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Bemax (BMXC)

Filed: 1 Nov 17, 8:00pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

Form 10-Q/A

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended February 28, 2017

 

or

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to         

 

Commission File Number333-197756

 

BEMAX INC.

(Exact name of registrant as specified in its charter)

 

Nevada 46-554081
(State or other jurisdiction of Organization) (IRS Employer Identification Number)

 

625 Silver Oak

Dallas, GA 30132

Tel: (770) 401-1809

(Address and telephone number of principal executive office)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 ☒
 Emerging growth company ☐

 

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 ☐ No ☒

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of April 21, 2017, the issuer had 301,640,836 shares of its common stock issued and outstanding.

 

 

 

 

 

 

Explanatory Note: The May 31, 2016 financial statements were restated to record inventory for purchases previously recorded on a cash basis, eliminate accounts receivable, accounts payable and deferred revenue recorded due to errors; and to account for the embedded conversion feature related to convertible loans.

 

As a result of the errors related to inventory and recording prior sales and cost of goods sold, the financial statements for the nine months ended February 29, 2016 were restated to reflect these changes.

 

The statement of operations and cash flows for the nine months ended February 28, 2017 were restated to correct errors made when preparing the financial statement. There were no changes to the balance sheet as of February 28, 2017.

 

 

 

 

PART I  
   
Item 1.Condensed Financial Statements (unaudited)1
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations11
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk12
   
Item 4.Controls and Procedures12
   
PART II  
   
Item 1.Legal Proceedings13
   
Item 1A.Risk Factors13
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds13
   
Item 3.Defaults Upon Senior Securities13
   
Item 4.Mining Safety Disclosures13
   
Item 5.Other Information13
   
Item 6.Exhibits13
 �� 
 Signatures14

 

   

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BEMAX INC.

Financial Statements

 

Condensed Balance Sheets as of February 28, 2017 (unaudited) and May 31, 20162
  

Condensed Statements of Operations for the Three and Nine Months ended February 28, 2017 and 2016 (unaudited)

3
  
Condensed Statements of Cash Flows for the Nine Months ended February 28, 2017 and 2016 (unaudited)4
  
Notes to the Condensed Financial Statements (unaudited)5

 

 1 

 

 

BEMAX INC

Condensed Balance Sheets

(Unaudited)

 

  February 28, 2017  May 31,
2016
 
  (Unaudited / Restated)  (Restated) 
ASSETS      
Current Assets:      
Cash $606  $115,738 
Prepaid expenses  56,250   - 
Inventory  177,551   189,823 
Total current assets  234,407   305,561 
         
Furniture and equipment  500   500 
         
Total Assets $234,907  $306,061 
         
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)        
Current Liabilities:        
Accrued interest on convertible loans  634   1,845 
Derivative liability  -   351,041 
Convertible loans, net of discount of $3,748 and $134,148, respectively  42,252   73,602 
Loan from shareholder and related party  51,736   38,236 
Total current liabilities  94,622   464,724 
Total Liabilities  94,622   464,724 
         
STOCKHOLDERS’ EQUITY (DEFICIT):        
Preferred stock series B, $0.0001 par value, 50,000,000 shares authorized; 50,000,000 and 0 shares issued and outstanding, respectively  5,000   - 
Common stock, $0.0001 par value, 500,000,000 shares authorized; 301,640,836 and 258,792,500 shares issued and outstanding, respectively  30,164   25,879 
Additional paid-in capital  1,533,092   36,876 
Accumulated deficit  (1,427,971)  (221,418)
Total Stockholders’ Equity (Deficit)  140,285   (158,663)
Total Liabilities and Stockholders’ Equity $234,907  $306,061 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 2 

 

 

BEMAX INC.

Condensed Statements of Operations

(Unaudited)

 

  For the Three Months Ended
February 28, 2017
  For the Three Months Ended
February 29, 2016
  For the Nine Months Ended
February 28, 2017
  For the Nine Months Ended
February 29, 2016
 
  (Restated)  (Restated)  (Restated)  (Restated) 
Revenues $24,960  $246,119  $140,113  $346,338 
Cost of goods sold  163,020   187,361   279,197   266,864 
Gross margin  (138,060)  58,758   (139,084)  79,474 
                 
Operating Expenses:                
Professional fees  9,200   3,704   18,600   8,404 
Management fees  1,500   1,500   4,500   4,500 
General and administrative  68,858   8,654   79,442   14,078 
Total Operating Expenses  79,558   13,858   102,542   26,982 
                 
Income (loss) from operations  (217,618)  44,900   (241,626)  (52,492)
                 
Other Income (Expense):                
Interest expense and loan fees  (3,712)  (1,714)  (53,001)  (1,714)
Interest expense discount  (134,032)  -   (296,400)  - 
Change in fair value of derivative liability  (715,358)  -   (331,436)  - 
Loss of issuance on convertible debt  -   -   (284,091)  - 
Total other expense  (853,102)  (1,714)  (964,928)  (1,714)
Net income (loss) $(1,070,720) $43,186  $(1,206,554) $50,778 
Basic and diluted income (loss) per share  (0.00)  0.00   (0.00)  (0.00)
Weighted average number of shares outstanding – basic and diluted  347,475,778   258,792,500   288,045,808   258,792,500 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 3 

 

 

BEMAX INC.

Condensed Statements of Cash Flows

(Unaudited)

 

  For the Nine Months Ended
February 28, 2017
  For the Nine Months Ended
February 29, 2016
 
  (Restated)  (Restated) 
CASH FLOW FROM OPERATING ACTIVITIES:      
Net loss $(1,206,554) $50,778 
Adjustments to reconcile net loss to net cash used in operating activities:        
Change in fair value of derivative  331,436   - 
Loss on issuance of convertible debt  284,091   - 
Amortization of debt discount  296,400   - 
Impairment expense  157,279   - 
Stock issued for services  75,000   - 
Changes in Operating Assets and Liabilities:        
Prepaids  (56,250)  - 
Inventory  (145,007)  (79,999)
Accounts payable  -   - 
Accrued interest on convertible loans  (6,027)  - 
Net Cash Used in Operating Activities  (269,632)  (29,221)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from convertible loans  181,000   40,000 
Repayment of convertible loan  (40,000)  - 
Loan from shareholder and related party  13,500   16,400 
Net Cash Provided by Financing Activities  154,500   56,400 
         
NET INCREASE (DECREASE) IN CASH  (115,132)  27,179 
CASH AT BEGINNING OF PERIOD  115,738   58,137 
CASH AT END OF PERIOD $606  $85,316 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid during period for:        
Interest $22,272  $- 
Income Taxes $-  $- 
         
Non-cash transactions:        
Conversion of principal and interest to common shares $302,750  $- 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 4 

 

 

BEMAX INC.

Notes to the Financial Statements

February 28, 2017

(Unaudited)

 

NOTE 1 - NATURE OF OPERATIONS

 

BEMAX INC. (“The Company”) was incorporated in the State of Nevada on November 28, 2012 to engage in the business of exporting disposable baby diapers manufactured in the United States and then distributing them throughout Europe and South Africa. The Company is in the development stage with limited revenues and very limited operating history.

 

NOTE 2 - GOING CONCERN

 

These financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business one year from February 28, 2017. The Company has incurred a loss since inception resulting in an accumulated deficit of $1,427,971 as February 28, 2017and further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or the existing cash on hand, loans from directors and/or private placement of common stock. Obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with personal cash, outside loans, or equity issuances. There is no guarantee that the Company will be able to raise any capital through any type of offering.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company’s unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending May 31, 2017. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K/A for the year ended May 31, 2016.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

 

Fair Value of Financial Instrument

 

The Company’s financial instruments consisted of cash, accounts payable, related party advances and convertible notes. Unless otherwise noted, it is management’s opinion the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. Because of the short maturity of such assets and liabilities the fair value of these financial instruments approximate their carrying values, unless otherwise noted.

 

 5 

 

 

Derivative Financial Instruments

 

Derivative liabilities are recognized in the balance sheets at fair value based on the criteria specified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815-15– Derivatives and Hedging – Embedded Derivatives(“ASC 815-15”). Pursuant to ASC Topic 815-15 an evaluation of the embedded conversion feature of convertible debt is evaluated to determine if the bifurcated debt conversion feature is required to be classified as a derivative liability. Since the terms of the embedded conversion features of the Company’s convertible debt provides for the issuance of shares of common stock at the election of the holders and the number of shares is subject to adjustment for a decline in the price of the Company’s common stock, the Company determined that the embedded conversion option met the criteria of a derivative liability. The estimated fair value of the embedded conversion feature of debt classified as derivative liabilities are determined using the Black-Scholes option pricing model. The model utilizes Level 3 unobservable inputs to calculate the fair value of the derivative liabilities at each reporting period. The Company determined that using an alternative valuation model such as a Binomial-Lattice model would result in minimal differences. The fair value of the embedded conversion feature of debt classified as derivative liabilities are adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded as other income or expense in the statement of operations. As of February 28, 2017, the embedded conversion feature of $0 of convertible notes payable was classified as a derivative liability. Each reporting period the embedded conversion feature is re-valued and adjusted through the caption “change in fair value of derivative liabilities” on the statements of operations.

 

Fair value of financial instruments

 

The Company follows Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 825-10-50-10,Financial Instruments—Overall—Disclosure, for disclosures about fair value of our financial instruments and ASC 820-10-35-37,Fair Value Measurement—Overall—Subsequent Measure—Fair Value Hierarchy, to measure the fair value of our financial instruments. ASC 820-10-35-37 establishes a framework for measuring fair value GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10-35-37 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820-10-35-37 are described below:

 

Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

Level 3: Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of February 28, 2017 and May 31, 2016:

 

Description Level 1  Level 2  Level 3  Total Gains and
(Losses)
 
Derivative  -   -   -   (331,436)
Total $-  $-  $-  $(331,436)

 

May 31, 2016:

 

Description Level 1  Level 2  Level 3  Total Gains and
(Losses)
 
Derivative  -   -   351,041   128,331 
Total $-  $-  $351,041  $128,331 

 

Revenue Recognition

 

The Company’s revenue recognition policy is on a sales-basis method. The Company recognizes and records revenue at the time of sale once payment has been received and disposable baby diapers are delivered to the buyer.

 

Pre-payment Policy: All sales to our customers will be solely on a pre-payment basis. Once the order is completed and payment is received, we will place an order with the North American supplier of disposable baby diapers and arrange shipping directly to our customers. The process is expected to take three weeks to complete. The pre-payment will be recorded as deferred revenue until the delivery is executed.

 

 6 

 

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have any significant impact on the Company’s results of operations, financial position or cash flow. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

The President of the Company provides management fees and office premises to the Company for a fee of $1,500 per month, the right to which the President has agreed to assign to the Company until such a time as the Company closes on an Equity or Debt financing of not less than $750,000. The assigned rights are valued at $1,000 per month for rent and $500 for executive compensation. A total of $13,500 for donated management fees was charged to Shareholder Loan for the nine months ended February 28, 2017.

 

As of February 28, 2017, there are loans from the majority shareholder and related party totalling $51,736.These loans were made in order to assist in meeting general and administrative expenses. These advances are unsecured, due on demand and carry no interest or collateral.

 

NOTE 5 - STOCKHOLDER’S EQUITY

 

On June 5, 2015, the Company decided to increase the authorized amount of common shares that can be issued from 70,000,000 to 500,000,000 with the same par value of $0.0001 per share. The Company also declared a Fifty (50) to One (1) forward stock split effective immediately. The 50-1 stock split has been shown retroactively.

 

During fiscal year 2016, the Company issued 42,500 Common Shares at $0.0001 par value to an attorney for legal services rendered.

 

On December 5, 2016, the Company entered into an initial one year consulting agreement with Adebayo Ladipo. He has been compensated by receiving 7,500,000 shares of common stock valued at $75,000 based on the market price of the common stock on this date. This was valued at $0.01 per share. At no time is he considered an employee of the Company. He is an Independent Contractor and able to pursue other interests.

 

On January 24, 2017, The Company allowed Taiwo Aimasiko, its CEO to retire 150,000,000 shares of common stock in exchange for 50,000,000 Series B preferred shares.

 

NOTE 6 - CONVERTIBLE LOANS

 

On February 16, 2016, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan was $40,000 (forty thousand dollars) with an original issue discount of $4,000 (four thousand dollars) and carries an interest rate of 8% per annum. It became due and payable with accrued interest on February 16, 2017. The Company had the right to prepay any part of the loan plus accrued interest up to 90 days from the issue date, subject to a cash payment of the principal plus 130% interest and 91 days through 180 for a cash payment of the principal plus 150% interest. On July 14, 2016, the Company repaid the $40,000 of principal, $1,307 of accrued interest and a $20,965 early payment penalty. As a result of repayment of the note the Company recognized the remaining debt discount of $2,833. The Company repaid the note prior to when the convertible feature was effective; therefore there are no derivatives related to the embedded conversion feature.

 

On April 19, 2016, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan was $30,000 (thirty thousand dollars) with an original issue discount of $3,500 (three thousand five hundred dollars) and carried an interest rate of 8% per annum. It becomes due and payable with accrued interest on April 19, 2017. Crown Bridge Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate is at a discount of 48% applied to the lowest price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $124,890 based on the Black Scholes Merton pricing model and a corresponding debt discount of $30,000 to be amortized utilizing the interest method of accretion over the term of the note. As of August 31, 2016, the Company fair valued the derivative at $39,161 resulting in a gain on the change in the fair value for the three months of $85,729. In addition, $11,014 of the debt discount has been amortized to interest expense.

 

 7 

 

 

On May 9, 2016, the Company issued a Convertible Redeemable Note in favor of Adar Bays, LLC. The principal amount of the loan was $30,000 (thirty thousand dollars) and carried an interest rate of 8% per annum. It becomes due and payable with accrued interest on May 9, 2017. Adar Bays, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 48% applied to the lowest price for fifteen days prior to the actual date of conversion. The Company recorded the derivative liability at its fair value of $108,800 based on the Black Scholes Merton pricing model and a corresponding debt discount of $30,000 to be amortized utilizing the interest method of accretion over the term of the note. On November 28, 2016, $3,000 of principal was converted into 229,850 shares of common stock. Due to the conversion within the terms of the agreement, no gain or loss was recognized. At the time of conversion, the Company valued the derivative at $40,273 resulting in a gain on the change in the fair value of $8,331. During the third quarter the remaining principal and accrued interest of $27,000 and $1,453, respectively, were fully converted into 22,030,353 shares of common stock resulting in the immediate amortization of the remaining debt discount of $13,159, a $32,001 loss on the change in fair value of the derivative and a $105,878 credit to additional paid in capital.

 

On May 9, 2016, the Company issued a Convertible Redeemable Note in favor of Eagle Equities, LLC. The principal amount of the loan was $30,000 (thirty thousand dollars) and carried an interest rate of 8% per annum. It becomes due and payable with accrued interest on May 9, 2017. Eagle Equities, LLC. had the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate is at a discount of 48% of the lowest trading price for fifteen days prior to the actual date of conversion. The Company cannot prepay any amount outstanding after 180 days. The Company recorded the derivative liability at its fair value of $108,800 based on the Black Scholes Merton pricing model and a corresponding debt discount of $30,000 to be amortized utilizing the interest method of accretion over the term of the note.. During the third quarter principal and accrued interest of $30,000 and $1,459, respectively, were fully converted into 16,845,031 shares of common stock resulting in the immediate amortization of the remaining debt discount of $13,151, a $71,501 loss on the change in fair value of the derivative and a $143,634 credit to additional paid in capital.

 

On May 10, 2016, the Company issued a Convertible Promissory Note in favor of Auctus Fund, LLC. The principal amount of the loan was $77,750 (seventy-seven thousand, seven hundred and fifty dollars) with an original issue discount of $6,750 (six thousand, seven hundred and fifty dollars) and carried an interest rate of 8% per annum. It becomes due and payable with accrued interest on May 10, 2017. Auctus Fund, LLC. had the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 48% of the lowest trading price for ten days prior to the actual date of conversion. The Company cannot prepay any amount outstanding after 180 days. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $261,774 based on the Black Scholes Merton pricing model and a corresponding debt discount of $77,750 to be amortized utilizing the interest method of accretion over the term of the note. During the third quarter principal and accrued interest of $77,750 and $605, respectively, were fully converted into 43,741,990 shares of common stock resulting in the immediate amortization of the remaining debt discount of $20,282, a $295,729 loss on the change in fair value of the derivative and a $467,591 credit to additional paid in capital.

 

On June 2, 2016, the Company issued a Convertible Promissory Note in favor of JSJ Investments Inc. The principal amount of the loan was $55,000 (fifty-five thousand dollars), with an original issue discount of $3,000 three thousand dollars), a payment of $2,000 (two thousand dollars) in loan fees and it carried an interest rate of 8% per annum. It becomes due and payable with accrued interest on June 2, 2017. JSJ Investments, Inc. has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 48% applied to the lowest trading price for ten days prior to the actual date of conversion. The Company cannot prepay any amount outstanding after 180 days. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $167,895 based on the Black Scholes Merton pricing model and a corresponding debt discount of $55,000 to be amortized utilizing the interest method of accretion over the term of the note. During the third quarter principal and accrued interest of $55,000 and $2,395, respectively, were fully converted into 32,463,378 shares of common stock resulting in the immediate amortization of the remaining debt discount of $34,554, a $65,510 loss on the change in fair value of the derivative and a $190,914 credit to additional paid in capital.

 

On June 14, 2016, the Company issued a Convertible Promissory Note in favor of Black Forest Capital LLC. The principal amount of the loan was $80,000 (eighty thousand dollars), with an original issue discount of $8,000 (eight thousand dollars), a payment of $2,000 (two thousand dollars) for loan fees and it carried an interest rate of 8% per annum. It becomes due and payable with accrued interest on June 14, 2017. Black Forest Capital, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 48% applied to the lowest trading price for ten days prior to the actual date of conversion. The Company cannot prepay any amount outstanding after 180 days. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $228,110 based on the Black Scholes Merton pricing model and a corresponding debt discount of $80,000 to be amortized utilizing the interest method of accretion over the term of the note. During the third quarter principal and accrued interest of $80,000 and $3,254, respectively, were fully converted into 55,208,045 shares of common stock resulting in the immediate amortization of the remaining debt discount of $42,959, a $203,588 loss on the change in fair value of the derivative and a $396,470 credit to additional paid in capital.

 

 8 

 

 

On December 28, 2016, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan is $46,000 (forty-six thousand dollars) with an original issue discount of $4,500 (four thousand five hundred dollars) and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 28, 2017. Crown Bridge Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 45% applied to the lowest trading price for fifteen days prior to the actual date of conversion. The Company has the right to prepay any part of the loan plus accrued interest up to 90 days from the issue date, subject to a cash payment of the principal plus 130% interest and 91 days through 180 for a cash payment of the principal plus 150% interest. The Company cannot prepay any amount outstanding after 180. As of February 28, 2017, $752 of the debt discount has been amortized to interest expense.

 

A summary of outstanding convertible notes as of February 28, 2017, is as follows:

 

Note Holder Issue Date Maturity Date Stated Interest Rate  Amount of Note  Repayments / Conversions  Principal Balance 2/28/2017 
Crown Bridge Partners, LLC (1) 2/16/2016 2/16/2017  8% $40,000  $(40,000) $- 
Crown Bridge Partners, LLC 4/19/2016 4/19/2017  8%  30,000   (30,000)  - 
Adar Bays, LLC 5/9/2016 5/9/2017  8%  30,000   (30,000)  - 
Eagle Equities, LLC 5/9/2016 5/9/2017  8%  30,000   (30,000)  - 
Auctus Fund, LLC 5/10/2016 2/10/2017  8%  77,750   (77,750)  - 
JSJ Investments Inc. 6/2/2016 2/26/2017  8%  55,000   (55,000)  - 
Black Forest Capital LLC 6/14/2016 6/14/2017  8%  80,000   (80,000)  - 
Crown Bridge Partners, LLC 12/28/2016 12/28/2017  8%  46,000   -   46,000 
Total         $388,750  $(342,750) $46,000 

 

(1)This Note was repaid in full with cash on July 14, 2016.

 

All other reductions were conversions to common shares

 

A summary of the activity of the derivative liability for the notes above is as follows:

 

Balance at May 31, 2015 $- 
Increase to derivative due to new issuances  479,374 
Derivative (gain) due to mark to market adjustment  (128,333)
Balance at May 31, 2016  351,041 
Increase to derivative due to new issuances  434,591 
Decrease due to debt settlement  (1,117,070)
Derivative loss due to mark to market adjustment  331,438 
Balance at February 28, 2017 $- 

 

A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the nine months ended February 28, 2017 is as follows:

 

Inputs February 28, 2017  Initial Valuation 
Stock price $.0047 - .0325  $.52 – .74 
Conversion price $.002  $.14 – .27 
Volatility (annual)  249% - 395%   324% - 335% 
Risk-free rate  .51% - .90%   .51% - .52% 
Years to maturity  .08 - 1   .76 - 1 

 

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management

 

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NOTE 7 – RESTATEMENT

 

The May 31, 2016 financial statements were restated to record inventory for purchases previously recorded on a cash basis, eliminate accounts receivable, accounts payable and deferred revenue recorded due to accounting errors; and to account for the embedded conversion feature related to convertible loans.

 

The following table summarizes changes made to the May 31, 2016 balance sheet.

 

  May 31, 2016 
Balance Sheet: As Reported  Adjustment  As Restated 
Accounts receivable $372,622  $(372,622) $- 
Inventory $-  $189,823  $189,823 
Total Current Assets $488,360  $(182,799) $305,561 
Total Assets $488,860  $(182,799) $306,061 
Accounts payable $319,795  $(319,795) $- 
Derivative liability $-  $351,041  $351,041 
Debt discount $-  $(134,148) $(134,148)
Deferred revenue $507,722  $(507,722) $- 
Total current liabilities $1,075,348  $(610,624) $464,724 
Total liabilities $1,075,348  $(610,624) $464,724 
Accumulated deficit $(649,241) $427,823  $(221,418)

 

As a result of the errors related to inventory and recording prior sales and cost of goods sold, the financial statements for the nine months ended February 29, 2016 were restated to reflect these changes.

 

The statement of operations and cash flows for the nine months ended February 28, 2017 were restated to correct errors made when preparing the financial statement. There were no changes to the balance sheet as of February 28, 2017.

 

NOTE 8 - SUBSEQUENT EVENTS

 

The Company has evaluated all events and transactions that occurred after February 28, 2017 up through the date these financial statements were available for issuance. It has been determined that the following events need to be reported.

 

On March 20, 2017, the Company authorized and issued a Convertible Promissory Note in favor of Crown Bridge Partners for $114,000.

 

On March 27, 2017, the Company authorized and issued a Convertible Promissory Note in favor of JSJ Investments, Inc. for $125,000.

 

On April 4, 2017, the Company authorized and issued a Convertible Promissory Note in favor of Auctus Fund, LLC for $145,000.

 

Refer to the filing for the year ended May 31, 2017 for additional subsequent activity.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

 

Business Overview

 

Bemax Inc. is a Nevada –based company focusing on the distribution of disposable baby diapers made in North America and Asia by quality producers to wholesalers and retailers in Europe and the emerging markets. We are a development stage corporation and have generated or realized minimal revenues from our business operations.

 

Liquidity and Capital Resources

 

Cash Flows

 

  Nine Months Ended February 28, 2017  Nine Months Ended February 29, 2016 
Net Cash Used in Operating Activities $(269,632) $(29,221)
Net Cash Used by Investing Activities $-  $- 
Net Cash Provided by Financing Activities $154,500  $56,400 

 

We currently have minimal cash reserves. To date, the Company has covered operating deficits primarily through loans from the sole director and third-party convertible notes. Accordingly, our ability to pursue our plan of operations is contingent on our being able to obtain funding for the development, marketing and commercialization of our products and services. However, as a result of its lack of operating success, the Company may not be able to raise additional funding to cover operating deficits.

 

The financial statements have been prepared assuming that the Company will continue as a going concern. The Company has accumulated deficit of $1,427,971 since inception (November 28, 2012) to the period ended February 28, 2017 and is dependent on its ability to raise capital from shareholders or other sources to sustain operations. However, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Results of Operations

 

Revenue

 

The Company had $24,960 in sales for the three months ended February 28, 2017 compared to $246,119 for period ended February 29, 2016. This reduction is due to inability to secure viable and less dilutive financing to effectively finance purchase orders.

 

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Sales for the nine months ended February 28, 2017 is $140,113 compared to $346,338 for the nine months ended February 29, 2016. The reduction is due to less purchase order received from the Company’s distributors during this period.

 

Operating Expense

 

The total operating expense for the three months ended February 28, 2017 is $79,558 compared to $13,859 for the three months ended February 29, 2016 and $102,542 for the nine months ended February 28, 2017 compared to $26,982 for the nine months ended February 29, 2016. The increase is due to increase in general and administrative expenses relating to product bagging, packaging and consulting.

 

The total costs of goods for the nine-month period ended February 28, 2017 is $279,197 compared to $266,864 for the same nine-month period ending February 29, 2016. The reason for the decrease is due to reduction in sales and write done of inventory.

 

Interest Expenses

 

Total interest expense and loan fees for the nine months ended February 28, 2017 is $53,001 compared to $1,714 interest on loan during the nine-month period ended February 29, 2016.

 

Off-Balance Sheet Arrangements

 

As of February 28, 2017, we had no off-balance sheet transactions 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.

 

The Company is working toward the introduction of new products including Diapers with wet indicators, wipes and newer version of pull –ups. The company will introduce better pricing including reduced shipping cost to accommodate larger segment of online customers.

 

The Company continue working on several business development projects to increase sales and generate revenues, including introducing the Company’s private label brands to other broad online market platforms such as Shopify and Amazon prime. The Company will continue to expand both manufacturing and distribution network with quality manufacturers and established distributors to enhance regional and global expansion strategy.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports 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 to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, they concluded that our disclosure controls and procedures were not effective for the quarterly period ended February 28, 2017. The following aspects of the Company were noted as potential material weaknesses:

 

timely and accurate reconciliation of accounts
lack of segregation of duties
complex accounting transaction expertise

 

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.

 

Changes in Internal Controls

 

Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in the Company’s internal controls over financial reporting during the quarter ended February 28, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party against us. None of our directors, officers or affiliates are (i) a party adverse to us in any legal proceedings, or (ii) have an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings that have been threatened against us.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

N/A.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibits:

 

31.1Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
  
31.2Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).  
  
32.1Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.  

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 BEMAX INC.
   
Dated: November 2, 2017By:/s/ Taiwo Aimasiko
  Taiwo Aimasiko, President and
  Chief Executive Officer
   
Dated: November 2, 2017By:/s/ Taiwo Aimasiko
  Taiwo Aimasiko,
  Chief Financial Officer

 

 

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