NOTE 1 - CONDENSED INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared
by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash flows at August 31, 2017 and for all periods presented
have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have
been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's May 31, 2017 audited financial statements. The results of operations for
the period ended August 31, 2017 are not necessarily indicative of the operating results for the full year.
Basis of Presentation
In the opinion of management, the accompanying interim balance
sheets and related interim statements of income and cash flows include all adjustments, consisting only of normal recurring items,
necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America
("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions the affect the reported
amounts of assets, liabilities, revenue and expenses. Actual results and outcomes may differ from management's estimates and assumptions.
NOTE 2 - GOING CONCERN
These condensed interim financial statements have been prepared
in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal course of business. As of August 31, 2017, the Company
has accumulated operating losses of $557,314 since inception. The Company's ability to continue as a going concern is contingent
upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations.
Management plans to raise equity capital to finance the operating
and capital requirements of the Company. Amounts raised will be used to further development of the Company's products, to provide
financing for marketing and promotion, to secure additional property and equipment, and for other working capital purposes. While
the Company is putting forth its best efforts to achieve the above plans, there is no assurance that any such activity will generate
funds that will be available for operations.
6
AMERITEK VENTURES
Notes to the Unaudited Condensed Interim
Financial Statements
August 31, 2017
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
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 reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Company's management has evaluated all the recently issued
accounting pronouncements through the filing date of these financial statements and does not believe that any of these pronouncements
will have a material impact on the Company's financial position and results of operations.
NOTE 4 - STOCKHOLDERS' EQUITY AND CONTRIBUTED CAPITAL
Series B Preferred Stock
The Company is authorized to issue 5,000,000
shares of $0.001 par value Series B Preferred Stock. Series B Preferred Stock has liquidation and first position ownership rights
on any assets owned by the Company. The Series B Preferred Stock has no voting rights and are not entitled to receive dividends.
The holders of Series B Preferred Stock shall be entitled to interest payments on monies paid or loaned to the corporation for
their Series B Preferred Shares and a first position in a security interest on any assets of the Company upon default of a loan
to the Company, liquidation or dissolution of the Company. Further, the Company may call these shares at any time provided the
holders of the Series B Preferred Stock are paid the amount of monies they paid for their Series B Preferred Stock along with any
interest due. Upon the payment of principal and interest to the Series B Preferred Stock shareholders, the shares must be returned
to the Company.
On May 24, 2011, the Company issued
25,000 shares of its Series B Preferred Stock to a shareholder and former director upon execution of a Promissory Note for cash
of $25,000 and a collateral security interest in the Company's molding tool. The loan was to accrue interest of $1,250 per quarter
until the note is paid-in-full, with the first payment due on November 30, 2011. On January 28, 2014, the shareholder and former
director forgave the debt owed and returned 25,000 shares of Series B Preferred Stock for cancellation. As of August 31, 2017 and
May 31, 2017, there is no Series B Preferred Stock outstanding.
7
AMERITEK VENTURES
Notes to the Unaudited Condensed Interim
Financial Statements
August 31, 2017
Series A Preferred Stock
The Company is authorized to issue 5,000,000
shares of $0.001 par value Series A Preferred Stock. Series A Preferred Stock have no liquidation rights. Series A Preferred Stock
shall not be entitled to receive any dividends nor are they entitled to any voting rights with respect to the Series A Preferred
Stock. At any time and from time-to-time after the issuance of the Series A Preferred Stock, any holder may convert any or all
of the shares of Series A Preferred Stock held by such holder at the ratio of one hundred (100) shares of Common Stock for every
one (1) share of Series A Preferred Stock. However, the beneficial owner of such Series A Preferred Stock cannot convert their
Series A Preferred stock where they will beneficially own in excess of 4.9% of the shares of the Common Stock.
On May 31, 2011, the Company issued
125,000 shares of its Series A Preferred Stock to shareholders in exchange for cash of $12,500. Each share of the Series A Preferred
Stock can be exchanged for one hundred (100) shares of Common Stock of the Company. This Series A Preferred Stock was issued with
a beneficial conversion feature totaling $112,500. This non-cash expense related to the beneficial conversion features of those
securities and is recorded with a corresponding credit to paid-in-capital. If the issued and outstanding preferred stock were to
be converted into common stock, and each beneficial owner held less than 4.9% of the stock, the common stock would be increased
by 12,500,000 shares.
During the year ended May 31, 2015,
two shareholders who owned 2,500 registered shares of the Series A Preferred Stock, exercised the conversion feature of the Preferred
Stock and they converted their shares into common stock and received 250,000 registered common shares.
During the year ended May 31, 2017,
Arden A. Johnson, who was the beneficial owner of the Company’s Series A Convertible Preferred Stock, entered into an agreement
whereby he sold his ownership in Legal Beagle Services to J. Chad Guidry who is now currently the beneficial owner of the Company’s
Series A Convertible Preferred Stock.
Also during the year ended May 31, 2017,
Legal Beagle Services exercised the conversion feature of 3,300 shares owned by them of the Series A Preferred Stock. These shares
converted into 330,000 shares of registered Common Stock.
During the quarter ended August 31, 2017, there were no issuances
or conversions of Series A Preferred Stock. As of August 31, 2017 and May 31, 2017, there were 119,200 shares of Series A Preferred
Stock issued and outstanding, respectively.
Series C Preferred Stock
The Company is authorized to issue 5,000,000
shares of $0.001 par value Series C Preferred Stock, of which no shares are issued and outstanding as of August 31, 2017 and May
31, 2017, respectively. The designation of these shares have yet to be determined by the Board of Directors.
Common Stock
The Company is authorized to issue 185,000,000
shares of its $0.001 par value common stock, of which 7,230,004 shares are issued and outstanding as of August 31, 2017 and May
31, 2017, respectively.
8
AMERITEK VENTURES
Notes to the Unaudited Condensed Interim
Financial Statements
August 31, 2017
On September 14, 2016, the Company underwent
a change of control of ownership. Hal Heyer, former CEO of the Company, entered into an agreement on September 23, 2016 whereby
he sold his ownership of 5,100,000 control block shares to Mark Cole. Mark Cole paid cash consideration of ten thousand ($10,000)
for the 5,100,000 control block shares. The terms of this agreement were fulfilled on September 20, 2016.
During the year ended May 31, 2017,
a shareholder who owned 3,300 registered shares of the Series A Preferred Stock, exercised the conversion feature of the Preferred
Stock and they converted their shares into common stock and received 330,000 registered common shares.
On August 30, 2017, the Company entered into
an Asset Purchase Agreement with Clinton L. Stokes, the Company’s Chief Executive Officer, whereby 19,770,000 unregistered
restricted common shares of stock were approved for issuance by the Board of Directors, along with payment of $100,000, in exchange
for fiber optic assets. The terms of this agreement were fulfilled on September 15, 2017.
On August 30, 2017, the Company sold 71,429
shares of its common stock to Meridian Pacific Holdings, LLC, in exchange for $100,000. These shares were subsequently issued on
October 3, 2017. The aforementioned shares were sold with an exemption from registration pursuant to Section 4(a)(2) of the Securities
Act of 1933.
Contributed Capital
On November 19, 2014, Hal Heyer, M.D.,
former President, Chief Executive Officer and Chairman of the Board of Directors personally loaned $250,000 to VoCare, Inc., an
Indiana company. The $250,000 Promissory Note pays 12% interest per annum with a maturity date of December 31, 2017. On December
10, 2014, Hal Heyer, M.D., assigned this Promissory Note to the Company. On June 2, 2015, VoCare, Inc. repaid a portion of the
Promissory Note in the amount of $120,000 directly to Hal Heyer, M.D., the payment was recorded as a reduction of the Promissory
Note as well as a non-cash distribution and related reduction in paid-in-capital in the quarter-ended August 31, 2015.
During the quarter ended November 30,
2015, the Company recorded a valuation adjustment for the outstanding interest that had accrued per the terms of the original terms
of the promissory note. On March 20, 2017, the Company reassigned the remaining note receivable amount of $130,000 to Hal Heyer.
9
AMERITEK VENTURES
Notes to the Unaudited Condensed Interim
Financial Statements
August 31, 2017
NOTE 5 - RELATED PARTY TRANSACTIONS
During the quarter ended August 31, 2017, an
officer and current majority shareholder of the Company advanced $200 to the Company for operating expenses.
Total
advances from the Company’s officer and current majority shareholder amounted to $10,200 and $10,000 at August 31, 2017 and
May 31, 2017, respectively. Total advances from the Company’s former Director and Chief Executive officer amounted to $50,500
at August 31, 2017 and May 31, 2017, respectively.
These advances are payable on demand and bears no interest. The total
balance owed at August 31, 2017 was $60,700.
On August 30, 2017, the Company entered into
an Asset Purchase Agreement with Clinton L. Stokes, the Company’s Chief Executive Officer, whereby 19,770,000 unregistered
restricted common shares of stock were approved for issuance by the Board of Directors, along with payment of $100,000, in exchange
for fiber optic assets. The terms of this agreement were fulfilled on September 15, 2017.
NOTE 6 - NOTE PAYABLE
On July 31, 2017, the Company entered
into a convertible note with a purchase price of $65,000 and a principal amount of $70,200 which is due on April 31, 2018. This
note accumulates interest at a rate of 8% from the original issue date through the maturity date. At any time while there is an
outstanding balance, the note may be converted at a conversion price for the principal and interest in connection with voluntary
conversions by the holder shall be 75% multiplied by the market price, representing a discount rate of 25%. The note also provides
for warrants of up to 208,000 shares of common stock which may be exercised any time from the issuance date of July 31, 2017 (initial
exercise date) until July 31, 2022 (termination date). The exercise price of this warrant is $1.35. Further, if at any time after
the initial exercise date, there is no effective registration statement registering the warrant shares, or no current prospectus
available for the resale of the warrant shares by the holder, then the warrant may be exercised at the holder’s election,
in whole or in part, at such times by means of a cashless exercise in which the holder shall be entitled to receive a number of
warrant shares equal to the quotient obtained by dividing [(A-B)(X)] by (A), where (A) equals the VWAP on the trading day immediately
preceding the date on which the holder elects to exercise the warrant; (B) equals the exercise price of the warrant; and (X) equals
the number of warrant shares that would be issuable upon exercise of the warrant if such exercise were by means of a cash exercise
rather than a cashless exercise. Regardless, on the termination date if there is no effective Registration Statement registering
the warrant shares, or no current prospectus available for the resale of the warrant shares by the holder, then the warrant shall
be automatically exercised via cashless exercise. Failure of the Company to issue shares in a timely manner will result in a late
issuance penalty of $10 per trading day, increasing to $20 per trading day after the fifth trading day, for each $1,000 of exercise
price of the warrant shares.
10
AMERITEK VENTURES
Notes to the Unaudited Condensed Interim
Financial Statements
August 31, 2017
On August 25, 2017, the Company entered
into a convertible note with a purchase price of $64,000 and a principal amount of $69,120 which is due on August 25, 2018. This
note accumulates interest at a rate of 8% from the original issue date through the maturity date. At any time while there is an
outstanding balance, the note may be converted at a conversion price for the principal and interest in connection with voluntary
conversions by the holder shall be 75% multiplied by the market price, representing a discount rate of 25%. The note also provides
for warrants of up to 204,800 shares of common stock which may be exercised any time from the issuance date of August 25, 2017
(initial exercise date) until August 25, 2022 (termination date). The exercise price of this warrant is $1.35. Further, if at any
time after the initial exercise date, there is no effective registration statement registering the warrant shares, or no current
prospectus available for the resale of the warrant shares by the holder, then the warrant may be exercised at the holder’s
election, in whole or in part, at such times by means of a cashless exercise in which the holder shall be entitled to receive a
number of warrant shares equal to the quotient obtained by dividing [(A-B)(X)] by (A), where (A) equals the VWAP on the trading
day immediately preceding the date on which the holder elects to exercise the warrant; (B) equals the exercise price of the warrant;
and (X) equals the number of warrant shares that would be issuable upon exercise of the warrant if such exercise were by means
of a cash exercise rather than a cashless exercise. Regardless, on the termination date if there is no effective Registration Statement
registering the warrant shares, or no current prospectus available for the resale of the warrant shares by the holder, then the
warrant shall be automatically exercised via cashless exercise. Failure of the Company to issue shares in a timely manner will
result in a late issuance penalty of $10 per trading day, increasing to $20 per trading day after the fifth trading day, for each
$1,000 of exercise price of the warrant shares.
NOTE 7 – INCOME TAXES
The Company accounts for income taxes
under FASB Accounting Standard Codification ASC 740 "Income Taxes". ASC 740 provides that deferred tax assets and liabilities
are recorded based on the differences between the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined
using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities
are expected to be settled or realized.
As of August 31, 2017 and May 31, 2017,
the Company did not have any eligible net operating loss carry forwards as the Company has not filed the appropriate federal and
state income tax returns so any accumulated net operating losses could be subject to the respective tax agency disallowance. Any
actual net operating losses would be limited by a valuation allowance, as their realization, as determined by management, is determined
to be not likely to occur and accordingly, the Company would have recorded a valuation allowance for the deferred tax asset relating
to the tax potential net operating loss carry-forwards. Additionally, actual net operating losses carry-forwards and the related
deferred tax assets would also be limited due to the change in control that is described in Note 4.
11
AMERITEK VENTURES
Notes to the Unaudited Condensed Interim
Financial Statements
August 31, 2017
NOTE 8 - SUBSEQUENT EVENTS
The Company has evaluated subsequent
events through the date the financial statements were available to be issued.
The terms of the Asset Purchase Agreement with
Clinton L. Stokes, the Company’s Chief Executive Officer, which was entered into on August 30, 2017 were fulfilled on September
15, 2017, whereby 19,770,000 unregistered restricted common shares of stock were issued to Clinton L. Stokes along with payment
of $100,000, in exchange for fiber optic assets.
On October 3, 2017 the Company issued 71,249
shares of its common stock to Meridian Pacific Holdings, LLC which were part of a subscription agreement entered into on August
30, 2017. The Company sold such shares in exchange for $100,000 which was received by the Company during the quarter ended August
31, 2017. The aforementioned shares were sold with an exemption from registration pursuant to Section 4(a)(2) of the Securities
Act of 1933.
There were no other subsequent events.
12
Item 2. - Management's Discussion
and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Quarterly Report on Form 10-Q contains
forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words "anticipate," "believe,"
"estimate," "will," "plan," "seeks," "intend," and "expect" and similar
expressions identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in
any forward-looking statements are reasonable, these plans, intentions, or expectations may not be achieved. Our actual results,
performance, or achievements could differ materially from those contemplated, expressed, or implied, by the forward-looking statements
contained in this Quarterly Report on Form 10-Q. Important factors that could cause actual results to differ materially from our
forward-looking statements are set forth in this Quarterly Report on Form 10-Q All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly
Report on Form 10-Q. Except as required by federal securities laws, we are under no obligation to update any forward-looking statement,
whether as a result of new information, future events, or otherwise.
Critical Accounting Policies
There have been no material changes
to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations", included in our Annual report on Form 10-K for the fiscal year ended May
31, 2017.
Business of the Issuer
Ameritek Ventures (the "Company"
or the "Registrant") was incorporated on December 27, 2010 as Ameritek Ventures, as a Nevada Company. We consider ourselves
to be an emerging growth company under applicable federal securities laws and will be subject to reduced public company reporting
requirements.
In August 2017, the Company completed its move
into a new production and design facility in Roanoke, Virginia. On August 30, 2017, the Company entered into an Asset Purchase
Agreement to acquire fiber optic assets from its largest shareholder and director. The terms of this agreement were subsequently
fulfilled on September 15, 2017. These assets will be used to fabricate and assemble machines incorporating its new PCVD (Plasma
Chemical Vapor Deposition) technology that is used in the manufacturing of specialty optical fiber preforms, which is the basis
for specialized optical fiber production to satisfy a variety of fiber optic cable applications. In addition to building PCVD machines,
the Company will be finalizing design work for its first 5 million km/year VAD/OVD (Vapor Axial Deposition/Outside Vapor Deposition)
optical fiber preform production line, slated for assembly, testing and production in 2018. This process makes optical fiber preforms
that are the mainstay for fiber optic cable that is used in the telecommunications industry to transmit large amounts of data to
and from communication towers for the Internet, cable television and telephone industries. This new VAD/OVD production line represents
the first phase of a planned 20 million km/year preform manufacturing facility. Ameritek Ventures’ brand new design and technology
hub will help execute the Company's sustained growth and emergence strategy as a provider of high quality optical fiber preforms
for the rapidly expanding Fiber Optic Cable worldwide market that in the past has been dominated by firms like Corning Incorporated,
Shin-Etsu Chemical Co. Ltd., Prysmian SpA, Jiangsu Fasten Co. Ltd and Fujikura Ltd.
13
Market Size
The current market value of the optical fiber
industry is $3 billion US dollars, and is projected to grow to over $5 billion US dollars by 2021. An increase of almost 10,000
tons of perform is projected in the next five years, which is equivalent to more than 300 million kilometers per year of performs.
Competition
We will be involved in intense competition
with other business entities, many of which will have a competitive edge over us by virtue of their more substantial financial
resources and prior experience in business. Some examples include firms like Corning Incorporated, Shin-Etsu Chemical Co. Ltd.,
Prysmian SpA, Jiangsu Fasten Co. Ltd and Fujikura Ltd. We also face numerous other smaller companies at the same stage of development
as we are.
Patents, Trademarks and Licenses
We do not have any trademarks, patents,
or other intellectual property.
Based on the nature of our business,
we do not expect to file any trademarks or patents.
Properties
The Company's corporate headquarters
are located at: 1980 Festival Plaza Drive, Suite 530, Las Vegas, Nevada 89135. The Company does not own any real property, however
rents warehouse space for its production facility in Roanoke, Virginia at a cost of $2,812.50 per month. This lease has a one year
term, and will thereafter renew month to month.
RESULTS OF OPERATIONS
For the three month periods ending August
31, 2017, the Company recognized no revenues.
For the three month period ending August
31, 2017, the Company incurred total operating losses of $85,191. This compares to the same period ending August 31, 2016 where
the Company incurred total operating losses of $3,000, which consisted of professional fees. The net loss applicable to common
shareholders was $86,165 for the three months ending August 31, 2017 or $(0.01) per common share basic and diluted for the period
ending as compared to a net loss applicable to common shareholders of $3,000 or $(0.00) per common share for the same period last
year.
Going Concern
Our ability to continue as a going concern
is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable
operations.
14
Therefore, management plans to raise
equity capital to finance the operating and capital requirements of the Company. While the Company is devoting its best efforts
to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations.
These conditions raise substantial doubt about the Company's ability to continue as a going concern.
Summary of product research and development
that we will perform for the term of our plan of operation.
We have no plans to perform any product
research and development at this time.
Expected purchase or sale of plant
and significant equipment
Management is currently identifying
equipment needed in order to begin manufacturing.
Significant changes in the number
of employees
Ameritek
Ventures
currently has two employees, its CEO and CFO. We are dependent upon sole officers for our future business development.
As our operations expand, we anticipate the need to hire additional employees, consultants and professionals; however, the exact
number is not quantifiable at this time.
Liquidity and Capital Resources
As of August 31, 2017, Ameritek Ventures
had $107,718 in cash and cash equivalents, $22,500 of cash held in escrow and total current assets of $130,739. As of August 31,
2017, Ameritek Ventures had total current liabilities of $210,674.
The Company has limited financial resources
available, which has had an adverse impact on the Company's liquidity, activities and operations. These limitations have adversely
affected the Company's ability to obtain certain projects and pursue additional business. Without realization of additional capital,
it would be unlikely for the Company to continue as a going concern. Management intends to raise additional debt or equity financing
to fund ongoing operations and necessary working capital. However, there is no assurance that such financing plans will be successful
or be obtained in amounts sufficient to meet the Company’s needs.
Notwithstanding, Ameritek Ventures anticipates
generating losses and therefore may be unable to continue operations in the future. Ameritek Ventures anticipates it will require
additional capital in order to develop its business. Ameritek Ventures may use a combination of equity and/or debt instruments
to funds its growth strategy or enter into a strategic arrangement with a third party.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to
investors.
Critical Accounting Policies and Estimates
Revenue Recognition: The Company recognizes
revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the
fee is fixed or determinable, and (iv) collectability is reasonably assured.
15
Recent Pronouncements
The Company's management has evaluated
all the recently issued accounting pronouncements through the filing date of these financial statements and does not believe that
any of these pronouncements will have a material impact on the Company's financial position and results of operations.
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
Our disclosure controls and procedures,
as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information
is accumulated and communicated to management, including the Chief Executive Officer and the Chief Accounting Officer, to allow
timely decisions regarding required disclosures.
Management, with the participation of
the Chief Executive Officer and the Chief Accounting Officer, who is also the sole member of our Board of Directors, has evaluated
the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on such
evaluation, the Chief Executive Officer and the Chief Accounting Officer concluded that, as of August 31, 2017, our disclosure
controls and procedures were not effective. Our disclosure controls and procedures were not effective because of the "material
weaknesses" described below under "Management's annual report on internal control over financial reporting," which
are in the process of being remediated as described below under "Management Plan to Remediate Material Weaknesses."
Management's Report on Internal Control
over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules
promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief
Accounting Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Internal control over financial reporting includes those policies and procedures that:
·
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and our Board of Directors; and
·
provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements
16
Because of its inherent limitations,
a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives
of the control system are met and may not prevent or detect misstatements. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations,
there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design
into the process safeguards to reduce, though not eliminate, this risk. Further, over time control may become inadequate because
of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness
of our internal control over financial reporting as of August 31, 2016. In making its assessment, management used the criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). Based on its assessment, management has concluded that we had certain control deficiencies described below
that constituted material weaknesses in our internal controls over financial reporting. As a result, our internal controls over
financial reporting was not effective as of August 31, 2017.
A "material weakness" is defined
under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there
is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented
or detected on a timely basis by the company's internal controls. As a result of management's review of the investigation issues
and results, and other internal reviews and evaluations that were completed after the end of the quarter ending August 31, 2017,
related to the preparation of management's report on internal controls over financial reporting required for this quarterly report
on Form 10-Q, management concluded that we had material weaknesses in our control environment and financial reporting process consisting
of the following:
1) lack
of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors
on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls
and procedures; and
2) insufficient
written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP
and SEC disclosure requirements.
We do not believe the material weaknesses
described above caused any meaningful or significant misreporting of our financial condition and results of operations for the
period ended August 31, 2017. However, management believes that the lack of a functioning audit committee and the lack of a majority
of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required
internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management Plan to Remediate Material
Weaknesses
Management is pursuing the implementation
of corrective measures to address the material weaknesses described below. In an effort to remediate the identified material weaknesses
and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
17
We plan to appoint one or more outside
directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing
and approving estimates and assumptions made by management when funds are available to us. Additionally, we will create written
policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and
SEC disclosure requirements
We believe the remediation measures
described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting.
We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review
our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial
reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate
circumstances not to complete, certain of the remediation measures described above.
Changes in Internal Control over
Financial Reporting
There were no changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most
recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
In May 2013, COSO released an updated
version of its Internal Control - Integrated Framework ("2013 Framework"). Initially issued in 1992, the original framework
("1992 Framework") provided guidance to organizations to design, implement and evaluate the effectiveness of internal
control concepts and simplify their use and application. The 2013 Framework is intended to improve upon systems of internal control
over external financial reporting by formalizing the principles embedded in the 1992 Framework, incorporating business and operating
environment changes and increasing the framework’s ease of use and application. The 1992 Framework remained available until
December 15, 2014, after which it was superseded by the 2013 Framework. As of August 31, 2016, the Company has transitioned to
the 2013 Framework. The Company did not experience significant changes to its internal control over financial reporting as a result
from the transition to the 2013 Framework.
This report does not include an attestation
report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report
was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit
the Company to provide only the management's report in this report.
18
