Poverty Dignified, Inc.

Consolidated Balance Sheets

Note: The Balance Sheet at August 31, 2017 has been derived from the audited financial statements at that date, with reclassifications for current period presentation.

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

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

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

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

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION, AND PLAN OF OPERATION

Poverty Dignified, Inc. was incorporated in the State of Nevada on September 27, 2013, and is headquartered in Hurst, Texas. The Company was established as a renewable energy company, incubating solar technologies to establish electrification, education, connectivity and media distribution infrastructures in rural communities across the globe to empower the individual, community and local economy. My Power Solutions, Inc., a wholly-owned subsidiary of Poverty Dignified, Inc., was incorporated in the State of Nevada on March 13, 2014 as a franchise business opportunity with Franchise Disclosure Documents for franchise sales in both the United States and South African markets. Africhise, Inc., a wholly-owned subsidiary of Poverty Dignified, Inc. is a Delaware Corporation, and was formed on August 28, 2015 to be the franchise management arm of My Power Solutions, Inc's franchise operations in Africa.

In May 2018, following an operational review, the Company decided to withdraw all operations of My Power Solutions, Inc. in South Africa. With a lack of significant revenues and higher than expected expenses due to training on-the-ground personnel and the implementation of solar installations, plus the instability of the political environment, the established operating structure and initial business plan was not sustainable. The decision to cease the operations of My Power Solutions, Inc. in rural South African communities represents a strategic shift that impacts the Company’s financial reporting and results. As such, My Power Solutions, Inc. in South Africa has been classified as a discontinued operation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they may not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the year ended August 31, 2017. The interim results for the nine months ended May 31, 2018 are not necessarily indicative of results for the full fiscal year.

The unaudited consolidated financial statements include the accounts of Poverty Dignified, Inc., My Power Solutions, Inc. and Africhise, Inc. These entities are collectively referred herein to as Poverty Dignified, or the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

Since it has been classified as a discontinued operation, the balance sheet amounts and results of operations for My Power Solutions, Inc. in South Africa have been reclassified from their historical presentation to assets and liabilities of discontinued operation on the Consolidated Balance Sheets and to discontinued operation on the Consolidated Statements of Operations and Comprehensive Loss, respectively, for all periods presented. Losses associated with impairment of assets are recorded in discontinued operation in the period of the disposal. The Consolidated Statements of Cash Flows has also been reclassified for assets, liabilities and results of the discontinued operation for all periods presented. See Note 9 for more details regarding the discontinued operation.

Going Concern

The accompanying consolidated 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. As of May 31, 2018, the Company had cash of $1,956, a working capital deficit of $2,449,181 and a stockholders’ deficit of $2,450,210. The Company has incurred net losses from start-up costs and minimal operations since inception to May 31, 2018 and has ceased operations of its subsidiary, My Power Solutions, Inc. in South Africa. As a result, as of May 31, 2018, these issues raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company’s $2,459,768 of total liabilities at May 31, 2018 includes $94,892 of convertible notes that were repaid subsequent to May 31, 2018. Additionally, it includes $1,055,630 of notes payable to a related party, $937,775 of accrued payroll expenses due to Company management and $6,725 due to an officer of the Company, all of which we can continue delay payment. On June 21, 2018, we received net proceeds totaling $125,000 from a convertible note payable. As such, we believe we have the capabilities and available resources to continue for the next twelve months, although we cannot guarantee that we will be able to do so.

Plan of Operation

As a renewable energy Company, Poverty Dignified remains committed to incubating solar technologies that establish electrification, education, connectivity and media distribution infrastructures in rural communities across the globe to empower the individual, community and local economy. Even though the Company recently announced the decision to withdraw all operations of its wholly owned subsidiary, My Power Solutions, Inc., in South Africa, it also announced that a new team has been assembled to lead the restructuring and recapitalization efforts of the Company’s continued expansion into Africa. 

With a new leadership team now in place, plans are being initialized to redirect the operational focus away from the former electrification model of 20 to 100 homes at a time, in favor of building a more robust infrastructure to provide “community-wide” solar and “community-wide” internet connectivity, with an expanded capacity to power thousands of homes at a time. New plans call for recapitalization from private investors, and once obtained, this new cash infusion will enable the installation of a 9.9-Megawatt solar park to electrify a major informal settlement in South Africa. This new direction and recapitalization will accelerate the growth of the Company and ensure the operational capacity to promote a redefined and strategic expansion on a much greater scale. The Company plans a major announcement in August to discuss in detail the Company’s strategic refocus and proposed acquisitions.

Risks and Uncertainties

Poverty Dignified’s activities are subject to significant risks and uncertainties, including failing to secure funding to execute its plan of operation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash

The Company maintains funds in various financial institutions that are members of the Federal Deposit Insurance Corporation (“FDIC”). As such, funds are insured based on Federal Reserve limits. The Company has not experienced any losses in the past, and management believes it is not exposed to any significant credit risk on the current account balances. At times, cash balances may exceed insured limits.

The Company has determined that the functional currency of its foreign subsidiaries is the local currency. At May 31, 2018 and August 31, 2017, the Company had cash in foreign bank accounts of $-0- and $5,107, respectively. These foreign cash balances are included in current assets of discontinued operation.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of payments primarily related to a professional fee retainer, payroll advance and short-term deposits.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. As of May 31, 2018, property and equipment consists of computer equipment with a total cost of $1,607 and accumulated depreciation of $1,607. At August 31, 2017, property and equipment consists of computer equipment and solar equipment for containers with a total cost of $55,673 and accumulated depreciation $2,168. The net book value of the solar equipment for containers of $53,505 at August 31, 2017 was classified as an asset of the discontinued operation. Depreciation expense for the three and nine month periods ended May 31, 2018 was minimal and is included in loss from discontinued operation. Depreciation expense for the three and nine month periods ended May 31, 2017 was $10 and $275, respectively.

The Company periodically evaluates the fair value of fixed assets whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. As a result of the discontinued operation in South Africa, during the nine month period ended May 31, 2018, the solar equipment for containers was written down to its net realizable value of $-0- and the Company recognized a loss on impairment of $54,141.

Accrued Expenses

Accrued expenses are recorded when incurred and primarily consist of accrued interest on notes payable and amounts due for supplies and travel. Accrued payroll consists of salary amounts earned but deferred by the Company's management team.

Derivative Liabilities

The Company has certain financial instruments that contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be accounted for separately. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to income or expense as part of gain or loss on extinguishment. 

Revenue Recognition

The Company recognizes revenue once pervasive evidence that an agreement exists; the product and/or service have been rendered; the fee is fixed and determinable; and collection of the amount due is reasonably assured.

Revenue from Continuing Operations

There are no revenues from continuing operations for the three and nine month periods ended May 31, 2018 and 2017.

Revenue from Discontinued Operation

Revenue from discontinued operation was earned the based on the following:

Initial Franchise Fees – The Company executed franchise agreements that set the terms of its arrangement with each franchisee. The franchise agreements required the franchisee to pay an initial, non-refundable fee of $15,000. Initial franchise fee revenue from the sale of a franchise was recognized when the Company had substantially performed or satisfied all of its material obligations relating to the sale. Substantial performance occurred when the Company had (a) performed substantially all of its initial services required by the franchise agreement, such as assistance in site selection, personnel training and implementation of an accounting and quality control system; and (b) completed all of its other material pre-opening obligations. Additionally, at the contract signing, the franchisee was required to fund $90,000 for purchases of equipment, inventory, point of sale software and computer hardware, furniture, fixtures and décor and signage and payment of import taxes and freight costs. Revenue for these items was recognized upon delivery of the assets. The Company deferred revenue from the initial franchise fee and other amounts due at contract signing until the respective revenue recognition milestones were met.

Continuing Royalty Payments – Royalities of 14% of gross revenues on authorized products and services were recognized in the period in which they were earned.

Product Revenue – Product revenue represented amounts earned for equipment delivered and set up by the Company for digital classroom purposes within schools in its franchise markets, but not included in the franchises themselves. For products that included installation, and if the installation met the criteria to be considered a separate element, product revenue was recognized upon delivery, and installation revenue was recognized when the installation was complete. For revenue that included customer-specified acceptance criteria, revenue was recognized after the acceptance criteria had been met. Certain of the Company’s products required specialized installation. Revenue for these products was deferred until installation was completed.

There are no revenues from the discontinued operation for the three and nine month period ended May 31, 2018. For the three and nine month period ended May 31, 2017, revenues of $7,029 and $29,322 are included in loss from discontinued operation.

Advertising

Advertising expenditures are charged to expense as incurred and are included in general and administrative expense. Total advertising expense for the three and nine month periods ended May 31, 2018 was $214. Total advertising expense for the three and nine month periods ended May 31, 2017 was $77 and $52,163, respectively, and is included in general and administrative expenses.

Research and Development

Research and development expenditures are charged to expense as incurred.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, prepaid expense, deferred financing cost, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

The Company adopted ASC Topic 820,  Fair Value Measurements  (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurements is defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement

The following table summarizes fair value measurements by level at May 31, 2018 and August 31, 2017, measured at fair value on a recurring basis:

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the consolidated statements of income. No interest or penalties were recognized for the nine months ended May 31, 2018 or 2017.

Tax years 2015 and forward remain open to examination under United States statute of limitations. Management is not aware of any material uncertain tax positions and no liability has been recognized at May 31, 2018 or August 31, 2017.

Earnings Per Share

Basic earnings per share are computed based on the weighted-average number of common shares outstanding during each year, while diluted earnings per share are based on the weighted-average number of common shares and common share equivalents outstanding.

Foreign Currency Translation

For financial reporting purposes, the functional currency of the discontinued foreign operation of My Power Solutions, Inc. is the local currency. The assets and liabilities of the discontinued foreign operation for which the local currency is the functional currency are translated into the U.S. dollar at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average exchange rates during the period. The accumulated foreign currency translation adjustment is presented as a component of accumulated other comprehensive loss in the consolidated statement of changes in stockholders’ equity (deficit).

Reclassifications

Certain amounts in the prior period have been reclassified to conform to the current period presentation, including those of the discontinued operation. These reclassifications had no impact on previously reported stockholders’ deficit or net loss.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, Accounting Standards Updates (ASU) issued by the Financial Accounting Standards Board (FASB) and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of operations.

NOTE 3 - STOCKHOLDERS’ EQUITY (DEFICIT)

In September 2013, the Company authorized the issue of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock at a par value of $.0001. There is a total of 9,497,394 and 8,511,850 shares of common stock issued and outstanding at May 31, 2018 and August 31, 2017, respectively. Preferred stockholders could receive preferential treatment relative to declared dividends, should there be any, and to distributions upon a liquidation event. As of May 31, 2018, no preferred stock has been issued.

Since incorporation, the Company has raised capital through private sales of its common stock. In its private placement memorandum dated January 2014 and closed November 2014, the Company raised $1,182,180 for its operations, research and development, and marketing of its franchise opportunities. Since our original Private Placement Offering was not sufficient to capitalize the Company, Poverty Dignified, Inc. conducted a Private Investment in Public Equity transaction, in which the Company offered 1,000,000 unregistered shares to accredited investors at a discounted price of $0.75 per share to raise an additional $750,000 of growth capital. Under this offering, the Company sold 999,970 shares of common stock for proceeds of $749,977, including 784,302 shares of common stock for proceeds of $588,226 during the year ended August 31, 2017. Poverty Dignified, Inc. is currently doing a Private Placement Memorandum, in which the Company is offering 2,000,000 shares at a price of $1.50 per share to raise an additional $3,000,000 in growth capital. In this Private Placement Memorandum, the Company has the option to sell shares at a price lower than the $1.50 per share. Through August 31, 2017, under this Private Placement Memorandum, the Company issued 144,000 shares of common stock at a discounted price of $0.75 per share for proceeds of $108,000 and issued 49,700 shares of common stock at the offering price of $1.50 per share for proceeds of $74,550. During the nine months ended May 31, 2018, the Company issued 10,800 shares at a discounted price of $0.75 per share and 6,000 shares at a price of $1.50 for total proceeds of $17,100.

As of May 31, 2018, of our 9,497,394 outstanding shares of common stock, 6,381,000 shares were issued to various stockholders in exchange for services and/or under restricted stock agreements. Relative to those shares, since inception, the Company has recognized total expense of $6,195,157. During the nine months ended May 31, 2018, the Company issued 275,000 shares for stock compensation expense of $114,750. During the nine months ended May 31, 2017, the Company issued 150,000 shares for stock compensation expense of $112,500.

NOTE 4 – COMMITMENTS AND CONTINGENCIES

The Company maintains a month to month lease on its corporate headquarters location. The Company has a lease for the office of its discontinued operation in South Africa that expires in the Company’s fiscal fourth quarter, under which the remaining commitment is not significant.

Based on a recent performance review by Poverty Dignified Inc.’s Board of Directors, and disclosed in the Company’s 8-K filing on June 19, 2018, the decision was made to withdraw all operations of its wholly owned subsidiary, My Power Solutions, Inc., in South Africa. As a result, there are pending disputes filed with the Commission for Conciliation, Mediation and Arbitration (CCMA) in South Africa. As the Company winds down its operations in South Africa, legal counsel has confirmed with management that any potential creditors including employees, vendors, consultants, contractors or other persons who may have claims against the Company, will be able to lodge the same with the appointed liquidator. The Company’s legal Counsel further stated that in their opinion it is not probable that the creditors will have claims against Poverty Dignified, Inc.

NOTE 5 – CONVERTIBLE NOTES PAYABLE

On April 13, 2017, the Company entered into a Securities Purchase Agreement whereas, Peak One Opportunity Fund, L.P. (the "buyer") wishes to purchase from the Company securities consisting of the Company’s convertible debentures due three years from issuance for an aggregate principal amount of up to $400,000 (which includes an aggregate purchase price of $370,000 and an original issue discount ("OID") of $30,000) (the “Debentures“). The Debentures are to be issued in three tranches. On April 21, 2017, the Company issued the first (the "Signing Debenture") of the three Debentures amounting to $100,000 of principal and a $10,000 OID. The Signing Debenture matures on April 21, 2020. At closing, the Company paid a commitment fee to the buyer of $2,500 and paid the buyer’s legal costs of $2,500, resulting in net proceeds of $85,000. The debenture was convertible at a conversion price of $1.50 up to 180 days. After 180 days, the conversion price is the lesser of (a) $1.50 or (b) sixty five percent (65%) of the lowest closing bid price of the common stock for the twenty (20) trading days immediately preceding the date of the date of conversion of the Debentures. As additional consideration, the Company issued 30,000 shares of common stock to Peak One Investments, LLC (the General Partner of the buyer) upon execution of this agreement. In relation to this transaction, the Company also incurred deferred finance costs totaling $2,500 for legal fees and commitment fees and $8,500 for a due diligence fee. Accordingly, the Company recorded debt discount of $41,379 related to the restricted shares issued, based on the relative fair value allocation of the net proceeds between the face value of debentures and the fair value of the restricted shares and deferred finance costs of $11,000. During the nine months ended May 31, 2018, the holder’s option to convert became active and the Company recorded a derivative liability of $116,364, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. A portion of the derivative liability was attributed to debt discount, with the remaining amount recorded as a loss on valuation of derivative liabilities. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the nine months ended May 31, 2018, the holder effected five conversions for a total of 393,744 shares to extinguish a portion of the long-term convertible debenture. As a result, the Company recorded a loss on extinguishment of debt of $81,795.

On April 24, 2017, the Company entered into a Securities Purchase Agreement whereas, Auctus Fund, LLC (the "buyer") wishes to purchase from the Company a 10% convertible note for a principal amount of $65,000. On April 24, 2017, the Company issued a convertible promissory note (the “note”) to the buyer for $65,000 in proceeds. The note is convertible at a conversion price of the lesser of (i) 50% of lowest trading price during the 25 days prior to the date of the note or (ii) 50% of the lowest trading price during the 25 days prior to the conversion date. At the closing, the Company paid legal and compliance fees of $2,750, a management fee to an affiliate of the buyer of $5,500 and a due diligence fee of $5,675 to the group that introduced the Company to the buyer. Accordingly, the Company recorded a debt discount of $65,000, with $51,075 attributable to the allocation to the beneficial conversion feature and $13,925 related to deferred finance costs. During the six months ended February 28, 2018, the holder’s option to convert became active and the Company recorded a derivative liability of $68,506, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. A portion of the derivative liability was attributed to debt discount, with the remaining amount recorded to reclassify the beneficial conversion feature. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the nine months ended May 31, 2018, the holder effected five conversions for a total of 300,000 shares to extinguish a portion of the convertible note payable. As a result, the Company recorded a loss on extinguishment of debt of $86,636. The convertible note payable to Auctus Fund, LLC matured on January 5, 2018 but was not repaid at that date. Under the terms of the note agreement, the failure to pay the outstanding balance on the note by the maturity date constitutes an event of default. Due to the event of default, the outstanding principal amount increased by $15,000, the interest rate increased to 24% and the unpaid principal and accrued interest increased to 150% of the previous outstanding amount. As such, the Company has recorded a debt default penalty expense of $46,288 for the nine months ended May 31, 2018.

On November 15, 2017, the Company issued a convertible note to Power Up Lending Group, LTD.  for $48,000. The note bears interest at 12%, matures on August 20, 2018, and is convertible into common stock at 58% of the lowest 3 closing market prices of the previous 20 trading days prior to conversion. The Company also recorded a $3,000 debt discount due to issuance fees. The holder’s conversion option under the note does not become active until 180 days after the issuance date. On May 11, 2018, the Company repaid the convertible note payable, including a prepayment percentage of 140% of the outstanding balance. As a result, the Company recorded a loss on debt prepayment of $21,077.

On November 15, 2017, the Company entered into a Securities Purchase Agreement whereas, Morningview Financial, LLC (the "buyer") wishes to purchase from the Company a 10% convertible note for a principal amount of $55,000. On November 15, 2017, the Company issued a convertible promissory note (the “note”) to the buyer for $50,000 in proceeds, after a $5,000 original issue discount. The note matures on November 15, 2018. The note is convertible at a conversion price of 50% of the lowest trading price during the 20 days prior to the conversion date. At the closing, the Company paid closing costs and a consulting fee totaling $7,000. Accordingly, the Company recorded a debt discount of $12,000. At issuance, the holder’s option to convert was active and the Company recorded a derivative liability of $63,442, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. A portion of the derivative liability was attributed to debt discount, with the remaining amount recorded to loss on valuation of derivative liabilities. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. On May 11, 2018, the Company repaid the convertible note payable, including a prepayment percentage of 140% of the outstanding balance. As a result of the prepayment percentage and the corresponding mitigating removal of the derivative liability, the Company recorded a gain on debt prepayment of $7,028.

On December 18, 2017, the Company entered into a Securities Purchase Agreement whereas, EMA Financial, LLC (the "buyer") wishes to purchase from the Company an 8% convertible note for a principal amount of $56,000. On December 18, 2017, the Company issued a convertible promissory note (the “note”) to the buyer for $53,000 in proceeds, after a $3,000 original issue discount. The note matures on December 18, 2018. The note is convertible at a conversion price of 50% of the lowest trading price during the 20 days prior to the conversion date. At the closing, the Company paid closing costs and a consulting fee totaling $8,000. Accordingly, the Company recorded a debt discount of $11,000. At issuance, the holder’s option to convert was active and the Company recorded a derivative liability of $64,948, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. A portion of the derivative liability was attributed to debt discount, with the remaining amount recorded to loss on valuation of derivative liabilities. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. On May 11, 2018, the Company repaid the convertible note payable, including a prepayment percentage of 150% of the outstanding balance. As a result of the prepayment percentage and the corresponding mitigating removal of the derivative liability, the Company recorded a loss on debt prepayment of $3,179.

On December 21, 2017, the Company entered into a Securities Purchase Agreement whereas, Crown Bridge Partners, LLC (the "buyer") wishes to purchase from the Company securities consisting of the Company’s 8% convertible notes payable for an aggregate principal amount of up to $120,000 (which includes an aggregate purchase price of $106,500 and an original issue discount ("OID") of $13,500). The convertible notes payable are to be issued in three tranches. On December 21, 2017, the Company issued the first of the three convertible notes payable amounting to $40,000 of principal and a $4,500 OID. At closing, the Company paid the buyer’s legal costs of $1,500, resulting in net proceeds of $34,000. The note is convertible at a conversion price of 55% of the lowest trading price during the 25 days prior to the conversion date. If the determined conversion price is less than $.050, then the conversion price is 40% of the lowest trading price during the 25 days prior to the conversion date. This convertible note payable matures on December 21, 2018. As additional consideration, the Company issued a Common Stock Purchase Warrant (the “warrant”) for 32,000 shares at an exercise price of $1.25 over an exercise period of 5 years. Due to the provisions of the warrant, the warrant was classified as a derivative warrant liability, the fair value of which was determined using the Black-Scholes valuation model. The value of $7,332 at issuance was attributed to debt discount. Additionally, at issuance, the holder’s option to convert was active and the Company recorded a derivative liability of $64,698, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. A portion of the derivative liability was attributed to debt discount, with the remaining amount recorded to loss on valuation of derivative liabilities. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liabilities are revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. On May 11, 2018, the Company repaid the convertible note payable, including a prepayment percentage of 150% of the outstanding balance. As a result of the prepayment percentage and the corresponding mitigating removal of the derivative liability, the Company recorded a gain on debt prepayment of $20,195.

The following table summarizes the balances of convertible notes payable:

Amortization of the debt discounts recorded as interest expense during the three and nine months ended May 31, 2018 totaled $35,589 and $129,934, respectively.

NOTE 6 – DERIVATIVE LIABILITIES

The Company analyzed the warrant and beneficial conversion features (“BCF”) for derivative accounting consideration under ASC 815, “ Derivatives and Hedging,”  and determined that the warrant was a derivative warrant liability and that the conversion options on convertible notes payable become derivatives at the point the holder’s option to convert becomes active and there is active trading of the Company’s stock.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of May 31, 2018. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used at May 31, 2018 and August 31, 2017:

The following table summarizes the balances of derivative liabilities:

The derivative liabilities associated with Morningview Financial, LLC, EMA Financial, LLC, and Crown Bridge Partners, LLC were removed when the corresponding convertible notes payable were repaid on May 11, 2018.

The following table summarizes the change in derivative liabilities included in the balance sheet for the nine months ended May 31, 2018:

The following table summarizes the loss on derivative liability included in the income statement for the nine months ended May 31, 2018 and 2017, respectively.

NOTE 7 – INCOME TAXES

Due to the operating loss and the inability to recognize an income tax benefit, there is no provision for current or deferred federal or state income taxes for the period from inception through May 31, 2018.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.

The Company’s total deferred tax asset, calculated using effective tax rates is as follows:

The Company has not recognized a deferred tax asset for its stock compensation expense due to its non-deductibility. The Company has no plans to pursue any tax benefits relative to its recognized stock compensation expense.

The reconciliation of income taxes computed at a rate of 21% and 35% for federal income taxes for the nine months ended May 31, 2018 and 2017, respectively, and at 28% for foreign income taxes is as follows:

As of May 31, 2018, the Company had net operating loss carryforwards in the amount of $3,683,816, of which $2,881,684 was incurred in the U.S. and $802,132 was the result of cumulative operating losses of the Company’s subsidiaries in South Africa, which have now been discontinued. Because of the Company’s lack of earnings history and uncertainty regarding the usability of the losses from its discontinued operation in South Africa, the net operating loss carryforwards and other deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by $216,813 and increased by $228,923 during the nine months ended May 31, 2018 and 2017, respectively.

Our federal net operating losses will begin to expire in 2034 and our state tax loss carryforwards will begin to expire in 2029.

NOTE 8 – RELATED PARTY TRANSACTIONS

As of May 31, 2018, the Company has issued 6,381,000 shares of common stock to various stockholders, under restricted stock agreements or in exchange for cash and services. The Company issued 275,000 shares under restricted stock agreements during the nine months ended May 31, 2018.

Due to Officer

On March 13, 2016, John K. Lowther, Chief Executive Officer and Director, advanced the Company $12,916. The balance outstanding at May 31, 2018 and August 31, 2017 is $6,725 and $6,944, respectively. This advance does not bear interest.

Notes Payable – Related Party

During the year ended August 31, 2016, Power It Perfect, Inc. loaned the Company $194,500 for working capital purposes in exchange for promissory notes. During the year ended August 31, 2017, Power It Perfect, Inc. loaned the Company an additional $208,160 for working capital purposes in exchange for promissory notes. During the nine months ended May 31, 2018, Power It Perfect, Inc. loaned the Company an additional $580,800 for working capital and other purposes in exchange for promissory notes. All the notes bear interest at five percent per annum, are non-collateralized and due on demand, as soon as the Company has operating cash flow available for repayment. The balance of the notes payable was $1,055,630 at May 31, 2018 and $486,373 at August 31, 2017. Accrued interest on the notes, which is included in accrued expenses, totaled $12,981 at May 31, 2018 and $4,626 at August 31, 2017. There are no conversion provisions associated with the notes.

NOTE 9 – DISCONTINUED OPERATION

In May 2018, the Company decided to withdraw all operations of My Power Solutions, Inc. in South Africa. The decision to cease the operations of My Power Solutions, Inc. in rural South African communities represents a strategic shift that impacts the Company’s financial reporting and results. As such, My Power Solutions, Inc. has been classified as a discontinued operation.

The major classes of line items constituting the loss from discontinued operation are presented in the table below.

The major components of the assets and liabilities of the discontinued operation are presented in the table below.