.
The fair value of the derivative liabilities was determined using the Black-Scholes Model with any change in fair value during the period recorded in earnings as “Change in fair value of derivative liabilities”. Significant inputs used to calculate the fair value of the derivative liabilities include expected volatility, risk-free interest rate and dividend yield.
For cash, cash equivalents, bank indebtedness, accounts receivables, prepaid expenses, and accounts payable and accruals, it is management’s opinion that the carrying values are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.
Management believes it is not practical to estimate the fair value of related party payables because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.
Revenue Recognition
The Company derives its revenue from the sale of roasted coffee. Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs, the sales price is fixed or determinable and collectability is reasonably assured. Coffees are considered delivered when title and risk have been transferred to the customer. Retail sales are recorded when payment is tendered at the point of sale. Wholesale sales are recorded upon delivery of coffee to the customers. In the People’s Republic of China, a value added tax (“VAT”) of 17% on invoiced amount is collected on behalf of tax authorities. Revenues represent the invoiced value of goods sold, net of VAT.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. For the period ended JulyJanuary 31, 2016,2017, the Company did not incur any advertising costs.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes pursuant to ASC 740, “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Comprehensive Income
The Company has adopted ASC 220, “Reporting Comprehensive Income”, which requires inclusion of foreign currency translation adjustments, reported separately in its statement of stockholders’ equity, in other comprehensive income. During the periods presented, other comprehensive income includes cumulative translation adjustment from foreign currency translation.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Foreign Currency Translation
The Company’s functional and reporting currency is United States dollars (“USD”). The functional currency of the Company’s former wholly-owned subsidiaries DTS8 Coffee and DTS8 Huzhou in the People’s Republic of China was Chinese currency Renminbi (“RMB”). Since RMB is not freely convertible into foreign currencies, all foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC.
The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
For financial reporting purposes, the financial statements of the Company’s former wholly-owned subsidiaries DTS8 Coffee and DTS8 Huzhou in the People’s Republic of China were maintained in RMB and translated into USD. Balance sheet accounts with the exception of equity were translated using the closing exchange rate in effect at the balance sheet date, income and expense accounts were translated using the average exchange rate prevailing during the reporting period and the equity accounts were stated at their historical exchange rate.
Adjustments resulting from the translation or RMB to USD are included in accumulated other comprehensive income (loss) in stockholders’ deficit.
The exchange rates used for foreign currency translation were as follows (USD$1 = RMB):
Period Covered | Balance Sheet Date Rates | Annual Average Rates | ||||||
| July 31, 2016 | 6.6322 | 6.5564 | ||||||
| April 30, 2016 | 6.4589 | 6.3504 | ||||||
Period Covered | Balance Sheet Date Rates | Annual Average Rates | ||||||
| January 31, 2017 | 6.8767 | 6.7863 | ||||||
| April 30, 2016 | 6.4589 | 6.3504 | ||||||
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Earnings per Share
Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments, such as convertible note payable, unless the effect is to reduce a loss or increase earnings per share. The Company had no dilutive securities for the periods ended JulyJanuary 31, 20162017 and 2015.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)2016.
Stock Issued for Services
The Company accounts for stock-based compensation to employees in accordance with ASC 718 which requires companies to measure the cost of services received in exchange for an award of an equity instrument based upon the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. Stock-based compensation awards to non-employees are accounted for in accordance with ASC 505-50.
Recently Issued Accounting Pronouncements
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”,Accounting,” to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 simplifies the accounting for nonemployee share-based payments, aligning it more closely with the accounting for employee awards. These changes become effective for the Company’s fiscal year beginning January 1, 2019. Early application is permitted. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
In February 2017, the FASB issued ASU 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”,Assets,” which addresses the transfer to noncustomers of nonfinancial assets or ownership interests in consolidated subsidiaries that do not constitute a business and the contribution of nonfinancial assets that are not a business to a joint venture or other noncontrolled investee. These changes become effective for the Company’s fiscal year beginning January 1, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”,Business,” which clarifies the definition of a business to assist entities in the evaluation of acquisitions and disposals of assets or businesses. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. These changes become effective for the Company’s fiscal year beginning January 1, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”,Cash,” which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. These changes become effective for the Company’s fiscal year beginning January 1, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
In July,October, 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra Entity Transfer of Assets Other than Inventory”,Inventory,” which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. These changes become effective for the Company’s fiscal year beginning after December 15, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Recently Issued Accounting Pronouncements (Continued…)
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”,Payments,” which provides guidance on the presentation and classification of certain cash receipts and payments in the statement of cash flows. These changes become effective for the Company’s fiscal year beginning January 1, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes become effective for the Company’s fiscal year beginning January 1, 2019. Modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. The Company is in the process of evaluating the impact of this ASU on its consolidated financial statements.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED…)
Recently Issued Accounting Pronouncements (Continued…)
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”,Liabilities,” which (i) requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (iii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
These changes become effective for the Company’s fiscal year beginning January 1, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),”, which has subsequently been amended to update revenue guidance under the newly-created ASC 606. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”,Date,” which deferred the effective date of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” become effective for the Company’s fiscal year beginning January 1, 2018. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact on the Company’s present or future financial statements.
NOTE 5 – INVENTORY
The Company’s former wholly-owned subsidiaries DTS8 Coffee and DTS8 Huzhou in the People’s Republic of China owned inventory. As the Company’s foreign operations were disposed of effective May 1, 2016, inventories were $Nil for the period ended JulyJanuary 31, 2016.2017. See Note 14 for the inventory total as of JulyJanuary 31, 2016.2017.
NOTE 6 – PROPERTY AND EQUIPMENT
The Company’s former wholly-owned subsidiaries DTS8 Coffee and DTS8 Huzhou in the People’s Republic of China owned property and equipment. As the Company’s foreign operations were disposed of oneffective May 1, 2016, property and equipment was $Nil for the period ended JulyJanuary 31, 2016.2017. The depreciation expenses were $Nil and $3,943$10,823 for the threenine months ended JulyJanuary 31, 20162017 and 2015,2016, respectively. See Note 14 for the property and equipment as of JulyJanuary 31, 2016.2017.
NOTE 7 – RELATED PARTY TRANSACTIONS
Related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
| F-11 |
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 7 – RELATED PARTY TRANSACTIONS (CONTINUED…)
On August 10, 2015, Company entered into a management agreement with Douglas Thomas to serve as the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company. Mr. Thomas’s engagement commenced on August 10, 2015 and shall continue on a year-to-year basis until terminated by either party upon 60 days prior written notice to the other party. The Company shall make a monthly management fee payment of $6,000 to Mr. Thomas, in arrears, on the 25th day of each month and issue 4,000,000 restricted common shares of the Company as engagement bonus remuneration. As of JulyJanuary 31, 20162017 and April 30, 2016, the Company owed Mr. Thomas $136,549$166,849 and $118,548, respectively. On June 13, 2017, Mr. Thomas resigned as the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company and thereby ceased to be a related party.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 7 – RELATED PARTY TRANSACTIONS (CONTINUED…)
On August 31, 2015, the Company entered into an agreement with Cherry Cai to serve as the financial controller of the Company. Ms. Cai’s engagement commenced on September 1, 2015, and shall continue on a year-to-year basis until terminated by either party upon 30 days prior written notice to the other party. The Company shall make monthly fee payment of $3,000 to Ms. Cai, in arrears, on 25th day of each month and issue 1,000,000 shares of common stock of the Company to Ms. Cai. 500,000 shares were issued in September 2015 and the balance of 500,000 shares was to be issued on September 1, 2016. As of JulyJanuary 31, 2016,2017, the Company has deferred the issuance of the 500,000 shares to a later date. As of JulyJanuary 31, 2016,2017 and April 30, 2016, the Company owed Ms. Cai $12,200$15,200 and $1,700, respectively.
On April 30, 2012, upon its acquisition of DTS8 Holdings, the Company assumed a loan payable of $382,396 owed by DTS8 Coffee to a consultant who provides accounting and financial reporting services to the Company through his company from time to time on a monthly basis. Upon the disposition of DTS8 Holdings and its operations, the Company retained the loan payable of $251,027. The amounts owed, as a loan payable, as of JulyJanuary 31, 2016,2017, and April 30, 2016, were $251,027. The balance of the amount is unsecured, non-interest bearing, has no fixed term of repayment, and is repayable on demand, and the consultant has agreed not to demand payment within the next fiscal year. In addition, for the periods ended JulyJanuary 31, 20162017 and April 30, 2016, the Company owed the consultant $257,750 and $251,500, respectively, for consulting services provided to the Company. Accordingly, as of JulyJanuary 31, 2016 and2017and April 30, 2016, the total loans and consulting fees owed to this consultant totaled $508,777 and $371,749.$502,527.
On May 23, 2016, the Company entered into a loan agreement with Thomas Prasil Trust U/A/D November 26, 2003, in the principal amount of $185,000, due and payable in full on November 20, 2016. The loan bears an annual interest rate of 20%. The Company paid a loan fee of 3,000,000 shares of common stock which was issued on May 25, 2016.
On September 21, 2016, the Company entered into a second loan agreement with Thomas Prasil Trust U/A/D November 26, 2003 in the principal amount of $50,000, due and payable in full on December 31, 2016. The loan bears an annual interest rate of 20%. The Company agreed to pay a loan fee of 800,000 shares of common stock which was not issued as of January 31, 2017.
Also see Note 9 for common stock issued to related parties.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Company disposed of its subsidiaries and operations effective May 1, 2016 and as such does not have any leased properties or commitments as of JulyJanuary 31, 2016.2017.
NOTE 9 – COMMON STOCK
At JulyJanuary 31, 2016,2017, the Company’s authorized capital was 75,000,000 shares of common stock with a par value of $0.001 and 58,928,16363,928,163 shares were issued and outstanding.
In May 2016, the Company issued 1,121,076 and 1,470,588 restricted shares of common stock for the conversion of principal of $50,000 of Note II described in Note 12.
In May 2016, the Company issued 3,000,000 restricted shares of common stock at a price of $0.01 per share for cash proceeds of $185,000 from a related party. The Company also reserved 800,000 restricted shares of common stock to be issued as a loan fee. As of JulyJanuary 31, 2016,2017, the shares have still not been issued.
In June 2016, the Company issued 1,000,000 restricted shares of common stock to a consultant at a price of $0.028 per share for consulting fees. Total value of the services valued at the fair market price on the issuance date was $28,000. For the threenine months ended JulyJanuary 31, 2016, $4,6152017, $18,769 was expensed as consulting fees.
In August 2016, the Company issued 5,000,000 restricted shares of common stock to a consultant at a price of $0.021 per share for consulting fees. Total value of the services value at the fair market price on the issuance date was $105,000. For the nine months ended January 31, 2017, $51,634 was expensed as consulting fees.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 10 – CONCENTRATION RISK
The Company disposed of its subsidiaries and its operations oneffective May 1, 2016 and as such does not have any concentrations of risk that would adversely affect the Company’s operations for the period ended JulyJanuary 31, 2016.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
2017.
NOTE 11 – LOANS PAYABLE
As of JulyJanuary 31, 2016,2017, the loans payable consisted of the following:
| July 31, 2016 | April 30, 2016 | January 31, 2017 | April 30, 2016 | |||||||||||||
| Unsecured, interest at 20% per annum, due May 20, 2017(1) | $ | 167,713 | $ | - | $ | 201,613 | $ | - | ||||||||
| Unsecured, interest at 20% per annum, due May 20, 2017(2) | 45,105 | |||||||||||||||
| Unsecured, non-interest bearing, due on demand with no repayment in the next 12 months | 508,777 | 371,749 | 508,777 | 502,527 | ||||||||||||
| 652,208 | 371,749 | 755,495 | 502,527 | |||||||||||||
| Current portion | (167,713 | ) | - | (246,718 | ) | - | ||||||||||
| Long-term portion | $ | 508,777 | $ | 371,749 | $ | 508,777 | $ | 502,527 | ||||||||
| (1) | Amount is net of unamortized debt issuance costs of | |
| (2) | Amount is net of unamortized debt issuance costs of $8,511 as of January 31, 2017. |
NOTE 12 – CONVERTIBLE NOTES
On March 6, 2015, the Company issued a convertible note (“Note I”) in the amount of $54,000. Note I was due together with any interest on December 10, 2015 (the “Maturity Date”). The Company was required to pay interest on the unpaid principal balance of Note I at the rate of 8% per annum from March 10, 2015, until the Maturity Date. Any amount of principal or interest which was not paid on the Maturity Date bore interest at the rate of 22% per annum from the due date until the note was paid in full. The holder of Note I had the right from time to time, and at any time during the period beginning on the date which was 180 days following the date of the note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the note, each in respect of the remaining outstanding principal amount of the note to convert all or any part of the outstanding and unpaid principal amount of the note into fully paid and non-assessable shares of common stock of the Company. The conversion price was equal, subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company, to 61% multiplied by the market price of the average of the lowest three trading prices for the Company’s common stock during the 10 trading days prior to the conversion date.
In accordance with ASC 815-15, the Company analyzed the conversion option of the note for derivative accounting consideration. The Company determined that the conversion option of the note should be classified as a liability once the conversion option becomes effective after 180 days because there is no limit to the number of shares of common stock to be issued upon conversion of the note.
On September 9, 2015, Note I became convertible. On September 18, 2015, the debt holder converted $12,000 of the note into 230,769 shares of the Company’s common stock at a price of $0.0520 per share. On September 25, 2015, the debt holder converted $15,000 of the note into 260,417 shares of the Company’s common stock at a price of $0.0576 per share. On September 30, 2015, the debt holder converted $20,000 of the note into 316,456 shares of the Company’s common stock at a price of $0.0632 per share. On JulyOctober 7, 2015, the debt holder converted the remaining principal of $7,000 and the accrued interest in the amount of $2,160 into a total of 152,667 shares of the Company’s common stock at a price of $0.0600. As of April 30, 2016, the principal amount of Note I of $54,000 and accrued interest of $2,160 were fully converted into 960,309 shares of the Company’s common stock. As of JulyJanuary 31, 2016,2017, the balance payable on Note I was $Nil.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 12 – CONVERTIBLE NOTE (CONTINUED…)
On JulyOctober 20, 2015, the Company issued two convertible promissory notes (collectively, “Note II”) with the same terms in the total amount of $210,000 with a discount of 5%. The net proceeds of $200,000 were not received until JulyOctober 23, 2015. Note II was due together with any interest on April 19, 2016 (the “Second Maturity Date”). The Company was required to pay interest on the unpaid principal balance of Note II at the rate of 10% per annum from JulyOctober 23, 2015 until the Second Maturity Date. The outstanding principal and interest at 120% could be redeemed within 90 days of closing and 130% after 90 days. The conversion price was equal, subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company, to 61% of the lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the 15 trading days prior to the conversion date. Upon default, the holder of Note II had the right to convert Note II into shares of the Company’s common stock at an alternative conversion price equal to 50% of the lowest daily VWAP of the common stock during the 20 trading days prior to the conversion date. All overdue accrued and unpaid interest to be paid entailed a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law which accrued daily from the date such interest was due through and including the date of actual payment in full.
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 12 – CONVERTIBLE NOTES (CONTINUED…)
On JulyOctober 20, 2015, Note II became convertible. On April 25, 2016, the holder of Note II converted $25,000 of the note into 1,041,667 shares of the Company’s common stock at a price of $0.0240 per share. On May 6, 2016, the debt holder converted $25,000 of the note into 1,121,076 shares of the Company’s common stock at a price of $0.022 per share. On May 16, 2016, the debt holder converted $25,000 of the note into 1,470,588 shares of the Company’s common stock at a price of $0.017 per share. The Company paid the remaining balance of principal and interest in the amount of $184,275 on May 24, 2016. As of JulyJanuary 31, 2016,2017, the balance payable on Note II was $Nil.
As described in Note 4, the embedded conversion feature for both Note I and Note II qualified for liability classification at fair value. As a result, the Company recorded debt discounts resulting from derivative liabilities of $54,000 to Note I and $200,000 to Note II at the dates the notes became convertible. Due to the excess of the fair value of derivative liabilities over the principal of the notes on the day when the notes became convertible, the Company recorded loss on derivative liabilities in the amount of $292,718. This amount was included in change in fair value of derivative liabilities. In addition, the Company amortized the balance of debt discount of $54,000 associated to the exercise of the conversion option of Note I, and amortized the balance of debt discount of $200,000 over the life of Note II.
Amortization of the debt discounts was recorded as a component of interest expense in the accompanying consolidated statements of operations and comprehensive loss. Amortization of debt discounts amounted to $0 and $254,000 for the periods ended JulyJanuary 31, 20162017 and April 30, 2016, respectively. Contractual interest expense for the two convertible notes amounted to $33,476 and $13,110 for the periods ended JulyJanuary 31, 2016 and2017and April 30, 2016, respectively.
On March 2, 2016, the Company issued a convertible note (“Note III”) in the amount of $73,000. Note III was due together with any interest on December 4, 2016 (the “Third Maturity Date”). The Company is required to pay interest on the unpaid principal balance of Note III at the rate of 8% per annum from March 2, 2016 until the Third Maturity Date. Any amount of principal or interest which was not paid on the Maturity Date bears interest at the rate of 22% per annum from the due date until the note is paid in full. The holder of Note III has the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of Note III and ending on the later of: (i) the Third Maturity Date and (ii) the date of payment of the note, each in respect of the remaining outstanding principal amount of the note to convert all or any part of the outstanding and unpaid principal amount of Note III into fully paid and non-assessable shares of the Company’s common stock. The conversion price is equal, subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company, to 63% multiplied by the market price of the average of the lowest three trading prices for the Company’s common stock during the 10 trading days prior to the conversion date. The note became convertible 180 days after its issuance on March 2, 2016 which was August 29, 2016.
As of April 30, 2016, the balance payable on the convertible notes was $258,000 representing the amounts owed for Note II of $185,000 and Note III of $73,000, respectively. As of JulyJanuary 31, 2016,2017, the balance payable on the convertible notes was $73,000 representing the amount owed for Note III. The debt discount was $Nil as of JulyJanuary 31, 20162017 and April 30, 2016. Contractual interest expense for Note III amounted to $2,176$5,120 and $Nil for the periods ended JulyJanuary 31, 20162017 and April 30, 2016, respectively.
| F-14 |
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 13 – DERIVATIVE INSTRUMENTS AND THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company issued convertible notes and the conversion option embedded in the convertible notes contains no explicit limit to the number of shares to be issued upon settlement and as a result is classified as a liability under ASC 815. The Company accounted for the embedded conversion option in accordance with ASC 815-40, which requires the Company to bifurcate the embedded conversion options as liability at the date when it becomes effective and to record changes in fair value relating to the conversion
option liability in the statement of operations and comprehensive income as of each subsequent balance sheet date. The debt discount related to the convertible note is amortized over the life of the note using the effective interest method.
The following table sets forth the Company’s consolidated financial assets and liabilities measured at fair value by level within the fair value hierarchy as of JulyJanuary 31, 2016.2017. Assets and liabilities are classified in their entirety based on the lowest level of inputs that is significant to the fair value measurement.
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| LIABILITIES | ||||||||||||||||
| Conversion option liability | $ | 38,367 | - | - | 38,367 | |||||||||||
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
NOTE 13 – DERIVATIVE INSTRUMENTS AND THE FAIR VALUE OF FINANCIAL INSTRUMENT (CONTINUED…)
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| LIABILITIES | ||||||||||||||||
| Conversion option liability | $ | 108,722 | - | - | 108,722 | |||||||||||
The following is a reconciliation of the conversion option liability for which Level 3 inputs were used in determining the fair value:
| Balance as of April 30, 2016 | - | - | ||||||
| Fair value of embedded conversion option derivative liabilities at issuance charged to debt discounts | $ | 293,606 | $ | 293,606 | ||||
| Change in fair value of derivative liabilities | (190,876 | ) | (120,522 | ) | ||||
| Reclassification of derivative liabilities to additional paid-in capital due to conversions | (64,362 | ) | (64,362 | ) | ||||
| Balance as of July 31, 2016 | $ | 38,367 | ||||||
| Balance as of January 31, 2017 | $ | 108,722 | ||||||
The Company’s conversion option liabilities are valued using pricing models and the Company generally uses similar models to value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility and correlations of such inputs. These consolidated financial liabilities do not trade in liquid markets, and as such, model inputs cannot generally be verified and do involve significant management judgment. Such instruments are typically classified within Level 3 of the fair value hierarchy.
The fair value at the commitment and re-measurement dates for convertible notes that are treated as derivative liabilities with embedded conversion features were based upon the following management assumptions for the threenine months ended JulyJanuary 31, 2016:2017:
| Commitment Date | Re-measurement Date | Commitment Date | Re-measurement Date | |||||||||||||
| Exercise price | $0.0431 - $0.0712 | $0.013 - $0.0441 | $ | 0.0431 - $0.0712 | $ | 0.019 - $0.0441 | ||||||||||
| Expected dividends | 0% | 0% | 0 | % | 0 | % | ||||||||||
| Expected volatility | 197.12% - 213.77% | 255.36% - 283.47% | 197.12% - 213.77 | % | 255.36% - 337.80 | % | ||||||||||
| Expected term | 5 months - 9 months | 5 months - 9 months | 5 months - 9 months | 5 months - 6 months | ||||||||||||
| Risk free interest rate | 0.13% - 0.58% | 0.38% - 0.83% | 0.13% - 0.58 | % | 0.38% - 0.52 | % | ||||||||||
| F-15 |
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2017 AND 2016
NOTE 14 – LIABILITIES HELD FOR SALE & DISCONTINUED OPERATIONS
Effective May 1, 2016, the Company disposed of its former direct and indirect wholly-owned subsidiaries and operations in the People’s Republic of China, DTS8 Coffee, DTS8 Huzhou, and DTS8 Holdings. The Company forgave all outstanding receivables form the subsidiaries and assumed a loan in the amount of $251,027 (see Note 7).
The following table provides additional information with respect to the loss on disposal of the subsidiaries
| Consideration on disposal of subsidiaries and discontinued operations | $ | - | ||
| Less net assets (liabilities) of subsidiaries and discontinued operations: | ||||
| Cash | 21,591 | |||
| Accounts receivable | 45,697 | |||
| Inventories | 11,496 | |||
| Prepaid expenses | 9,236 | |||
| Property and equipment | 46,852 | |||
| Accounts payable and accrued liabilities | (11,569 | ) | ||
| Taxes receivable | 1,419 | |||
| Loans payable | (251,027 | ) | ||
| Gain on disposal before AOCI reclassification (Liabilities held for sale) | 126,305 | |||
| Other comprehensive income gain (loss) on reclassification | 7,688 | |||
| Gain on disposal of discontinued operations | 133,993 | |||
| Loans payable assumed | (251,027 | ) | ||
| Net loss on disposal of subsidiaries and discontinued operations | $ | 117,034 |
DTS8 COFFEE COMPANY, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016 AND 2015
| Consideration on disposal of subsidiaries and discontinued operations | $ | - | ||
| Less net assets (liabilities) of subsidiaries and discontinued operations: | ||||
| Cash | 21,591 | |||
| Accounts receivable | 45,697 | |||
| Inventories | 11,496 | |||
| Prepaid expenses | 9,236 | |||
| Property and equipment | 46,852 | |||
| Accounts payable and accrued liabilities | (11,569 | ) | ||
| Taxes receivable | 1,419 | |||
| Loans payable | (251,027 | ) | ||
| Gain on disposal before AOCI reclassification | 126,305 | |||
| Other comprehensive income gain (loss) on reclassification | 7,688 | |||
| Gain on disposal of discontinued operations | 133,993 | |||
| Loans payable assumed | (251,027 | ) | ||
| Net loss on disposal of subsidiaries and discontinued operations | $ | 117,034 |
NOTE 15 – SUBSEQUENT EVENTS
On April 30, 2018, the holders of a majority of the issued and outstanding common stock of the Company approved an increase in the Company’s authorized capital from 75,000,000 shares of common stock, par value $0.001, to 500,000,000 shares of common stock, par value $0.001. On July 17, 2018, the Company formally effected the Authorized Capital Increase by filing a Certificate of Amendment with the Nevada Secretary of State.
In August 2018, the Company issued an aggregate of 1,786,227 shares of common stock at a price of $0.02 per share for cash proceeds of $35,725 from unrelated parties.
In November 2018, the Company issued 5,000,000 shares of common stock at a price of $0.02 per share for cash proceeds of $100,000 from an unrelated party.
In December 2018, the Company issued 40,500 shares of common stock at a price of $0.02 per share for cash proceeds of $810 from an unrelated party and issued 2,564,103 shares of common stock at a price of $0.0039 per share pursuant to the conversion of $10,000 in principal and interest under a convertible note (Note III). See Note 12.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We were incorporated under the laws of the State of Nevada on March 27, 2009 under the name “Berkeley Coffee & Tea, Inc.” On April 30, 2012, we acquired 100% of the issued and outstanding capital stock of DTS8 Holdings Co., Ltd. (“DTS8 Holdings”), a corporation organized and existing under the laws of Hong Kong, and which owns DTS8 Coffee (Shanghai) Co., Ltd. (“DTS8 Coffee”), a wholly owned foreign subsidiary entity (“WOFE”) corporation organized and existing under the laws of the People’s Republic of China.
In March 2013, we established a 100% owned subsidiary of DTS8 Coffee called DTS8 Coffee (Huzhou) Co. Ltd. (“DTS8 Huzhou”) in Huzhou, Zhejiang Province, China. DTS8 Huzhou is a coffee roaster equipped with the standard procedures to ensure that it meets regulatory requirements for food safety and sanitation in China. Effective May 1, 2016, we disposed of our former subsidiaries in China and thereby became a blank cheque company.
We currently maintain a mailing address at Suite 300 – 1055 West Hastings Street, Vancouver, British Columbia, Canada V6E 2E9 and our telephone number is (604) 609-6163. We do not have any subsidiaries. Our fiscal year end is April 30. Our current plans are to merge with, engage in a capital stock exchange with, purchase all or substantially all of the assets of, or engage in any other similar business combination with one or more operating businesses.
As of the date of this report, we do not have any specific business combination under consideration and we have not identified any prospective target business, nor has anyone done so on our behalf. We cannot provide any assurance as to whether any proposed business combination will be feasible at all, or will be feasible on terms acceptable to us, and we have no way of forecasting whether any proposed business combination will be successfully completed on a timely basis.
We believe that the earliest we will begin generating revenues will not be until after the completion of a business combination. However, even if we successfully complete a business combination, we may not be able to achieve our anticipated business goals, gain any operating benefits or generate any profits.
We are a “shell company” as defined in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 12b-2 under the Exchange Act, since we only have nominal operations and nominal assets.
Results of Operations
For the Three Months ended JulyJanuary 31, 20162017
Revenue
We did not generate any revenue during the three months ended JulyJanuary 31, 2016,2017, and we did not generate any revenue from continuing operations during the same period in the prior year. We do not anticipate that we will earn any revenue during the current fiscal year or in the foreseeable future, as we do not have any operations and are presently engaged in seeking a business combination with a target business. We anticipate that we will incur substantial losses over the next year, unless we are able to successfully complete a business combination and develop the business of the target company.
Expenses
During the three months ended JulyJanuary 31, 2016,2017, our total operating expenses decreased by $42,715$7,143 from the same period in 2015,2016, from $73,716$82,427 to $30,461.$75,284.
Our operating expenses consist entirely of general and administrative expenses, which include management fees, consulting fees, professional fees, transfer agent fees, investor relations expenses, office and general expenses, and financing costs. Our professional fees consist of accounting, legal and audit fees. Our office and general expenses include rent, communication expenses (e.g., internet and telephone), office supplies, bank charges, courier fees and postage costs.
Our general and administrative expenses for the three months ended JulyJanuary 31, 20162017 consisted of $36,715 in consulting fees, $18,000 in management fees, $12,930$12,844 in financing costs, $12,233 in professional fees, $5,718$1,500 in financing costs, $4,615 in consultingtransfer agent fees, $3,579 in investor relations expenses, $1,849$896 in office and general expenses and $1,636$415 in transfer agent fees,investor relations expenses, as offset by $17,866$4,219 in expense recoveryrecovery/restatement due to discontinued operations.
Other Income/Expense
During the three months ended JulyJanuary 31, 2017, we incurred $13,218 in interest expense and a negative change of $51,608 in the fair value of our derivative liabilities, resulting in other expenses of $64,826. During the same period in 2016, we incurred $40,647$110,293 in interest expense, a negative change of $269,477 in the fair value of our derivative liabilities and miscellaneous other expenses of $131, resulting in total other expenses of $379,901.
Net Loss
During the three months ended January 31, 2017, we incurred a net loss of $140,110, which was equal to our loss from operations of $75,284 plus our other expenses of $64,826. During the same period in 2016, we incurred a net loss of $484,235, consisting of a $82,427 loss from operations, $379,901 in other expenses and a $21,907 net loss from discontinued operations. In addition, we experienced a foreign currency translation adjustment of $4,570 during that period, leading to a comprehensive loss of $479,665.
Our net loss per share from continuing operations for the three months ended January 31, 2017 and 2016 was $0.00 and $0.01, respectively, while our net loss from discontinued operations for both the three months ended January 31, 2017 and 2016 was $0.00.
For the Nine Months ended January 31, 2017
Revenue
We did not generate any revenue during the nine months ended January 31, 2017, and we did not generate any revenue from continuing operations during the same period in the prior year.
Expenses
During the nine months ended January 31, 2017, our total operating expenses decreased by $578,780 from the same period in 2016, from $784,945 to $206,165. This decrease was largely due to shares issued at a fair market value of $540,500 for services during the three months ended October 31, 2015 as well as a decrease in our office and administration costs for the period.
Our general and administrative expenses for the nine months ended January 31, 2017 consisted of $70,403 in consulting fees, $54,000 in management fees, $37,565 in professional fees, $28,456 in financing costs, $5,393 in investor relations expenses, $4,642 in transfer agent fees and $3,791 in office and general expenses, plus $1,915 in expense recovery/restatement due to discontinued operations.
Other Income/Expense
During the nine months ended January 31, 2017, we incurred $65,759 in interest expense and a positive change of $190,877$120,522 in the fair value of our derivative liabilities, resulting in other income of $150,230.$54,763. During the same period in 2015,2016, we incurred $176,762 in interest expense, a negative change of $290,744 in the fair value of our derivative liabilities and miscellaneous other expenses of $1,087 consisted entirely$19,807, resulting in total other expenses of interest expense.$487,343.
Net Income/Loss
During the threenine months ended JulyJanuary 31, 2016,2017, we generatedincurred a net incomeloss of $2,735,$268,436, which was equal toconsisted of our net incomeloss from continuing operations of $119,769 less$151,402 plus our net loss from discontinued operations of $117,034. During the same period in 2015,2016, we incurred a net loss of $78,829, consisting of a $74,263$1,305,252, which was equal to our $1,272,288 net loss from continuing operations and a $4,566our $32,964 net loss from discontinued operations. In addition, we experienced a foreign currency translation adjustment of $8,327 during that period, leading to a comprehensive loss of $1,296,925.
Our net income/loss per share from continuing operations for both the threenine months ended JulyJanuary 31, 2017 and 2016 was $0.00 and 2015 was $0.00. In addition,$0.03, respectively, while our net income/loss from discontinued operations for both the threenine months ended JulyJanuary 31, 2017 and 2016 was $0.00.
Liquidity and Capital Resources
As of JulyJanuary 31, 2016,2017, we had $1,251$894 in cash and cash equivalents, $24,636$63,490 in current and total assets, $320,513$476,238 in current liabilities, $978,039$1,167,064 in total liabilities and a working capital deficit of $295,877.$412,748. As of JulyJanuary 31, 2016,2017, we also had an accumulated deficit of $9,472,723.$9,743,894.
During the threenine months ended JulyJanuary 31, 20162017 we spent $92,950 $179,551in net cash on continuing operating activities, compared to spending $50,837$246,936 in net cash on continuing operating activities during the same period in 2015.2016. The increasedecrease in our spending on operating activities between the two periods was largely due to the difference in our net loss from continuing operations as described above, as well as certain adjustments to reconcile our net loss to net cash used in continuing operating activities.
We did not engage in any continuing investing activities during the threenine months ended JulyJanuary 31, 20162017 or 2015.2016.
During the threenine months ended JulyJanuary 31, 20162017 we received $86,926$173,170 in net cash from continuing financing activities, including $191,250$241,250 in proceeds from notes payable and $28,500$61,800 in proceeds from related parties. These amounts were offset by repayments of convertible notes totaling $132,824.$129,880 . During the same period in 2015,2016, we spent $53,207received $133,682 in net cash onfrom continuing financing activities, consisting of $50,000 in proceeds from share issuances and $200,000 in proceeds from notes payable, less $103,207$116,318 in repayments to related parties.
During the threenine months ended JulyJanuary 31, 20162017 we did not spend any net cash on discontinued operating activities,operations, whereas we received $28,875$57,859 in net cash from discounted operating activitiesdiscontinued operations during the same period in the prior year.
Our cash holdings decreased by $6,024$6,831 during the threenine months ended JulyJanuary 31, 2016,2017, from $7,275 to $1,251.$894.
We are currently reviewing businesses in relation to a potential business combination. If we are successful in consummating a business combination, we will likely incur expenses for personnel and business expansion. In order for us to attract and retain quality personnel, we anticipate that we will need to offer competitive salaries, issue common stock to consultants and employees and grant stock options. We estimate that our operating expenses over the next 12 months will be approximately $100,000, all of which will be general and administrative expenses. This estimate may change significantly depending on the nature of our future business activities and whether we continue our operations.
We are not currently in good short-term financial standing and we do not anticipate that we will earn any revenue in the near future or generate positive internal operating cash flow until we can complete a business combination. It may take several years for us to acquire an operating business, develop a business plan and generate revenue. There is no assurance we will achieve profitable operations following the completion of any business combination.
As of JulyJanuary 31, 2016,2017, we had $1,251$894 in cash. Since we will require additional capital to fund the acquisition of an operating business, we plan to proceed by way of private placements, loans or possibly a direct offering. However, there is no assurance that we will be able to raise enough capital to meet our future cash requirements.
Going Concern
Our financial statements for the three and nine months ended JulyJanuary 31, 20162017 have been prepared on a going concern basis and contain an explanatory paragraph in Note 3 which identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues, goodwill impairment and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of our financial position and results of operations.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make a variety of estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increases, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operations and/or financial condition. We have identified certain accounting policies that we believe are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 4 to the financial statements included in this report.
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Stock Issued for Services
The Company accounts for stock-based compensation to employees in accordance with ASC 718 which requires companies to measure the cost of services received in exchange for an award of an equity instrument based upon the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. Stock-based compensation awards to non-employees are accounted for in accordance with ASC 505-50.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
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 Rule 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information 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.
We maintain a system of internal accounting controls that is designed to provide reasonable assurance assets are safeguarded and transactions are executed and properly recorded in accordance with management’s authorization.
Our management does not expect our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, and the material weaknesses in our internal control over financial reporting identified in our annual report for the year ended April 30, 2016, our management concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was not accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Controls
During the three months ended JulyJanuary 31, 2016,2017, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act), that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not aware of any legal proceedings to which we are a party or of which our property is the subject. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder is (i) a party adverse to us in any legal proceedings, or (ii) has a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended July 31, 2016, we completed the following sales of unregistered securities:None.
In May 2016, we issued tranches of 1,121,076 and 1,470,588 restricted shares of common stock to one investor in connection with the conversion of an aggregate of $50,000 under two convertible promissory notes in the aggregate principal amount of $210,000 dated July 20 2015.
On June 22, 2016, we issued 3,000,000 restricted shares of our common stock to a related party at a price of $0.01 per share for cash proceeds of $185,000. In addition, we reserved 800,000 shares of our common stock to be issued to the related party as a loan fee, which shares have not been issued as of the date of this report.
On June 28, 2016, we issued 1,000,000 restricted shares of our common stock to a consultant at a deemed price of $0.028 per share in consideration for consulting fees valued at $28,000.
We issued these shares in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act. Our reliance on Section 4(2) was based on the following factors: (a) the issuances were isolated private transactions by us which did not involve a public offering; (b) there was only one investor in each transaction; (c) there were no subsequent or contemporaneous public offerings of securities by us; (d) the shares were not broken down into smaller denominations; and (e) the negotiations for the sale of the shares took place directly between the applicable investor and us.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
| Number | Description | |
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | XBRL Taxonomy | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase |
SIGNATURES
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.
| Date: | DTS8 Coffee Company, Ltd. | |
| By: | /s/ Richard Malcolm Smith | |
| Richard Malcolm Smith | ||
| President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director | ||