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Bemax (BMXC)

Filed: 11 Jan 18, 7:00pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

Form 10-Q

 

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

 

For the quarterly period ended November 30, 2017

 

or

 

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

 

Commission File Number333-197756

 

BEMAX INC.

(Exact name of registrant as specified in its charter)

 

Nevada 46-554081
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
   
1100 Peachtree Street NE, Atlanta, GA 30309
(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code:(707) 401-1809

 

N/A

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

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  ☐

 

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 filerAccelerated filer
Non-accelerated filer☐   (Do not check if a smaller reporting company)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 January 10, 2018, the issuer had 428,689,775 shares of its common stock issued and outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART IFinancial Information 
Item 1.Financial Statements (unaudited)1
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations12
Item 3.Quantitative and Qualitative Disclosures about Market Risk15
Item 4.Controls and Procedures15
   
PART IIOther Information16
Item 1.Legal Proceedings16
Item 1A.Risk Factors16
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds16
Item 3.Defaults Upon Senior Securities16
Item 4.Mine Safety Disclosures16
Item 5.Other Information16
Item 6.Exhibits16
Signatures17

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CONTENTS

 

Condensed Balance Sheets as of November 30, 2017 (unaudited) and May 31, 20172
Condensed Statements of Operations for the Three and Six Months ended November 30, 2017 and 2016 (unaudited)3
Condensed Statements of Cash Flows for the Six Months ended November 30, 2017 and 2016 (unaudited)4
Notes to the Condensed Financial Statements (unaudited)5

 

 1 

 

 

BEMAX INC

Balance Sheets

 

 

  November 30, 2017  May 31,
2017
 
  (Unaudited)    
ASSETS      
Current Assets:      
Cash $55,492  $39,386 
Prepaid expenses  36,607   44,048 
Inventory  194,643   194,320 
Total current assets  286,742   277,754 
         
Property and equipment  13,322   14,953 
Other assets (Note 5)  406,000   181,000 
         
Total Assets $706,064  $473,707 
         
LIABILITIES AND STOCKHOLERS’ EQUITY (DEFICIT)        
Current Liabilities:        
Accounts payable $11,263  $12,800 
Accrued interest on convertible loans  23,726   6,966 
Accruals, related party  54,000   45,000 
Derivative liability  1,008,011   449,975 
Convertible loans, net of discount of $283,645 and $237,608, respectively  511,608   192,392 
Loan from shareholder  11,438   11,438 
Total current liabilities  1,620,046   718,571 
Total Liabilities  1,620,046   718,571 
         
COMMITMENTS AND CONTINGENCIES  -   - 
         
STOCKHOLDERS’ EQUITY (DEFICIT):        
Preferred stock series B, $0.0001 par value, 100,000,000 shares authorized; 50,000,000 and 50,000,000 shares issued and outstanding, respectively  5,000   5,000 
Common stock, $0.0001 par value, 950,000,000 shares authorized; 357,684,069 and 301,640,836 shares issued and outstanding, respectively  35,769   30,164 
Common stock payable  5,500   - 
Additional paid-in capital  1,709,346   1,533,092 
Accumulated deficit  (2,669,597)  (1,813,120)
Total Stockholders’ Deficit  (913,982)  (244,864)
Total Liabilities and Stockholders’ Equity (Deficit) $706,064  $473,707 

 

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
November 30,
  For the Six Months Ended
November 30,
 
  2017  2016  2017  2016 
     (Restated)     (Restated) 
Revenues $1,083  $23,031  $2,725  $115,153 
Cost of goods sold  700   5,297   1,510   116,177 
Gross margin  383   17,734   1,215   (1,024)
                 
Operating Expenses:                
Consulting fees  21,250   -   48,000   - 
Professional fees  16,423   1,100   28,788   9,400 
Management fees  1,500   1,500   3,000   3,000 
General and administrative  42,341   4,025   86,211   10,584 
Total Operating Expenses  81,514   6,625   165,999   22,984 
                 
Income (loss) from operations  (81,131)  11,109   (164,784)  (24,008)
                 
Other Income (Expense):                
Interest expense and loan fees  (13,692)  (6,079)  (25,421)  (49,289)
Amortization of debt discount  (172,990)  (82,115)  (279,387)  (162,368)
Change in fair value of derivative liability  (286,631)  47,145   (171,044)  383,922 
Loss on settlement of convertible debt  -   -   (23,925)  - 
Loss of issuance on convertible debt  (173,240)  (12,086)  (191,916)  (284,091)
Total other expense  (646,553)  (53,135)  (691,693)  (111,826)
Net loss $(727,684) $(42,026) $(856,477) $(135,834)
Basic and diluted loss per share  (0.00)  (0.00)  (0.00)  (0.00)
Weighted average number of shares outstanding – basic and diluted  325,175,579   258,843,687   313,343,905   258,817,954 

 

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

 

 3 

 

 

BEMAX INC.

Condensed Statements of Cash Flows

(Unaudited)

 

 

  For the Six Months Ended
November 30,
 
  2017  2016 
     (Restated) 
CASH FLOW FROM OPERATING ACTIVITIES:      
Net loss $(856,477) $(135,834)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation expense  1,631   - 
Change in fair value of derivative  171,044   (383,922)
Loss on issuance of convertible debt  191,916   284,091 
Loss on settlement of convertible debt  23,925   - 
Amortization of debt discount  279,387   162,368 
Stock based compensation  3,806   - 
Changes in Operating Assets and Liabilities:        
Prepaids  10,737   - 
Inventory  (323)  (132,005)
Other assets  (225,000)  - 
Accounts payable  (1,537)  - 
Accrued interest on convertible loans  23,847   18 
Accruals – related party  9,000   - 
Net Cash Used in Operating Activities  (368,044)  (205,284)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from convertible loans  430,150   135,000 
Repayment of convertible loan  (46,000)  (40,000)
Loan from shareholder and related party  -   9,000 
Net Cash Provided by Financing Activities  384,150   104,000 
         
NET DECREASE IN CASH  16,106   (101,284)
CASH AT BEGINNING OF PERIOD  39,386   115,738 
CASH AT END OF PERIOD $55,492  $14,454 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid during period for:        
Interest $1,575  $22,272 
Income Taxes $-  $- 
         
Non-cash transactions:        
Common stock issued for convertible debt $54,034  $7,004 
Common stock issued for prepaid services $13,194  $- 

 

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

 

 4 

 

 

BEMAX INC.

Notes to the Financial Statements

November 30, 2017

(Unaudited)

 

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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.

 

NOTE 2 - GOING CONCERN

 

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has had minimal revenue and has an accumulated a deficit of $2,669,597 as of November 30, 2017. The Company requires capital for its contemplated operational and marketing activities. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors raise 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, loans from officers/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. The unaudited financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.

 

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, 2018. 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 for the year ended May 31, 2017.

 

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.

 

Inventory

The Company’s inventory consists of finished goods ready for resale. Inventories are stated at the lower of cost or market. Cost is principally determined using the last-in, first-out (LIFO) method. The company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions.

 

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 November 30, 2017, and May 31, 2017, the embedded conversion feature of $1,008,011 and $449,975, respectively, 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.

 

 5 

 

 

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 unobservable 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:

 

November 30, 2017:

 

Description Level 1  Level 2  Level 3 
Derivative $-  $-  $1,008,011 

 

May 31, 2017:

 

Description Level 1  Level 2  Level 3 
Derivative $-  $-  $449,975 

 

Revenue Recognition

The Company follows ASC 605-10-S99-1,Revenue Recognition,of the FASB Accounting Standards Codification for revenue recognition, which has four basic criteria that must be met before revenue is recognized: 1) existence of persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to the buyer is fixed and determinable; and 4) collection is reasonably assured.

 

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.

 

Reclassifications

Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the unaudited financial statements for the six months ended November 30, 2017.

 

 6 

 

 

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its statements of cash flows.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

 

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 - PROPERTY AND EQUIPMENT

 

Furniture, fixtures, and equipment, stated at cost, less accumulated depreciation consisted of the following at:

 

  November 30, 2017  May 31,
2017
 
Computer equipment $500  $500 
Vehicle  15,225   15,225 
Less: accumulated depreciation  (2,403)  (772)
Fixed assets, net $13,322  $14,953 

 

Depreciation Expense

Depreciation expense for the six months ended November 30, 2017 and 2016, was $1,631 and $0, respectively.

 

NOTE 5 - OTHER ASSETS

 

On March 27, 2017, the Company entered into an Option to obtain a Property Lease Agreement (“the lease”) with Simfox Enterprises aka Achievers Nursery School. This is a development property situated in Lagos, Nigeria. The lease is for 30 years with two successive five-year extensions at the option of the Company. Consideration for the Option is $300,000 with $110,000 due immediately and the balance by installments by August 30, 2017. As of November 30, 2017, the Company has paid the full $300,000. In addition, the Company has agreed, subject to the signing of the Definitive Document, to pay Simfox Enterprises, a $390,000 refundable good faith deposit, of which $106,000 has been paid. The definitive document is currently under negotiation. The deposit will be held by Simfox in an interest-bearing account to be returned to Bemax plus interest, on completion of the development of the property by the Company. 

 

The Company intends to develop the property for its intended purpose over a two to five-year period, as mutually agreed upon. The option payment of $300,000 will be amortized over this period once development begins.

 

NOTE 6 - RELATED PARTY TRANSACTIONS

 

The President of the Company provides management services 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. As of November 30, 2017, and May 31, 2017, there is $54,000 and $45,000, respectively, accrued for these fees.

 

As of November 30, 2017, and May 31, 2017, there are loans from the majority shareholder of $11,438 and $11,438, respectively. These loans were made in order to assist in meeting general and administrative expenses. These advances are unsecured, due on demand and non-interest bearing.

 

 7 

 

 

NOTE 7 - STOCKHOLDERS’ EQUITY

 

On December 5, 2016, the Company issued 7,500,000 shares of common stock per the terms of a one-year consulting agreement. The shares were valued at $0.01 per share for total non-cash expense of $75,000. The expense is being amortized over the term of the agreement. As of November 30, 2017, the full $75,000 has been debited to consulting expense.

 

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.

 

On October 24, 2017, the Company amended its Articles of Incorporation increasing the authorized issue of common stock from 850,000,000 to 950,000,000. The par value remains the same at $0.0001 per share. 

 

During the year ended May 31, 2017, the Company converted $318,631 of principal and accrued interest into 185,348,336 shares of common stock. All conversions were completed pursuant to the terms of their respective convertible promissory notes. No gains or losses were recognized as a result of the conversions.

 

During the six months ended November 30, 2017, the Company converted $46,947 and $7,087 of principal and interest, respectively, into 51,043,233 shares of common stock.

 

On October 10, 2017, the Company executed an Agreement for IR Services. The agreement is for six months and requires a fee of 10 million shares of common stock. The first 5,000,000 shares of common stock are required upon the execution of the agreement and were granted by the Board of Directors on October 10, 2017. The next 2.5 million shares are due in thirty days and the remaining 2.5 million, thirty days after that. The Company issued the 5,000,000 shares valued at $0.0023 per share for total non-cash expense of $11,500. The expense is being amortized over the term of the agreement. As of November 30, 2017, $3,205 has been debited to consulting expense. On November 10, 2017, the Company issued another 2,500,000 shares of common stock valued at $0.0022 per share for total non-cash expense of $5,500. The expense is being amortized over the remaining term of the agreement. As of November 30, 2017, $601 has been debited to consulting expense. As of November 30, 2017, 2,500,000 of shares have not yet been issued by the transfer agent; therefore, they have been credited to the stock payable account.

 

NOTE 8 - PREFERRED STOCK 

 

On January 23, 2017, the Board of Directors designated a series of preferred stock titled Series B Preferred Stock consisting of 50,000,000 shares with a $0.0001 par value. Each share of Series B preferred stock has voting rights of 10 votes per share, and will vote alongside the common stock, not as a separate class. Each share of preferred stock can be converted into three shares of common stock at any time after a one-year anniversary. Holders are entitled to dividends, if declared, equivalent to if they had converted to common stock. The Series B preferred stock have no liquidation rights.

 

On October 24, 2017, the Company amended its Articles of Incorporation increasing the authorized issue of preferred stock from 50,000,000 to 100,000,000. The par value remains the same at $0.0001 per share. 

 

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 9 - CONVERTIBLE LOANS

 

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 with an original issue discount of $6,000 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. On June 8, 2017, the Company repaid the $46,000 of principal, $1,575 of accrued interest and a $23,925 early payment penalty. As a result of repayment of the note the Company recognized the remaining debt discount. 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 March 20, 2017, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan is $114,000 with an original issue discount of $14,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on March 20, 2018. 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 43% applied to the lowest trading 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 $170,236 based on the Black Scholes Merton pricing model and a corresponding debt discount of $114,000 to be amortized utilizing the interest method of accretion over the term of the note. During the three months ended November 30, 2017, the Company converted $12,380 of principal into 15,000,000 shares of common stock. As of November 30, 2017, the Company fair valued the derivative at $199,551. In addition, $56,841 of the debt discount has been amortized to interest expense.

 

 8 

 

 

On March 27, 2017, the Company issued a Convertible Promissory Note in favor of JSJ Investments, Inc. The principal amount of the loan is $125,000 with an original issue discount of $9,250 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 22, 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 40% applied to the average of the three lowest trading prices 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 $204,373 based on the Black Scholes Merton pricing model and a corresponding debt discount of $125,000 to be amortized utilizing the interest method of accretion over the term of the note. During the three months ended November 30, 2017, the Company converted $34,374 of principal into 22,043,233 shares of common stock. As of November 30, 2017, the Company fair valued the derivative at $131,560. In addition, $112,727 of the debt discount has been amortized to interest expense.

 

On April 4, 2017, the Company issued a Convertible Promissory Note in favor of Auctus, Fund, LLC. The principal amount of the loan is $145,000 with an original issue discount of $15,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 22, 2017. Auctus Fund, 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 40% applied to the lowest trading 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 $257,720 based on the Black Scholes Merton pricing model and a corresponding debt discount of $145,000 to be amortized utilizing the interest method of accretion over the term of the note. During the three months ended November 30, 2017, the Company converted $193 and $7,078 of principal and interest, respectively into 9,500,000 shares of common stock. As of November 30, 2017, the Company fair valued the derivative at $266,764. In addition, $130,337 of the debt discount has been amortized to interest expense.

 

On August 3, 2017, the Company issued a Convertible Promissory Note in favor of JSJ Investments, Inc. The principal amount of the loan is $60,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on May 3, 2018. 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 40% applied to the average of the three lowest trading prices 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 $73,676 based on the Black Scholes Merton pricing model and a corresponding debt discount of $60,000 to be amortized utilizing the interest method of accretion over the term of the note. As of November 30, 2017, the Company fair valued the derivative at $90,037. In addition, $26,154 of the debt discount has been amortized to interest expense.

 

On June 2, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $132,000 with an original issue discount of $6,600 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on June 2, 2018. GS Capital 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 36% applied to the lowest trading 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 $172,690 based on the Black Scholes Merton pricing model and a corresponding debt discount of $132,000 to be amortized utilizing the interest method of accretion over the term of the note. As of November 30, 2017, the Company fair valued the derivative at $242,554. In addition, $4,633 of the debt discount has been amortized to interest expense.

 

On July 18, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $105,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on July 18, 2018. GS Capital 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 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of November 30, 2017, $1,853 of the debt discount has been amortized to interest expense.

 

 9 

 

 

On October 19, 2017, the Company issued a Convertible Promissory Note in favor of Einstein Investments. The principal amount of the loan is $36,200 with an original issue discount of $5,200 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on July 19, 2018. Einstein Investments 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 43% applied to the lowest trading price for 15 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 $86,715 based on the Black Scholes Merton pricing model and a corresponding debt discount of $36,200 to be amortized utilizing the interest method of accretion over the term of the note. As of November 30, 2017, the Company fair valued the derivative at $77,546. In addition, $6,739 of the debt discount has been amortized to interest expense.

 

On October 26, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $125,000 with an original issue discount of $6,250,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on October 26, 2018. GS Capital 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 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of November 30, 2017, $521 of the debt discount has been amortized to interest expense.

 

A summary of outstanding convertible notes as of November 30, 2017 and May 31, 2017 is as follows:

 

Note Holder Issue
Date
 Maturity
Date
 Stated
Interest
Rate
  Principal
Balance
5/31/2017
  Additions  Repayments / Conversions  Principal
Balance
11/30/2017
 
Crown Bridge Partners, LLC 12/28/2016 12/28/2017  8% $46,000  $-  $(46,000) $- 
Crown Bridge Partners, LLC 3/20/2017  03/20/2018  8%  114,000   -   (12,380)  101,620 
JSJ Investments, Inc. 3/27/2017 12/22/2017  8%  125,000   -   (34,374)  90,626 
Auctus Fund, LLC 4/4/2017 12/30/2017  8%  145,000   -   (193)  144,807 
GS Capital Partners, LLC 6/2/2017 6/2/2018  8%  -   132,000   -   132,000 
GS Capital Partners, LLC 7/18/2017 7/18/2018  8%  -   105,000   -   105,000 
JSJ Investments, Inc. 8/3/2017 5/3/2018  8%  -   60,000   -   60,000 
Einstein Investments 10/19/2017 7/19/2018  8%  -   36,200       36,200 
GS Capital Partners, LLC 10/26/2017 10/26/2018  8%  -   125,000   -   125,000 
Total          430,000   458,200   (92,947)  795,253 
Less debt discount          (237,608)  -   -   (283,645)
          $192,392  $458,200  $(92,947) $511,608 

 

During the year ended May 31, 2017, the Company converted $318,631 of principal and accrued interest into 185,348,336 shares of common stock. During the six months ended November 30, 2017, the Company converted $46,947 and $7,087 of principal and interest, respectively, 51,043,233 shares of common stock.

 

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

 

Balance at May 31, 2016 $351,041 
Increase to derivative due to new issuances  896,686 
Decrease due to debt settlement  (1,117,070)
Derivative loss due to mark to market adjustment  319,318 
Balance at May 31, 2017  449,975 
Increase to derivative due to new issuances  503,317 
Decrease due to debt settlement  (116,325)
Derivative loss (gain) to mark to market adjustment  171,044 
Balance at November 30, 2017 $1,008,011 

 

 10 

 

 

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 six months ended November 30, 2017 is as follows:

 

Inputs November 30,
2017
 Initial Valuation
Stock price $.0012 $.0074
Conversion price $.001 - $.0005 .004
Volatility (annual) 241.6% - 298.3% 291.5%
Risk-free rate 1.27% -1.45% 1.08%
Years to maturity  .25 - .63 .58

  

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

 

NOTE 10 - CORRECTION OF ERRORS

 

The Company has discovered that there were errors in prior periods regarding revenue, expense and derivative recognition for derivatives related to the embedded conversion features of convertible notes. As a result, the prior periods in these financial statements have been restated.

 

NOTE 11 - SUBSEQUENT EVENTS

 

In accordance with ASC 855-10,Subsequent Events, we have analyzed our operations subsequent to November 30, 2017, through the date the unaudited financial statements were available to be issued, and have determined that we do not have any material subsequent events to disclose in these unaudited financial statements other than the following.

 

On December 1, 2017, Auctus Fund, LLC converted $5,676 and $444 of principal and interest, respectively, into 17,000,0000 shares of common stock.

 

On December 4, 2017, GS Capital Partners, LLC converted $7,000 and $284 of principal and interest, respectively into 12,645,555 shares of common stock.

 

On December 21, 2017, Auctus Fund, LLC converted $4,680 and $640 of principal and interest, respectively into 19,000,0000 shares of common stock.

 

 On January 3, 2018, JSJ Investments converted $8,050 of principal into 22,360,151 shares of common stock.

 

On January 8, 2018, the Board of Directors consented to increase the Company’s authorized common shares to 1,700,000,000 from 950,000,000, par value to remain at $0.0001 and to designate 40,000,000 of the 100,000,000 shares of Preferred Stock as Series C Preferred Stock. The Company amended and restated its Articles of Incorporation for these changes effective January 8, 2018.

 

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ITEM 2. MANAGEMENT’S DISCUSSION ND 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. Our business is focused on expanding current distribution networks for our private labels. We will attract more distributors for our products with competitive pricing through lower overhead cost. We continue to invest in the ecommerce space to attract loyal customers and expand within our markets.

 

The Company is working on several business development projects to increase business and revenue generation in 2017 and beyond, including but not limited to: product licensing of private labels in some of our African markets, production, and extended distribution of new and existing Bemax private label disposable baby diaper products. There can be no assurance that these will be successful in generating increased revenues in 2017.

 

Results of Operations for the Three Months Ended November 30, 2017 and 2016

 

Revenue

Revenue for the three months ended November 30, 2017 and 2016 was $1,083 and $23,031, respectively. The decrease is due to the Company’s temporary focus on plant development.

 

Operating Expenses

Consulting fees were $21,250 and $0 for the three months ended November 30, 2017 and 2016, respectively. The increase can be attributed to fees associated with acquiring the property lease with Simfox and the recognition of expense for stock for services issued in the prior period.

 

Professional fees were $16,423 and $1,100 for the three months ended November 30, 2017 and 2016, respectively, an increase of $15,323, or 139.3%, in 2017. The increase in 2017, as compared to 2016, can be largely attributed to increased legal, audit, and/or accounting fees related to required SEC quarterly filings.

 

General and administrative expense was $42,341 and $4,025 for the three months ended November 30, 2017 and 2016, respectively, an increase of $38,316, or 951.9%, in the current period. The increase in 2017 can be attributed to increased operational costs including $5,003 for travel, office expense as well as additional filing fees to amend some of our SEC filings.

 

Other Income and Expense

For the three months ended November 30, 2017, we had total other expense of $646,553, compared to $53,135 for the three months ended November 30, 2016. For the three months ended November 30, 2017, we recorded interest expense of $13,692, compared to $6,079 in the prior period. In addition, as a result of the convertible promissory notes, we recorded amortization of debt discount of $172,990, compared to $82,115 for the prior period, a loss on the issuance of convertible debt of $173,240 compared to $12,086 for the prior period, a loss on settlement of debt of $23,925, and a loss in the change in the fair value of our derivatives of $286,631 compared to a gain of $47,145 in the prior year.

 

Net Loss

For the three months ended November 30, 2017 and 2016, we incurred a net loss of $727,684 and $42,026, respectively.

 

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Results of Operations for the Six Months Ended November 30, 2017 and 2016

 

Revenue

Revenue for the six months ended November 30, 2017 and 2016 was $2,725 and $115,153, respectively. The decrease is due to the Company’s temporary focus on plant development.

 

Operating Expenses

Consulting fees were $48,000 and $0 for the six months ended November 30, 2017 and 2016, respectively. The increase can be attributed to fees associated with acquiring the property lease with Simfox and the recognition of expense for stock for services issued in the prior period.

 

Professional fees were $28,788 and $9,400 for the six months ended November 30, 2017 and 2016, respectively, an increase of $19,388, or 206%, in 2017. The increase in 2017, as compared to 2016, can be largely attributed to increased legal, audit, and/or accounting fees related to required SEC quarterly filings.

 

General and administrative expense was $86,211 and $10,584 for the six months ended November 30, 2017 and 2016, respectively, an increase of $75,627, or 714.5%, in the current period. The increase in 2017 can be attributed to increased operational costs including $5,003 for travel, office expense as well as additional filing fees to amend some of our SEC filings.

 

Other Income and Expense

For the six months ended November 30, 2017, we had total other expense of $691,693, compared to $111,826 for the six months ended November 30, 2016. For the six months ended November 30, 2017, we recorded interest expense of $25,421, compared to $49,289 in the prior period. In addition, as a result of the convertible promissory notes, we recorded amortization of debt discount of $279,387, compared to $162,368 for the prior period, a loss on the issuance of convertible debt of $191,916 compared to $284,091 for the prior period, a loss on settlement of debt of $23,925, and a loss in the change in the fair value of our derivatives of $171,044 compared to a gain of $383,922 in the prior year.

 

Net Loss

For the six months ended November 30, 2017 and 2016, we incurred a net loss of $856,477 and $135,834, respectively.

 

Liquidity and Capital Resources

 

During the six months ended November 30, 2017, we used cash of $368,044 in operating activities, as compared to $205,284 for the six months ended November 30, 2016. Financing activities provided net cash of $384,150 during the six months ended November 30, 2017, as compared to $104,000 for the six months ended November 30, 2016.

 

As of November 30, 2017, we have the following convertible notes outstanding.

 

Note Holder Issue
Date
 Maturity
Date
 Stated
Interest
Rate
 Principal
Balance
11/30/2017
Crown Bridge Partners, LLC 3/20/2017   03/20/2018 8% $101,620 
JSJ Investments, Inc. 3/27/2017  12/22/2017 8%  90,626 
Auctus Fund, LLC 4/4/2017  12/30/2017 8%  144,807 
GS Capital Partners, LLC 6/2/2017  6/2/2018 8%  132,000 
GS Capital Partners, LLC 7/18/2017  7/18/2018 8%  105,000 
JSJ Investments, Inc. 8/3/2017  5/3/2018 8%  60,000 
Einstein Investments 10/19/2017 7/19/2018 8%  36,200 
GS Capital Partners, LLC 10/26/2017 10/26/2018 8%  125,000 
Total       $795,253 

  

We currently have minimal cash reserves. To date, the Company has covered operating deficits primarily through loans from the sole director, and third-party loans which if not paid with interest are convertible to the Company’s common stock. 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.

 

 13 

 

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $2,669,597 since inception (November 28, 2012) 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.

 

We anticipate that we may only generate any limited revenues in the near future and we will not have enough positive internal operating cash flow until we can generate substantial revenues, which may take the next two years to fully realize.  There is no assurance we will achieve profitable operations.

 

Critical Accounting Estimates and Policies

 

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 the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Note 3 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes.  Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.

 

The Company follows ASC 605-10-S99-1,Revenue Recognition,of the FASB Accounting Standards Codification for revenue recognition, which has four basic criteria that must be met before revenue is recognized: 1) existence of persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to the buyer is fixed and determinable; and 4) collection is reasonably assured.

 

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.

 

We are subject to various loss contingencies arising in the ordinary course of business.  We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies.  An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.  We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

 

We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.  Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized.

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

 

Recent Accounting Pronouncements

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its statements of cash flows.

 

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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (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 Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our sole officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our sole officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2017.

 

Based on the evaluation of these disclosure controls and procedures, our Chief Executive and Chief Financial Officer concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls: Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control and lack of formal documentation of accounting policies and procedures.

 

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

There were no changes in our internal control or in other factors during the last fiscal quarter covered by this report that have materially affected, or are likely to materially affect the Company’s internal control 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 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

 

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

 

During the six months ended November 30, 2017, the Company converted $46,947 and $7,087 of principal and interest, respectively, into 51,043,233 shares of common stock.

 

On October 10, 2017, the Company issued the 5,000,000 shares valued at $0.0023 per share for total non-cash expense of $11,500. On November 10, 2017, the Company issued another 2,500,000 shares of common stock valued at $0.0022 per share for total non-cash expense of $5,500. As of November 30, 2017, the shares have not yet been issued by the transfer agent; therefore, they have been credited to the stock payable account.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

N/A.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibits:

 

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
   
31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
   
32.1 Certifications 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.
   
101.INS XBRL Instance Document.
   
101.SCH XBRL Taxonomy Extension Schema Document.
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
   
101.LAB XBRL Taxonomy Extension Labels Linkbase Document.
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 16 

 

 

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: January 12, 2018By:/s/ Taiwo Aimasiko
  Taiwo Aimasiko, President and
  Chief Executive Officer
   
Dated: January 12, 2018By:/s/ Taiwo Aimasiko
  Taiwo Aimasiko, Chief Financial Officer  

 

 

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