Attached files

file filename
EX-32.2 - ValueSetters Inc.f2svstr10k072718ex32_2.htm
EX-32.1 - ValueSetters Inc.f2svstr10k072718ex32_1.htm
EX-31.2 - ValueSetters Inc.f2svstr10k072718ex31_2.htm
EX-31.1 - ValueSetters Inc.f2svstr10k072718ex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended: April 30, 2018

 

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

 

For the transition period from __________ to __________

 

Commission File Number: 000-55036

 

VALUESETTERS, INC.
(Exact name of registrant as specified in its charter)

 

Utah   87-0409951
(State or other jurisdiction of  incorporation or organization)   (I.R.S. Employer Identification No.)

 

745 Atlantic Avenue

Boston, MA 02111

(Address of Principal Executive Offices)

 

(781) 925-1700
(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 [X] No [ ]

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  [ ] Accelerated filer  [ ] Non-accelerated filer  [ ] Smaller reporting company  [X]
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 [X]

 

The aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates (as defined by Rule 12b-2 of the Exchange Act) computed by reference to the average bid and asked price of such common equity on October 31, 2017 was $647,008.  

 

As of July 30, 2018 the registrant has one class of common equity, and the number of shares outstanding of such common equity was 731,694,210.

 

Documents Incorporated By Reference: None.

 

ii
 

 

 

TABLE OF CONTENTS

 

PART I    
       
Item 1. Business.   2
Item 1A. Risk Factors.   4
Item 1B. Unresolved Staff Comments.   10
Item 2. Properties.   10
Item 3. Legal Proceedings.   10
Item 4. Mine Safety Disclosures.   10
     
PART II    
       
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   10
Item 6. Selected Financial Data.   11
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   11
Item 7A Quantitative and Qualitative Disclosures About Market Risk.   15
Item 8. Financial Statements.   15
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.   15
Item 9A. Controls and Procedures.   16
Item 9B. Other Information.   16
       
PART III      
       
Item 10. Directors, Executive Officers and Corporate Governance.   16
Item 11. Executive Compensation.   20
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   21
Item 13. Certain Relationships and Related Transactions, and Director Independence.   22
Item 14. Principal Accounting Fees and Services.   22
       
PART IV      
       
Item 15. Exhibits, Financial Statements Schedules.   23
       
SIGNATURES   24

 

iii
 

 

 

FORWARD-LOOKING STATEMENTS

 

We caution readers that this Form 10-K contains forward-looking statements as that term is defined in the Exchange Act. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. We hereby qualify all our forward-looking statements by the following cautionary statements. Forward-looking statements are predictions and not guarantees of future performance or events. Forward-looking statements are based on current expectations rather than historical facts and relate to future events or future financial performance. Such statements are based on currently available financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from historical experience and present expectations. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are set forth below and in various places in this Form 10-K, including under the headings Item 1. “Business” and Item 1A. “Risk Factors” in this Form 10-K. These factors include:

 

  our future capital needs and our ability to obtain financing;

 

  anticipated and unanticipated trends and conditions in our industry, including the impact of recent or future regulatory environment;

 

  recent and future economic conditions, including turmoil in the financial and credit markets;

 

  the effectiveness of our marketing to maintain existing and attract new customers;

 

  our ability to contain costs;

 

  our ability to predict consumer preferences and changes in trends, technology and consumer acceptance of both new designs and newly introduced products;

 

  changes in the costs of labor and advertising;

 

  our ability to carry out our business strategies;

 

  the level of consumer spending for gaming and entertainment;

 

  our ability to compete;

 

  general economic conditions; and

 

  other factors set forth in this Form 10-K.

 

You are cautioned that all forward-looking statements involve risks and uncertainties. We undertake no obligation to amend this Form 10-K or revise publicly these forward-looking statements (other than pursuant to reporting obligations imposed on registrants pursuant to applicable federal securities laws) to reflect subsequent events or circumstances.

 

 
 

 

ITEM 1. BUSINESS.

 

Overview

 

We continue to operate as an Internet-based company that seeks free subscribers and revenue-generating subscribers for digital product that we offer to game players and app users. We operate on an automated basis with the belief that Internet operations, customer sign-ups, sales and game playing should occur without requiring a Company employee to participate in the transaction, so that it is possible for the Company to quickly expand in the event the number of subscribers begins to rapidly grow on a viral basis. Our back-office software operates 24 hours a day and can quickly collect money from and deliver games to subscribers. We recently purchased the outstanding shares of SpaceoutVR Inc, a virtual reality game company and we anticipate we will continue to sign up subscribers for their virtual reality app.

 

In June of 2014, we opened our consulting practice, helping companies with capital raising, technology consulting, and strategic advice. We sometimes take an equity stake in these companies in exchange for our services and cross-pollinate the ideas, technology and expertise to enhance their operations, profits and market share.

 

One such company that we own equity in, as a result of our consulting services, is NetCapital Systems LLC (“NetCapital”). This company owns a Title III JOBS Act funding portal, and as of today is one of 44 FINRA approved crowdfunding portals allowed to sell securities in startup companies to non-accredited investors, via the Internet. We continue to consult for NetCapital (see https://netcapital.com) and have invested in additional early-stage companies that we met through NetCapital by providing our consulting services. We believe our investment in and future revenue potential from our relationship with NetCapital is significant.

 

We also consulted for Zelgor Inc., which has a mobile phone game, similar to Pokémon Go, which builds massive multiplayer online social games on top of the real world map. It combines elements of classic arcade games and GPS technology, and Valuesetters currently owns approximately 5% of Zelgor Inc. See http://www.zelgor.com.

 

Our focus on games and social media has attracted three people to our advisory board who have experience with the development of Internet-based games and applications. Joe Abrams, Nolan Bushnell and John Fanning are three advisory board members (the “Advisors”) who have personal experience with creating value in companies such as Atari, Myspace and napster. Given that we have a limited number of employees, we rely on our Advisors to identify and introduce us to products that we can potentially develop ourselves, buy, or resell on a white-label basis from the developer.

 

We have compensated the Advisors with 5-year stock options that fully vest over a three year period. On May 7, 2014, each Advisor was granted an option to purchase up to 6 million shares of our common stock at a price of $0.03 per share. They are required to attend 4 advisory board meetings each year and we engage them individually when needed for specific projects. We believe that by providing the Advisors with an equity ownership in the Company via a stock option grant, we strengthen their commitment to the success of the Company, and stimulate their efforts on behalf of the Company.

 

Development of Business

 

We were incorporated in the State of Utah in April 1984 under our previous name, DBS Investments, Inc. A change of control of our company occurred in December 2003 and we changed our name to Valuesetters, Inc., when we, in conjunction with a plan of reorganization, merged with Valuesetters L.L.C., an Arizona limited liability corporation.

 

When the operations of Valuesetters failed to generate enough revenue to sustain its business, we terminated operations and looked to invest in another business. In order to take advantage of the increasing game activities on the Internet, on November 23, 2010, we signed a contract to purchase all the assets of NetGames.com, a company that owned several websites and operated a small Internet-based chess game known as Chess.net. In conjunction with the purchase of this website, Vaxstar LLC became the largest owner of our company. Vaxstar LLC also provided a working capital facility to the Company and is our senior secured lender.

 

2

 
 

 

As noted above, in 2014, we began our consulting business, and we now own a portion of several companies as a result of our consulting work. Many of these businesses operate solely on the Internet and many use the Internet to raise capital. We believe the value of our ownership interests in several of these companies may be significant. However, over the past several years, we reduced our book value of these investments to zero, based upon asset impairment guidelines, and once an asset has been designated as impaired, it cannot be recorded at its market value.

 

In addition to the equity stakes we have earned, our consulting business has generated the bulk of our revenues in fiscal 2018.

 

Competition

 

We compete with a number of public and private companies, which provide consulting services, electronic commerce and/or Internet games. Most of our competitors have significant financial resources and occupy entrenched positions in the market with name-brand recognition. We also face challenges from new Internet sites that aim to attract subscribers who seek to play interactive games and obtain ratings and status for superior playing skills. Such companies may be able to attract significantly more subscribers because of new marketing ideas and new game concepts.

 

The barriers to entry into most Internet markets are relatively low, making them accessible to a large number of entities and individuals. We believe the principal competitive factors in our industry that create certain barriers to entry include but are not limited to reputation, technology, financial stability and resources, proven track record of successful operations, critical mass, and independent oversight and transparency of business practices. While these barriers will limit those able to enter or compete effectively in the market, it is likely that new competitors as well as laws and regulations of governmental authority will be established in the future, in addition to our known current competitors.

 

Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.

 

Industry Regulation

 

We are subject, both directly and indirectly, to various laws and regulations relating to our business. If any of the laws are amended, compliance could become more expensive and directly affect our income. We intend to comply with such laws, but new restrictions may arise that could materially adversely affect our Company.

 

Research and Development

 

We do not currently have a budget specifically allocated for research and development purposes.

 

Employees

 

As of July 30, 2018, we had four full-time employees.

 

We consider our corporate secretary, Mr. Avi Liss, to be an independent board member. Mr. Liss is an attorney with his own legal practice, and advises us on a non-compensated basis. We do not pay him a salary and we do not consider him an employee.

 

Corporate Information

 

We maintain a corporate website with the address http://www.valuesetters.com/ and our chess game maintains a website with the address http://www.chess.net/.  We have not incorporated by reference into this Report on Form 10-K the information on any of our websites and you should not consider any of such information to be a part of this document. Our website addresses are included in this document for reference only.

 

3

 
 

 

We make available free of charge through our corporate website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports through a link to the EDGAR database as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the U.S. Securities and Exchange Commission (the “SEC”).  You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1.800.SEC.0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including all of our filings. 

 

   
Item 1A. RISK FACTORS.

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this Form 10-K before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed.

 

We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.

 

We were incorporated in the State of Utah in April 1984. We have limited revenues to date and no significant financial resources. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to meet our expenses and support our anticipated activities.

 

We will require financing to achieve our current business strategy and our inability to obtain such financing could prohibit us from executing our business plan and cause us to slow down our expansion of operations.


We will need to raise additional funds through public or private debt or sale of equity to achieve our current business strategy. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem acceptable. If we are unable to obtain financing on reasonable terms, we could be forced to delay or scale back our plans for expansion. In addition, such inability to obtain financing on reasonable terms could have a material adverse effect on our business, operating results, or financial condition.

 

Our auditor has expressed substantial doubt as to our ability to continue as a going concern.


Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. At April 30, 2018, we had not yet achieved profitable operations, and had accumulated losses of $3,650,013. We expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management anticipates that additional funding will be in the form of equity financing from the sale of common stock. Management may also seek to obtain short-term loans from the directors of our company or from our largest shareholder. There are no current arrangements in place for equity funding and our largest shareholder may not be able to provide us with enough working capital via short-term loans. If we cannot generate sufficient revenues from our services or seek additional funding we may have to delay the implementation of our business plan.

 

4

 
 

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

 

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, and such attention could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants who will increase our costs and expenses.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

 

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors.

 

We may need to raise additional funds through public or private debt or sale of equity to pay for the costs we incur as a public company. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem acceptable. If we are unable to obtain financing on reasonable terms, we could be forced to discontinue our public reporting.

 

As a result of disclosure of information in this report and in future filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

 

We are dependent on a small number of individuals who are new to our Company.

 

Our three corporate officers are new to the Company. Our Chief Executive Officer was previously working as an angel investor and had her own business advisory practice. She began consulting for us in April 2017. We promoted her to Chief Executive Officer in July 2017 when our previous Chief Executive Officer resigned. Our Chief Financial and Chief Marketing Officers are also new to the Company. All officers are working to obtain consulting fees primarily from businesses that are looking for guidance in how to raise capital.

 

To help compensate for the lack of full-time employees, the Company also uses outside consultants. We have accounting consultants, acquisition consultants, and sales and marketing consultants for project purposes on a part time basis; three advisors assist us with project evaluations and business development, information and research, technical writing and presentation. The loss of the services of our previous Chief Executive Officer could affect activities of our business and its operations until additional personnel can be retained and trained to perform some of the management tasks. At the present time the Company does not have long-term employment agreements with any personnel and does not maintain any life insurance policies.

 

5

 
 

 

We are dependent on a small number of individuals who occupy all corporate positions. Given our lack of employees and executive officers, it may not be possible for us to have adequate internal controls, and we believe that we have material weaknesses in internal controls.

 

Many of the key responsibilities of our business have been assigned to two individuals. Our ability to implement adequate internal controls depends, in part, on our ability to attract trained professional staff that allows us to segregate duties among several individuals.

 

The Company’s management has evaluated the effectiveness of its internal control over financial reporting as of April 30, 2018 based on the criteria established in a report entitled “2013 - Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929.  Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was ineffective as of April 30, 2018 and continues to be ineffective as of today, and identified the following material weaknesses:

 

There is a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles in the US (“GAAP”), and the financial reporting requirements of the SEC; and

 

There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

 

The lack of sufficient internal controls and the time and cost of implementing such controls could delay the development and introduction of, and negatively impact our ability to sell our services, which could adversely affect our financial results and impair our growth.

  

The adoption of new laws or changes to or the application of existing laws relating to Internet commerce may affect the growth of our business.

 

We may become subject to any number of laws and regulations that may be adopted with respect to the Internet and electronic commerce. New laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual property, information security, and the characteristics and quality of online products and services may be enacted. As well, current laws, which predate or are incompatible with the Internet and electronic commerce, may be applied and enforced in a manner that restricts the electronic commerce market. The application of such pre-existing laws regulating communications or commerce in the context of the Internet and electronic commerce is uncertain. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to the Internet.

 

The adoption of new laws or regulations relating to the Internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the Internet, decrease the demand for our products and services, increase our cost of doing business or could otherwise have a material adverse effect on our business, revenues, operating results and financial condition.

 

Our strategy to purchase a portion of early stage companies may provide us with investments that have no liquidity.

 

It is our strategy to sometimes purchase, at an affordable price, part or all of early-stage companies and cross pollinate the ideas, technology and expertise within these companies to enhance the operations, profits and market share of all the entities. That strategy may result in us diverting management attention and advisory resources to do work for early-stage companies that pay for the work with equity, which becomes impaired in value or never becomes a liquid asset. In addition, some of the companies that we do work for and take an equity position in do not create revenues for the Company. We only record revenues in exchange for equity if we have access to the entity's audited financial statements or we have a verifiable market value for the equity received. For all of these early-stage companies, the future liquidity and value of our investments cannot be guaranteed, and no market may exist for us to generate gains from our investments in early-stage companies. 

 

Our business depends on the reliability of the infrastructure that supports the Internet and the viability of the Internet.

 

The growth of Internet usage has caused frequent interruptions and delays in processing and transmitting data over the Internet. There can be no assurance that the Internet infrastructure or the Company’s own network systems will continue to be able to support the demands placed on it by the continued growth of the Internet, the overall online gaming industry or that of our customers.

 

6

 
 

 

The Internet’s viability could be affected if the necessary infrastructure is not sufficient, or if other technologies and technological devices eclipse the Internet as a viable channel.

 

End-users of our software depend on Internet Service Providers (“ISPs”), online service providers and our system infrastructure for access to the Internet sites that we operate. Many of these services have experienced service outages in the past and could experience service outages, delays and other difficulties due to system failures, stability or interruption. As a result, we may not be able to meet a level of service that we have promised to our subscribers, and we may be in breach of our contractual commitments, which could materially adversely affect our business, revenues, operating results and financial condition.

 

Game playing and crowdfunding on the Internet is a developing industry and, therefore, we do not know if the market will continue to develop and our products and services will continue to be in demand.

 

The Internet continues to evolve rapidly and is characterized by an increasing number of market entrants. The demand and acceptance for new products and services are subject to a level of uncertainty and growing competition, and if our games do not receive market acceptance, of if regulations and competition changes for raising capital on the Internet, our business, revenues, operating results and financial condition could be materially adversely affected.

 

Intense competition could prevent us from increasing our market share and growing our revenues.

 

We compete with a number of public and private companies, which provide electronic commerce and/or Internet games. Most of our competitors have significant financial resources and occupy entrenched positions in the market with name-brand recognition. We also face challenges from new Internet sites that aim to attract subscribers who seek to play interactive games and obtain ratings and status for superior playing skills. Such companies may be able to attract significantly more subscribers because of new marketing ideas and new game concepts.

 

The barriers to entry into most Internet markets are relatively low, making them accessible to a large number of entities and individuals. We believe the principal competitive factors in our industry that create certain barriers to entry include but are not limited to reputation, technology, financial stability and resources, proven track record of successful operations, critical mass, independent oversight and transparency of business practices. While these barriers will limit those able to enter or compete effectively in the market, it is likely that new competitors as well as laws and regulations of governmental authority will be established in the future, in addition to our known current competitors.

 

Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.

 

Our debt level could negatively impact our financial condition, results of operations and business prospects.

 

As of April 30, 2018, our total debt payable amounted to $1,136,387. Our level of debt could have significant consequences to our shareholders, including the following:

 

- requiring the dedication of a substantial portion of cash flow from operations to make payments on debt, thereby reducing the availability of cash flow for working capital, capital expenditures and other general business activities;
   
- requiring a substantial portion of our corporate cash reserves to be held as a reserve for debt service, limiting our ability to invest in new growth opportunities;
   
- limiting the ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate and other activities;
   
- limiting the flexibility in planning for, or reacting to, changes in the business and industry in which we operate;
   
- increasing our vulnerability to both general and industry-specific adverse economic conditions;
   
- putting us at a competitive disadvantage vs. less leveraged competitors; and
   
- increasing vulnerability to changes in the prevailing interest rates.

 

7

 
 

Our ability to make payments of principal and interest, or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive and other factors. Our business is not currently generating positive cash flow and may not generate cash flow in the future sufficient to service our debt because of factors beyond our control, including but not limited to our ability to market our products and expand our operations. If we are unable to generate sufficient cash flows, we may be required to adopt one or more alternatives, such as restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

 

We will require our related-party lenders to cooperate with us and, among other things, not demand repayments of principal and interest until the business is capable of making such payments.

 

We do not expect that we will be able to obtain the funds to pay principal and interest on our related-party debt by utilizing cash flow from operations. We are operating as an early-stage company and our ability to meet these payment obligations will depend on expansion of our revenues and our future financial performance, which will be affected by financial, business, economic and other factors. We will not be able to control many of these factors, such as economic conditions in the markets in which we operate or the ability to raise additional capital in a timely manner. We cannot be certain that our future cash flow from operations will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations. If cash flow from operations is insufficient, we may be required to refinance all or part of our existing debt, sell assets, and borrow more money or issue additional equity.

 

We owe related parties $1,092,780 in accounts and notes payable as of April 30, 2018. We owe our secured lender, Vaxstar LLC (the “Lender”), who is also our largest shareholder, $1,000,000 at April 30, 2018. Our Lender holds a term note bearing interest at an annual rate of 1.25%. We have not paid interest on the note and it accrues each month. We have a loan and security agreement (the “Loan”) with the Lender for a maximum amount of $1,250,000. The Lender has provided us with cash advances to pay our operating expenses, but there is no assurance the Lender will continue to provide cash advances. The maturity date of our loan from the Lender is October 31, 2020.

 

To secure the payment of all obligations to the lender, the Company granted to the Lender a continuing security interest and first lien on all of the assets of the Company.

 

In connection with the Loan, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures.

  

We may need to renegotiate our related-party debt if our related-party lenders demand that we begin making principal or interest payments. Any renegotiation may be on less favorable terms or may require that we refinance the related-party debt. We may need to raise additional funds through public or private debt or sale of equity to pay the related-party debt. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem acceptable. If we are unable to obtain financing on reasonable terms, or, if our related-party lender does not continue to cooperate with us, we could be forced to discontinue our operations.

 

We may make acquisitions or form joint ventures that are unsuccessful.

 

Our ability to grow is partially dependent on our ability to successfully acquire other companies, which creates substantial risk. In order to pursue a growth by acquisition strategy successfully, we must identify suitable candidates for these transactions; however, because of our limited funds, we may not be able to purchase those companies that we have identified as potential acquisition candidates. Additionally, we may have difficulty managing post-closing issues such as the integration into our corporate structure. Integration issues are complex, time consuming and expensive and, without proper planning and implementation, could significantly disrupt our business, including, but not limited to, the diversion of management's attention, the loss of key business and/or personnel from the acquired company, unanticipated events, and legal liabilities.

 

8

 
 

 

We do not expect to pay dividends and investors should not buy our common stock expecting to receive dividends.

 

We have not paid any dividends on our common stock in the past, and do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in having our shares listed or quoted on an exchange, then you may have a limited ability to liquidate or receive any payment on your investment. Therefore our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds, which could affect our ability to expand our business operations.

  

Our common stock is considered a penny stock, which is subject to restrictions on marketability, so you may not be able to sell your shares.

 

The trading of our stock is subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.

 

Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

 

Our future growth depends on our ability to develop and retain customers.

 

Our future growth depends to a large extent on our ability to effectively anticipate and adapt to customer requirements and offer services that meet customer demands. If we are unable to attract new customers and/or retain new customers, our business, results of operations and financial condition may be materially adversely affected.

 

We will need to attract, train and retain additional highly qualified senior executives and technical and managerial personnel in the future.

 

We continue to seek technical and managerial staff members, although we have limited resources to compensate them until we have raised additional capital or developed a business that generates cash flow from operations. We believe it is important to negotiate with potential candidates and, if appropriate, engage them on a part-time basis or on a project basis and compensate them at least partially, with stock-based compensation, when appropriate. There is a high demand for highly trained and managerial staff members. If we are not able to fill these positions, it may have an adverse affect on our business.

 

We may conduct future offerings of our common stock and pay debt obligations with our common and preferred stock which may diminish our investors’ pro rata ownership and depress our stock price.

 

9

 
 

 

We reserve the right to make future offers and sales, either public or private, of our securities, including shares of our common stock or securities convertible into common stock at prices differing from the price of the common stock previously issued. In the event that any such future sales of securities are affected or we use our common stock to pay principal or interest on our debt obligations, an investor’s pro rata ownership interest may be reduced to the extent of any such future sales.

  

   
Item 1B. UNRESOLVED STAFF COMMENTS

 

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

 

ITEM 2. PROPERTIES

  

We utilize an office at 745 Atlantic Avenue in Boston, Massachusetts. We currently pay rent of $4,200 a month, and our rent agreement is on a month-to-month basis for approximately 400 square feet in an office-suite location.

 

ITEM 3.

 

LEGAL PROCEEDINGS

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

PART II

 

Item 5.  Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a) Market Information

 

Our common stock is currently quoted on the OTC marketplace under the symbol VSTR. The high and low closing price for each quarterly period of our last two fiscal years are listed below.

 

 

Fiscal Quarter ended High Price   Low Price
1st Quarter – May – July 2016 $ 0.0016   $ 0.0008
2nd Quarter – August – October 2016 $ 0.0010   $ 0.0006
3rd Quarter – November 2016 – January 2017 $ 0.0012   $ 0.0004
4th Quarter – February – April 2017 $ 0.0050   $ 0.0007
1st Quarter – May – July 2017 $ 0.0035   $ 0.0012
2nd Quarter – August – October 2017 $ 0.0053   $ 0.0017
3rd Quarter – November 2017 – January 2018 $ 0.0089   $ 0.0016
4th Quarter – February – April 2018 $ 0.0090   $ 0.0027

 

The quotations set forth in the table above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

 

 

10

 
 

Recent Issuances of Unregistered Securities

 

None

 

(b) Holders

 

There are 204 shareholders of record of our common stock.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Pacific American Stock Transfer Company with its business address at 4045 S Spencer Street Suite 403, Las Vegas NV 89119.

 

(c) Dividends

 

 

We have never paid dividends on our Common Stock and do not expect to do so in the foreseeable future.

 

(d) Securities Authorized for Issuance under Equity Compensation Plans

 

We currently have no equity compensation plan either approved or not approved by security holders, and there are no securities currently authorized for issuance under any equity compensation plan. However, our Board of Directors has previously approved share-based compensation in lieu of cash compensation to various consultants and employees. Such share-based compensation is recognized at the time of grant equal to the fair value of the stock award at the time of the grant or at the time the award vests, if there is a vesting period. 

 

Item 6.  Selected Financial Data.

 

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

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE.  THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.

 

Overview

 

We are an Internet-based company, which seeks free subscribers and revenue-generating subscribers for digital products that we offer to game players and app users, and a consulting company, which takes equity positions in early-stage companies, or cash fees, in exchange for consulting services. We look for companies that operate on an automated basis with the belief that Internet operations, customer sign-ups, sales and game playing should occur without requiring a Company employee to participate in the transaction, so that it is possible for the Company to quickly expand in the event the number of subscribers begins to rapidly grow on a viral basis. Our own back-office software operates 24 hours a day and can quickly collect money from and deliver games to subscribers.

 

11

 
 

 

We intend to employ personnel in such areas as sales, technical support and finance once we have increased our revenues or received an injection of capital that is sufficient to support such personnel. In addition to our online chess subscriptions, we recently purchased on online virtual-reality company. The subscriber signups are automated; we have not hired any new employees to support this activity. Our Chief Executive and Chief Financial officers have been working for stock-based compensation only. Due to an increase in our revenues, in the first quarter of fiscal 2019, we hired a Chief Marketing Officer, and the bulk of her compensation is in cash. As we grow our revenues, we plan to hire additional employees, which will result in an increase in our selling, general and administrative expenses.

 

Our limited operating history and the uncertain nature of our future operations and the markets we address or intend to address make predictions of our future results of operations difficult. Our operations may never generate significant revenues, and we may never achieve profitable operations.  

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

  

Results of Operations

 

Fiscal Year 2018 Compared to Fiscal Year 2017

 

Our revenues for fiscal 2018 increased by $89,663, or 417%, to $111,171 as compared to $21,508 reported for fiscal 2017. The increase in revenues is attributable to our consulting services. We have expanded our consulting business, which includes some services that we outsourced to a third-party. Our consulting business continues to expand, and we have recorded consulting revenues in the first quarter of fiscal 2019 in excess of $75,000.

 

Our costs of revenues amounted to $23,885 in fiscal 2018, compared to $0 in fiscal 2017. These costs represent consulting and programming work that we outsourced to a third-party vendor.

 

Stock-based compensation decreased by $34,092, or 21%, to $130,203 for fiscal 2018 from $164,295 reported in the prior fiscal year. The decrease is primarily attributable to lower values of stock grants in fiscal 2018.

 

Selling, general and administrative expenses increased by $123,941, or 492%, to $149,137 for fiscal 2018 from $25,196 reported in the prior fiscal year. The increase is primarily attributable to the rent and marketing costs in fiscal 2018 that we did not expend in fiscal 2017.

 

Depreciation expense in fiscal 2017 amounted to $381,060. In fiscal 2017, we also recorded an impairment expense of $158,772, to write down our fixed assets to $0. We did not recognize any depreciation expense in fiscal 2018.

 

 

12

 
 

Interest expense decreased by $45,811 to $69,490 for the year ended April 30, 2018, as compared to $115,301 for the prior fiscal year. Our debt balances decreased due to favorable conversion rates of debt into common stock, and we also renegotiated our secured term loan and reduced the interest rate from 8% to 1.25%, effective October 31, 2017. The debt conversions in fiscal 2018 resulted in a gain of $385,823, compared to no gains or losses in debt conversions in fiscal 2017.

 

Consequently, we recorded net income in fiscal 2018 of $131,129, an improvement of $959,250 over the net loss of $828,121 we recorded in fiscal 2017.

         

Liquidity and Capital Resources

 

At April 30, 2018, we had cash and cash equivalents of $1,655 and negative working capital of $538,991 as compared to cash and cash equivalents of $3,324 and negative working capital of $2,590,703 at April 30, 2017. The improvement of $2,051,712 in our negative working capital is the result of our ability to renegotiate the term and the balance of our borrowings from our secured lender, and our ability to convert certain liabilities into common stock.

 

Net cash used in operating activities aggregated to $50,156 and $14,179 in fiscal 2018 and 2017, respectively. The use of cash from operating activities in 2018 resulted from net income for the year of $131,129 plus stock-based compensation of $130,203 and changes in operating assets and liabilities of $74,336, minus a gain on debt settlement of $385,823. The principal use of cash from operating activities in 2017 was the loss for the year of $828,121. The use of cash was offset in part by $381,060 in depreciation, $164,295 in stock-based compensation, $158,772 in impairment expense and an increase in accounts payable of $96,267.

 

There was no investing activity in fiscal 2018 or in fiscal 2017.

 

Net cash provided by financing activities aggregated to $48,487 and $16,660 in fiscal 2018 and 2017, respectively. The principal sources of cash from financing activities were net proceeds from related parties of approximately $30,000 and 19,300 in 2018 and 2017 fiscal years, respectively, plus third-party promissory notes of $21,700 in fiscal 2018.

 

In fiscal 2018 and 2017, there were no expenditures for capital assets. We do not anticipate any capital expenditures in the next fiscal year.

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of our company as a going concern. However, we have sustained net losses from operations during the last several years, and we have very limited liquidity. Management anticipates that we will be dependent, for the near future, on additional capital to fund our operating expenses and anticipated growth, which we intend to achieve through consulting services and the further development of game applications. Although we are choosing methods of growth that potentially minimize the use of cash, we cannot be assured that we will be able to obtain the cash to market the digital products we sell or that we will be successful in increasing our sales. Furthermore, the report of our independent registered public accounting firm expresses doubt about our ability to continue as a going concern. Our operating losses have been funded through borrowings primarily from related-party lenders.

 

Our required debt payments for a bank loan, which has a balance of $37,487 at April 30, 2018, amounts to $220 a month of principal and approximately the same amount in interest every month, at an interest rate that is approximately 5.5% per annum. We have not paid principal or interest on any related-party debt; the interest accrues each month. We believe our related-party creditors will not demand payment of our current liabilities to them, in the near future, although each lender may have a change in circumstances and demand payment. Any demand for payment from a related party will have an adverse impact on our ability to achieve our longer-term business objectives and will adversely affect our ability to continue operating as a going concern.

 

Although we were profitable in fiscal 2018, we did not generate positive cash flow from operations. We believe we have short-term financing available from our largest shareholder to fund our monthly cash-flow deficit. While we continually look for other financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable to us. Failure to generate sufficient revenues or raise additional capital will have an adverse impact on our ability to achieve our longer-term business objectives and will adversely affect our ability to continue operating as a going concern.

 

New Accounting Standards

 

The new accounting pronouncements in Note 1 to our financial statements, which are included in this Report, are incorporated herein by reference thereto.

 

13

 
 

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates include:

 

revenue recognition and estimating allowance for doubtful accounts;
valuation of long-lived assets; and
income tax valuation allowance.

 

We continually evaluate our accounting policies and the estimates we use to prepare our financial statements. In general, the estimates are based on historical experience, on information from third party professionals and on various other sources and assumptions that are believed to be reasonable under the facts and circumstances at the time such estimates are made. Management considers an accounting estimate to be critical if:

 

it requires assumptions to be made that were uncertain at the time the estimate was made; and
changes in the estimate, or the use of different estimating methods, could have a material impact on our consolidated results of operations or financial condition.

 

Actual results could differ from those estimates. Significant accounting policies are described in Note 1 to our financial statements, which are included in this Report. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

 

Certain of our accounting policies are deemed “critical”, as they require management's highest degree of judgment, estimates and assumptions. The following critical accounting policies are not intended to be a comprehensive list of all of our accounting policies or estimates:

 

Revenue Recognition

 

The Company recognizes revenue only when all of the following criteria have been met:

·Persuasive evidence of an arrangement exists;
·Delivery has occurred or services have been rendered;
·The fee for the arrangement is fixed or determinable; and
·Collectability is reasonably assured.

 

Revenues from services are recognized in the period in which they are earned, in accordance with the terms and conditions noted on our websites. In instances where a subscriber prepays for a service, any prepayment is recognized as a current liability until it is earned.

 

 

14

 
 

Allowance for Doubtful Accounts

 

For subscribers to our games website, in fiscal 2018 and 2017, we do not maintain allowances for doubtful accounts for estimated losses that result from the inability or unwillingness of our customers to make required payments.

 

In order to record the Company’s accounts receivable at their net realizable value, the Company must assess their collectibility.  A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company’s receivables, and the current creditworthiness of the Company’s customers.  Generally, when a customer account reaches a certain level of delinquency, the Company provides an allowance for the related amount receivable from the customer.  The Company writes off the accounts receivable balance from a customer and the related allowance established when it believes it has exhausted all reasonable collection efforts. Accounts receivable of $6,750 and $0 is recorded at April 30, 2018 and 2017, respectively, and no allowance for doubtful accounts existed at April 30, 2018 and 2017.

 

Impairment of Long-Lived Assets

 

Financial Accounting Standards Board (“FASB”) authoritative guidance requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment loss estimates are primarily based upon management’s analysis and review of the carrying value of long-lived assets at each balance sheet date, utilizing an undiscounted future cash flow calculation. We recognized an impairment loss of $0 and $6,000, in the fiscal 2018 and 2017, respectively, as we concluded the carrying amount of a cash investment that we made in an early-stage company was not recoverable.

 

Income Taxes

 

We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that such assets will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carry-forward will be used, the related valuation allowance on such assets is reversed. If actual future taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. At April 30, 2018 and 2017, we have recorded a full valuation on our deferred tax assets.

 

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Information About Market Risk

We are not subject to fluctuations in interest rates, currency exchange rates or other financial market risks. We have not made any sales, purchases or commitments with foreign entities which would expose us to currency risks.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

Item 8.  Financial Statements and Supplementary Data.

 

Our Consolidated Financial Statements required by this Item are included herein, commencing on page F-1.

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Not applicable.

 

15

 
 

Item 9A. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Chief Executive Officer (the “PEO”) and Chief Financial Officer (the “PFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of April 30, 2018. That evaluation revealed the two material weaknesses identified below (under (b) Management’s Assessment of Internal Control over Financial Reporting).  Based on that evaluation, the PEO and the PFO concluded that, as of April 30, 2018, such controls and procedures were not effective.

 

(b) Management’s Assessment of Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f).  A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Under the supervision and with the participation of management, including the PEO and the PFO, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of April 30, 2018, based on the criteria established in a report entitled “2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929.  Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was ineffective as of April 30, 2018, and identified the following material weaknesses:

 

There is a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles in the US (“GAAP”), taxation requirements and the financial reporting requirements of the SEC; and

 

There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

 

The Company will continue its assessment on a quarterly basis.  We plan to hire personnel and resources to address these material weaknesses.  We believe these issues can be solved with hiring in-house accounting support and plan to do so as soon as we have funds available for this purpose.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  The Company’s registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to the rules of the SEC.  The Company will continue to evaluate the effectiveness of internal controls and procedures on an ongoing basis.

 

(c) Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended April 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.  Other Information.

 

None.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

16

 
 

Directors and Executive Officers

 

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at July 30, 2018.

 

Our executive officers and directors are as follows:

       
      Officer or
Name Age Position Director Since
       
Cecilia Lenk 63 Chairman of the Board and Chief
Executive Officer
July 2017
       
Thomas H Carmody 71 Director August 2010
       
Avi Liss 38 Secretary and Director August 2010
       
Steven Geary 50 Director June 2006
       
Coreen Kraysler 54 Chief Financial Officer September 2017
       
Kathy Kraysler 49 Chief Marketing Officer May 2018

 

Our directors serve in such capacity until the first annual meeting of our shareholders and until their successors have been elected and qualified. Our officers serve at the discretion of our board of directors, until their death, or until they resign or have been removed from office.

 

Executive Officers and Directors

 

Cecilia Lenk, Chairman of the Board and Chief Executive Officer

 

Cecilia Lenk is the Chairman of the Board and Chief Executive Officer. She accepted the position on July 28, 2017. For the past five year she has worked as a self-employed business consultant and a town councilor in Watertown, MA.

 

Ms. Lenk has specialized in technology and health care. Formerly Vice President of Technology and Digital Design at Decision Resources Inc., a global company serving the biopharmaceutical market, she oversaw the implementation of new technologies, products, and business processes. Prior to joining Decision Resources, Cecilia founded a technology firm that built a patented platform for online research. She has managed large-scale technology projects for leading corporations, universities, government agencies, and major non-profit organizations.

 

Ms. Lenk has a Ph.D. in Biology from Harvard University and a B.A. from Johns Hopkins University in Geography and Environmental Engineering. She has served on a number of non-profit boards, including Chair of the Johns Hopkins Engineering Alumni. She is currently on the Alumni Advisory Board for the Hopkins School of Engineering.

 

Ms. Lenk brings to our board of directors key leadership experience in high-growth technology companies and possesses a strong mix of strategic, finance, and operating skills.

  

 

17

 
 

Thomas Carmody, Director

 

Thomas Carmody has served as a Director of the Company since August 2010. He has over 40 years experience as a marketing executive. For the past five years he has worked as a self-employed marketing consultant for Summit International LLC. He currently serves on the Board of Directors of Continental Materials Corporation, Chicago, Illinois, and serves on that company’s audit committee. Mr. Carmody also served as the Vice President of U.S. Operations and Vice President of the sports division at Reebok International Inc. from 1988 to 1996.

 

As a long-term marketing expert, Mr. Carmody brings strategic insight and extensive experience with product distribution to our board of directors. He also has significant experience serving on the board of another public company.

 

Avi Liss, Director and Secretary

 

Avi Liss has served as a Director and Secretary of the Company since August 2010. From August 2009 to present, he has served as the President of Liss Law, LLC, a law firm specializing in real estate conveyances. Prior to founding Liss Law, he worked as a judicial law clerk for the Honorable Stephen S. Mitchell, a bankruptcy court judge for the Eastern District of Virginia.

 

Mr. Liss is well qualified to serve as a director of the company due to his knowledge and working experience with legal governance matters.

 

Steven Geary, Director

 

Steven Geary has served as a Director of the Company since June 2006. Since 2009, he has served in several management positions at Statera and is currently the Vice President of Strategy and Business Development. From 2008 to 2009, he was the Chief Executive Officer of ImproveSmart, Inc. From April 2006 to June 2008, he served as our President and Chief Operating Officer and as our Chief Executive Officer from June 2008 to December 2009.

 

Mr. Geary has significant business development and brand marketing expertise in consumer products and services.

 

Coreen Kraysler, Chief Financial Officer

 

Coreen Kraysler has served as the Chief Financial Officer of the Company since September 2017. Ms. Kraysler is a Chartered Financial Analyst, with over 30 years of investment experience. Formerly a Senior Vice President and Principal at Independence Investments, she managed several 5-star rated mutual funds as well as institutional accounts and served on the Investment Committee. She also worked at Eaton Vance as a Vice President, Equity Analyst on the Large and Midcap Value teams. A specialist in financial services, household and consumer products, she guest lectures at local colleges and universities. She received a B.A. in Economics and French, Cum Laude, from Wellesley College and a Master of Science in Management from MIT Sloan.

 

Coreen Kraysler is the sister of Kathy Kraysler, the Company’s Chief Marketing Officer

 

Kathy Kraysler, Chief Marketing Officer

 

Kathy Kraysler has served as the Chief Marketing Officer of the Company since May 2018. She is a Yale M.B.A. with over 20 years of digital marketing, strategy, and analytics experience. She has held Senior Marketing positions at multiple high profile institutions, including PayPal, Dow Jones and MIT, as well as several early-stage companies.  Her expertise encompasses a broad range of digital marketing, from demand generation, account based marketing, and inbound marketing, to marketing operations, digital advertising, and analytics.

 

For the past five years, she has served as the Director of Marketing Operations and Director of Demand Generation, NewStore, Inc., a Senior Digital Marketing Manager at TandemSeven, and a Research and Analytics Manager at PayPal Holdings, Inc.

 

Kathy Kraysler is the sister of Coreen Kraysler, the Company’s Chief Financial Officer

 

 

18

 
 

Director Independence

 

Our common stock is currently quoted on the OTC Pink market and is not listed on the NASDAQ Stock Market or any other national securities exchange. Accordingly, we are not currently subject to the NASDAQ continued listing requirements or the requirements of any other national securities exchange. Nevertheless, in determining whether a director or nominee for director should be considered “independent” the board utilizes the definition of independence set forth in Rule 4200(a)(15) of the NASDAQ Marketplace Rules.  Pursuant to that definition, Avi Liss and Steven Geary are independent members of our Board of Directors.

 

Involvement in Certain Legal Proceedings

 

Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:

  Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

  Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

  Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and

 

  Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

Board Meetings and Committees; Management Matters

 

Our board of directors took actions on five occasions during the fiscal year ended April 30, 2018. No fees are paid to directors for attendance at meetings or for agreeing to a unanimous consent or the board of directors.

 

Compensation Committee

 

Our board of directors does not have a compensation committee. 

 

Nominating Committee

 

Our board of directors does not have a nominating committee.  Our entire board of directors is responsible for this function.  Due to the relatively small size of our company and the resulting efficiency of a board of directors that is also limited in size, our board of directors has determined that it is not necessary or appropriate at this time to establish a separate nominating committee.  Our board of directors intends to review periodically whether such a nominating committee should be established.

 

Our board of directors uses a variety of methods for identifying and evaluating nominees for director.  It regularly assesses the appropriate size of the board of directors and whether any vacancies exist or are expected due to retirement or otherwise. If vacancies exist, are anticipated or otherwise arise, our board of directors considers various potential candidates for director.  Candidates may come to their attention through current members of our board of directors, shareholders or other persons.  These candidates are evaluated at regular or special meetings of our board of directors and may be considered at any point during the year.

 

 

19

 
 

Qualifications for consideration as a director nominee may vary according to the particular areas of expertise that may be desired in order to complement the qualifications that already exist among our board of directors.  Among the factors that our directors consider when evaluating proposed nominees are their independence, financial literacy, business experience, character, judgment and strategic vision.  Other considerations would be their knowledge of issues affecting our business, their leadership experience and their time available for meetings and consultation on company matters.  Our directors seek a diverse group of candidates who possess the background skills and expertise to make a significant contribution to our board of directors, our company and our shareholders.

 

Audit Committee

 

Our board of directors does not have an audit committee. 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act of 1934, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities (“10% Shareholders”), to file with the Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and 10% Shareholders are required by Commission regulation to furnish us with copies of all Section 16(a) forms they file.

 

Based solely on our review of the copies of such reports received by us, we believe that for the fiscal year ended April 30, 2018, that our directors and executive officers complied with Section 16(a) filing requirements and a 10% shareholder did not comply, by failing to file an increase in ownership in October 2017.

 

Code of Ethics

 

We have adopted a code of business conduct and ethics for our directors, officers and employees, including our Chief Executive Officer. The text of our code is posted on our Internet website at www.valuesetters.com.

 

Item 11.  Executive Compensation.

 

The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to Cecilia Lenk, our Chief Executive Officer, Coreen Kraysler, our Chief Financial Officer and Manuel Teixeira, our former Chairman, Chief Executive Officer and Chief Financial Officer (collectively, the “Named Executives”).  We have no other executive officers.

  

Summary Executive Compensation Table

                   
           

 

 

 

Non-equity

Change in pension value and nonqualified    
Name           incentive deferred    
and       Stock Option plan compensation All other  
principal   Salary Bonus awards awards compensation earnings compensation Total
position Year ($) ($) ($)(1) ($) ($) ($) ($) ($)
                   
Cecilia 2018  0 0 35,525 0 0 0 0 35,525
Lenk, 2017 0 0 0  0 0 0 0 0
CEO 2016 0 0 0  0 0 0 0 0
                   
Coreen 2018 0 0 60,525  0 0 0 0 60,525
Kraysler, 2017 0 0 0 0 0 0 0 0
CFO 2016 0 0 0  0 0 0 0 0

 

Manuel 2018  0 0 0 0 0 0 0 0
Teixeira, 2017 0 0 0  0 0 0 2,500 2,500
Former CEO 2016 0 0 0  0 0 0 2,100 2,100

 

20

 
 

(1) Represents the dollar amount of vested equity awards during the fiscal year.

 

We have no retirement, pension, profit sharing, stock option or insurance programs or other similar programs for the benefit of our officers and directors, and we have no regular salaried employees.

 

Outstanding Equity Awards at Fiscal Year End

 

Cecilia Lenk and Coreen Kraysler were each granted 20,000,000 shares of our common stock. 10,000,000 shares vested immediately and 10,000,000 vest over a two-year period. At April 30, 2018, each officer has 6,250,000 shares that will vest on a quarterly basis of 1,250,000 per quarter, ending on July 31, 2019.

 

Stock Option Grants

 

There were no stock option grants or exercises in fiscal 2018 for Named Executives.

 

Compensation of Directors

 

We currently do not compensate our directors for their services as directors.


Employment Agreements

 

We currently have no employment agreements in place. At a later date we may enter into employment agreements with our executive officers.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth information with respect to the beneficial ownership of shares of our common stock as of July 30, 2018 by:

 

●        each person whom we know beneficially owns more than 5% of any class of equity security;
●        each of our directors individually;
●        each of our named executive officers individually; and
●        all of our current directors and executive officers as a group.

 

Unless otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock. Shares of common stock that an individual or group has the right to acquire within 60 days of July 15, 2018, pursuant to the exercise of options or restricted stock are, deemed to be outstanding for the purpose of computing the percentage ownership of such person or group, but are not deemed outstanding for the purpose of calculating the percentage owned by any other person listed.

       
Name and Address Amount of Shares and Nature    
of Beneficial Owner (1) of Beneficial Ownership   Percent of Class*
Vaxstar LLC 271,371,454   37.1%
Steven Geary (3) 20,600,000   2.8%
Cecilia Lenk (3,4) 14,750,000   2.0%
Coreen Kraysler (4) 14,750,000   2.0%
Tom Carmody (3) 5,000,000   **%
Avi Liss (2,3) 2,000,000   **%
Officers and Directors as a group (5 persons) 56,850,000   7.8%

 

21

 
 

_________________

* Based on 731,694,210 shares of common stock outstanding as of July 30, 2018.

** Less than 1%

 

(1)

Unless otherwise noted, the business address of each member of our Board of Directors is c/o Valuesetters Inc. 745 Atlantic Avenue, Boston Massachusetts 02111

 

(2)

Mr. Liss is our Secretary.

 

(3)

 

(4)

Such individual is a current member of the Board of Directors.

 

Includes 1,250,000 shares that vest within 60 days of July 30, 2018.

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

 

Our largest shareholder, Vaxstar LLC, is also our working capital lender. As of April 30, 2018, we owe our largest shareholder $1,000,000, under a term note agreement that bears interest at an annual rate of 1.25%. We have not made any principal or interest payments to our working capital lender. Unpaid interest has been accrued and added to the note.

 

In connection with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledge to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures.

 

We owe Steven Geary, a director, $31,680 as of April 30, 2018. This obligation is not interest bearing. $16,680 is recorded as a related party trade accounts payable and $15,000 as a related party note payable. We have no signed agreements for the indebtedness to Mr. Geary.

 

We owe a company controlled by our director, Thomas Carmody, $61,100 as of April 30, 2018.

 

We currently have no equity compensation plan either approved or not approved by security holders, and there are no securities currently authorized for issuance under any equity compensation plan. However, our Board of Directors has previously approved share-based compensation in lieu of cash compensation to various consultants and employees. Such share-based compensation is recognized at the time the shares vest.

 

Item 14.  Principal Accounting Fees and Services.

 

Fruci & Associates II, PLLC is the Company’s independent registered public accounting firm.

 

The following table presents fees for professional audit services rendered by our independent registered public accounting firm during the past two fiscal years.

 

    Fiscal 2018     Fiscal 2017  
Audit fees   $ 12,450     $ 7,500  
Audit related fees                
Tax fees                
All other fees                
Total   $ 12,450     $ 7,500  

 

22

 
 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 

Consistent with SEC policies regarding auditor independence, our board of directors has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the board of directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.

 

Prior to engagement of the independent auditor for the next year's audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the board of directors for approval.

 

1. Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters and reviews of our financials statements included in our Quarterly Reports on Form 10-Q.

  

2. Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

 

3. Tax services include all services performed by the independent auditor's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

 

4. Other services are those associated with services not captured in the other categories. We generally do not request such services from the independent auditor.

 

PART IV

 

   
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
   
Exhibit  
Number Description
   
2.1 Asset Purchase Agreement, dated November 23, 2010, between Valuesetters, Inc. and NetGames.com, incorporated by reference to Exhibit 2.1 to our Form 10/A dated July 25, 2014.
3.1 Articles of Incorporation of Valuesetters, Inc. filed on April 25, 1984, incorporated by reference to Exhibit 3.1 to our Form 10 dated September 3, 2013.
3.2 Amendment to Articles of Incorporation of Valuesetters, Inc. filed on September 7, 1999, incorporated by reference to Exhibit 3.2 to our Form 10 dated September 3, 2013.
3.3 Amendment to Articles of Incorporation of Valuesetters, Inc. filed on December 4, 2003, incorporated by reference to Exhibit 3.3 to our Form 10 dated September 3, 2013.
3.4 By-Laws of Valuesetters, Inc, incorporated by reference to Exhibit 3.4 to our Form 10 dated September 3, 2013.
10.1 Amended Secured Lending Agreement between Valuesetters, Inc. and Vaxstar LLC incorporated by reference to Exhibit 10.1 to our Form 10/A dated July 25, 2014 and to our Current Report on Form 8-K dated October 31, 2017.
   
31.1 Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
31.2 Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     

* filed herewith

 

23

 
 

 

  

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
Date: July 30, 2018 VALUESETTERS, INC.
   
  By: /s/ Cecilia Lenk
        Cecilia Lenk
  Chairman of the Board and Chief Executive Officer
        (Principal Executive Officer)
             
             

 

  By: /s/ Coreen Kraysler  
        Coreen Kraysler
  Chief Financial Officer
        (Principal Financial Officer)

 

 

         
/s/ Avi Liss   Secretary and Director   July 30, 2018
Avi Liss        
           
           

 

         
/s/ Thomas Carmody   Director   July 30, 2018
Thomas Carmody        

 

         
/s/ Steven Geary   Director   July 30, 2018
Steven Geary        

 

 

24

 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
of ValueSetters, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ValueSetters, Inc. (“the Company”) as of April 30, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the two years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2018 and 2017, and the results of its operations and its cash flows for each the years in the two-year period then ended, in conformity with accounting principles generally accepted in the United States of America.


Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has sustained recurring operating losses, has negative working capital, and significant stockholder deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 We have served as the Company’s auditor since 2017.

 

Spokane, Washington

July 30, 2018  

 

F-1

 
 

 

Valuesetters, Inc.

Consolidated Balance Sheets

 

       
   April 30, 2018  April 30, 2017
       
Assets          
Current assets:          
Cash and cash equivalents  $1,655   $3,324 
Accounts receivable   6,750    —   
Prepaid expenses   35,000    16,424 
Total current assets   43,405    19,748 
Non-current prepaid expenses   25,700    —   
Deposits   6,300    —   
Investments at cost   23,000    —   
Total assets  $98,405   $19,748 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities:          
Accounts payable          
  Trade  $278,987   $285,219 
  Related party   16,680    31,680 
Accrued expenses   149,457    434,229 
Deferred revenue   885    1,533 
Notes payable – related parties   76,100    35,100 
Secured note payable to related party   —      1,199,327 
Current portion of long-term debt   —      533,066 
Loan payable – bank   37,487    40,107 
Demand notes payable   22,800    50,190 
Total current liabilities   582,396    2,610,451 
           
Long-term secured note payable to related party   1,000,000    —   
    1,582,396    2,610,451 
           
Commitments and Contingencies   —      —   
           
Stockholders’ deficit:          
Common stock, $.001 par value; 900,000,000 shares authorized, 731,694,210 and 530,000,000 shares issued and outstanding in 2018 and 2017, respectively   731,694    530,000 
Capital in excess of par value   1,434,328    660,439 
Accumulated deficit   (3,650,013)   (3,781,142)
Total stockholders’ deficit   (1,483,991)   (2,590,703)
Total liabilities and stockholders’ deficit  $98,405   $19,748 

 

See Accompanying Notes to the Financial Statements

 

F-2

 
 

 

 
VALUESETTERS, INC.
Consolidated Statements of Operations
 

 

   Years Ended April 30,
   2018  2017
       
Revenues  $111,171   $21,508 
Costs of revenues   23,885    —   
Gross profit   87,286    21,508 
           
Cost and expenses:          
Selling, general and administrative   149,137    25,196 
Depreciation   —      381,060 
Stock-based compensation   130,203    164,295 
           
Total costs and expenses   279,340    570,551 
           
        Loss from operations   (192,054)   (549,043)
Other income (expense)          
Interest expense   (69,490)   (115,301)
Loss on investments   —      (6,000)
Gain on debt conversion   385,823    —   
Impairment loss   —      (158,772)
 Other income   6,850    995 
Total other income (expense)   323,183    (279,078)
        Net income (loss) before taxes   131,129    (828,121)
Income tax   —      —   
Net income (loss)  $131,129   $(828,121)
           
Basic and diluted earnings (loss) per share  $0.00   $(0.00)
Weighted average number of shares outstanding   637,660,247    512,195,042 
           

  

See Accompanying Notes to the Financial Statements

 

 

F-3

 
 

  

 
VALUESETTERS, INC.
Consolidated Statements of Stockholders' Deficit
For the years ended April 30, 2018 and 2017
 

 

                
         Capital in      
         Excess of  Accumulated  Total
   Shares  Amount  Par Value  Deficit  Deficit
Balance, April 30, 2016   508,000,000   $500,000   $661,039   $(2,953,021)  $(1,783,982)
Net loss, April 30, 2017   —      —      —      (828,121)   (828,121)
Stock issued to purchase investments   10,000,000    10,000    (3,000)   —      7,000 
Stock issued for services   12,000,000    12,000    2,400    —      14,400 
Balance, April 30, 2017   530,000,000    530,000    660,439    (3,781,142)   (2,590,703)
Net income, April 30, 2018                  131,129    121,761 
Stock issued for debt settlement   153,277,542    153,277    624,828         778,105 
Stock issued for purchase investments   10,000,000    10,000    13,000         23,000 
Stock issued for services   38,416,668    38,417    136,062         174,479 
Balance, April 30, 2018   731,694,210   $731,694   $1,434,328   $(3,650,013)  $(1,483,991)

 

See Accompanying Notes to the Financial Statements

 

 

F-4

 
 



 
VALUESETTERS, INC.
Consolidated Statements of Cash Flows

 

       
       
   Year  Year
   Ended  Ended
   April 30,  April 30,
   2018  2017
       
Operating activities          
Net income (loss)  $131,129   $(828,121)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   130,203    164,295 
Depreciation   —      381,060 
Impairment of fixed assets   —      158,772 
Gain on debt settlement   (385,823)   —   
Loss on investments   —      6,000 
Changes in non-cash working capital balances:          
Accounts receivable   (6,750)   —   
Prepaid expenses   —      (6,312)
Other assets   (6,300)   2,017 
Accounts payable   (21,232)   96,267 
Accrued expenses   109,266    12,327 
Deferred revenue   (648)   (484)
Cash used in operating activities   (50,156)   (14,179)
           
Financing activities          
Payments on bank loan   (2,620)   (2,640)
Payment on demand note   (500)   —   
Payment on related party notes   (100)   —   
Proceeds from demand notes payable   21,700    —   
Proceeds from note payable – related party   15,900    —   
Proceeds from note payable – secured related party   14,107    19,300 
Cash provided by financing activities   48,487    16,660 
           
Increase (decrease) in cash and cash equivalents during the period   (1,669)   2,481 
Cash and cash equivalents, beginning of the period   3,324    843 
Cash and cash equivalents, end of the period  $1,655   $3,324 
           
           
Cash paid for:          
Interest  $2,592   $2,608 
Income taxes  $—     $—   

See Accompanying Notes to the Financial Statements

 

F-5

 
 

 

VALUESETTERS, INC

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

1. Description of Business and Summary of Accounting Principles

 

Description of Business and Concentrations

 

ValueSetters, Inc. (“ValueSetters,” “we,” “our,” or the “Company”) is a provider of consulting services, subscription services, advertising and digital goods using technology distribution platforms like the Internet and mobile devices in the media and entertainment markets.

 

The financial statements are presented in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States of America.  The Company’s fiscal year end is April 30.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary after elimination of significant intercompany balances and transactions. The operations of a 100% owned subsidiary, AthenaSoft Inc., a Delaware corporation, is included beginning on October 20, 2017, the day of its formation by the Company.

 

Income Taxes

 

The Company accounts for income taxes 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 carryforwards. 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 ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. A valuation allowance has been established to eliminate the Company’s deferred tax assets as it is more likely than not that none of the deferred tax assets will be realized.

 

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in income tax expense. The Company has determined that it had no significant uncertain tax positions requiring recognition or disclosure.

 

F-6

 
 

 

1. Description of Business and Summary of Accounting Principles (Continued)

 

Revenue Recognition

 

The Company recognizes revenue only when all of the following criteria have been met:

·Persuasive evidence of an arrangement exists;
·Delivery has occurred or services have been rendered;
·The fee for the arrangement is fixed or determinable; and
·Collectability is reasonably assured.

 

Revenues from consulting services are recognized in the period in which they are earned, which typically is upon the completion of a consulting engagement. In instances where a customer prepays for consulting services, the prepayment is recognized as a current liability until it is earned. Revenues from web-based services are recognized in the period in which they are earned, in accordance with the terms and conditions noted on our websites. In instances where a subscriber prepays for a service, any prepayment is recognized as a current liability until it is earned.

 

Costs of Services

 

Costs of services consist of direct costs that we pay to third parties in order to provide the services that generate revenue.

 

Earnings (Loss) Per Share

 

Earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of shares outstanding. To the extent that stock options and convertible debt are anti-dilutive, they are excluded from the calculation of diluted earnings (loss) per share. For 2018 and 2017, the Company had no potentially dilutive securities.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not have any cash equivalents during fiscal 2018 and 2017.

 

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. The most significant estimate relates to the accruals for income tax valuation allowance. On a continual basis, management reviews its estimates, utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

Determination of Fair Value

 

Cash and cash equivalents, accounts receivable, and accounts payable

 

In general, carrying amounts approximate fair value because of the short maturity of these instruments.

 

F-7

 
 

 

  1. Description of Business and Summary of Accounting Principles (Continued)

 

Deferred Revenue

 

Deferred Revenue represents revenues collected but not earned as of the year end. The Company renders services, or rights to use its software, over a specific time period and revenues are recognized as earned as time passes.

 

Debt

 

At April 30, 2018 and 2017, the Company’s secured debt was carried at its face value plus accrued interest. On October 31, 2017, the Company renegotiated its secured related-party debt. Based on the financial condition of the Company, it is impracticable for the Company to estimate the fair value of its short and long-term debt.

 

The Company has no instruments with significant off balance sheet risk.

 

Recent Accounting Pronouncements

 

In May 2014, FASB issued ASU 2014-09, "Revenue from Contracts with Customers". This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The revised effective date for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. We will adopt this ASU when effective. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and our management is currently evaluating which transition approach to use. We are currently evaluating the possible impact of ASU 2014-09, but we do not anticipate that it will have a material impact on the Company's consolidated results of operations, financial position or cash flows.

 

 In February 2016, the FASB issued ASU 2016-02 – “Leases (Topic 842).” Under ASU 2016-02, entities will be required to recognize lease asset and lease liabilities by lessees for those leases classified as operating leases.  Among other changes in accounting for leases, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease.  Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option.  The amendments in ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018, including interim periods with those fiscal years, for public business entities.  We are currently evaluating the effect of the adoption of ASU 2016-02 will have on our consolidated results of operations, financial position or cash flows.

 

On June 20, 2018, the FASB expanded the scope of Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation, to include share-based payments to nonemployees for goods and services.The accounting board said the amendments in Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, align the guidance for stock compensation to employees and nonemployees. The amended guidance replaces ASC 505-50, Equity—Equity-Based Payments to Non-Employees.

 

The amendments in ASU No. 2018-07 apply “to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards,” the FASB said. But the amended guidance does not cover stock compensation that is used to provide financing to the company that issued the shares or stock awards tied to a sale of goods or services as part of a contract accounted for according to ASC 606, Revenue From Contracts With Customers.

 

 

F-8

 
 

The amendments are effective for public companies for fiscal years that begin after Dec. 15, 2018, and the quarterly and other interim periods in those years, the FASB said. Private companies have until their fiscal years that start after Dec. 15, 2019, before applying the changes to annual reports. Private companies can wait until their fiscal years that start after Dec. 15, 2020, before they apply the changes to their reporting periods of less than a year. The accounting board also said the amended guidance can be applied before it becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before they have implemented ASC 606. We are currently evaluating the effect of the adoption of ASU 2018-07 will have on our consolidated results of operations, financial position or cash flows.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

  2. Going Concern Matters and Realization of Assets

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. However, the Company has sustained recurring losses from its continuing operations and as of April 30, 2018, had negative working capital of $538,991 and a stockholders’ deficit of $1,483,991. In addition, the Company is unable to meet its obligations as they become due and sustain its operations. The Company believes that its existing cash resources are not sufficient to fund its continuing operating losses, capital expenditures, lease and debt payments and working capital requirements.

 

The Company may not be able to raise sufficient additional debt, equity or other cash on acceptable terms, if at all. Failure to generate sufficient revenues, achieve certain other business plan objectives or raise additional funds could have a material adverse effect on the Company’s results of operations, cash flows and financial position, including its ability to continue as a going concern, and may require it to significantly reduce, reorganize, discontinue or shut down its operations.

 

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company which, in turn, is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in its existence. Management’s plans include:

 

  1. Seek to raise debt or equity for working capital purposes and to pay off existing debt balances. With sufficient additional cash available to the Company, it can  make additional marketing expenditures and hire people to generate more revenues, and consequently cut monthly operating losses.

 

  2. Continue to look for software niches and digital products that can be sold via an Internet-based store. Various acquisition opportunities are being considered to help the Company generate additional revenues and obtain profitability.

 

  3. Continue to provide consulting services and continue to charge both a cash fee and an equity-based fee, when possible, in exchange for these services.

 

There can be no assurance that the Company will be able to achieve or maintain cash-flow-positive operating results. If the Company is unable to generate adequate funds from operations or raise sufficient additional funds, the Company may not be able to repay its existing debt, continue to operate its business network, respond to competitive pressures or fund its operations. As a result, the Company may be required to significantly reduce, reorganize, discontinue or shut down its operations. The financial statements do not include any adjustments that might result from this uncertainty.

 

F-9

 
 

 

3. Debt

 

The following table summarizes components debt as of April 30, 2018 and 2017:

 

    2018   2017   Interest Rate
             
Secured lender (affiliate)   $ 1,000,000     $ 1,199,327       1.25 %
Term note     -       333,066       3.0 %
Term note     -       200,000       2.0 %
Notes payable – related parties     76,100       35,100       0.0 %
Demand notes payable     22,800       50,190       0.0 – 10.0 %
Loan payable – bank     37,487       40,107       5.5 %
        Total Debt   $ 1,136,387     $ 1,828,803          

  

As of April 30, 2018 and 2017, the Company owed its principal lender (“Lender”) $1,000,000 and $1,199,327, respectively, under a loan and security agreement (“Loan”) dated April 28, 2011, that was amended on July 26, 2014 and again on October 31, 2017. The Lender is also the largest shareholder of the Company, owning 271,371,454 shares of common stock, or 37.1% of the 731,694,210 shares issued and outstanding, as of April 30, 2018.

 

The Loan was amended on October 31, 2017 to change the maturity date to October 31, 2020, reduce the interest rate from 8% to 1.25% per annum, and reduce the default interest rate from 15% to 8% per annum (the “Amendments”). In conjunction with the Amendments, the Lender also agreed to reduce the total debt and accrued interest payable by $453,031 to $1,000,000, in exchange for the Company issuing to the Lender 44,198,246 shares of its common stock.  Consequently, upon issuance of the 44,198,246 shares, the Company recorded an increase of $44,198 in common stock and $408,833 in capital in excess of par value.

 

In connection with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures. To secure the payment of all obligations to the Lender, the Company granted to the Lender a continuing security interest and first lien on all of the assets of the Company.

 

As of April 30, 2018 and 2017, the Company’s related-party unsecured notes payable totaled $76,100 and $35,100, respectively. The Company also owes $37,487 and $40,107 as of April 30, 2018 and 2017, respectively, to Chase Bank. The Company pays $220 a month in principal payments on the outstanding balance, plus the monthly interest expense, which is calculated at a rate of 5.5% per annum.

 

The debt to Chase Bank is personally guaranteed by a former Chief Executive Officer and Chairman of the Board (the “Former CEO”). The Former CEO sold shares of the Company to a third-party, and in addition to payments to the Former CEO, the contract of sale requires the third-party make monthly payments to Chase Bank to pay down the money owed to Chase Bank. Total payments received from the third-party in fiscal 2018 and 2017 amounted to $6,850 and $995, respectively, and were recorded as other income.

 

Demand notes payable totaled $22,800 and $50,190 at April 30, 2018 and 2017. 

 

The Company owed $200,000 and $533,066 at April 30, 2017, respectively, to two individual note holders. A $200,000 note was due in September 2017 and accrued interest at an annual rate of 2%. On April 9, 2018, the holder converted the note and interest payable into 21,432,329 shares of common stock at a price of $0.01 per share. At the time of conversion the Company issued Common Stock valued at $122,164 to settle $214,323 in debt and accrued interest payable, resulting in a gain on debt conversion of $92,159.

 

F-10

 
 

A second note for $333,066 (the “Second Note”), accrued interest at 3% per annum was due in June 2017. This note plus accrued interest was converted into shares of common stock on October 5, 2017. The Second Note was settled by issuing a total number of shares of 52,301,100, which were valued at $130,753, for the settlement of obligations of $443,011, resulting in a gain on debt settlement of $312,259. 

In addition to the above conversions of debt into equity, in the first quarter of fiscal 2018, the Company recorded a loss of $12,295 upon the issuance of 24,590,000 shares of stock to retire $24,590 in debt, and a loss of $6,299 was recorded in the third quarter of fiscal 2018 for the retirement of $26,973 in debt by the issuance of 8,755,867 shares of Common Stock.

  

4. Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures of financial instruments on a recurring basis.

 

Fair Value Hierarchy

 

The Fair Value Measurements Topic of the FASB Accounting Standards Codification establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 inputs are unobservable inputs for the asset or liability.

 

Determination of Fair Value

 

Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the Company bases its fair value on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon management’s own estimates, are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future value.

 

See Note 1 for a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value where it is practicable to do so for financial instruments not recorded at fair value (disclosures required by the Fair Value Measurements Topic of the FASB Accounting Standards Codification).

 

5. Income Taxes

 

At April 30, 2018, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $1,800,000 expiring in the years of 2019 through 2034. Utilization of the net operating losses may be subject to annual limitations provided by Section 382 of the Internal Revenue Code and similar State provisions.

 

F-11

 
 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act makes broad and significantly complex changes to the U.S. corporate income tax system by, among other things; reducing the U.S. federal corporate income tax rate from 35% to 21%, and potentially impacting our net operating loss carryforwards. Given the significant changes resulting from and complexities associated with the Act, the estimated financial impacts for fiscal 2018 are provisional. The ultimate outcome may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of the Act. Actual impacts on the Company’s net operating loss carryforwards are expected to be finalized after the Company's 2018 U.S. corporate income tax return is filed.

 

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 amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of April 30, 2018 and 2017 were as follows:

 

   2018  2017
       
Deferred tax assets, net:          
Net operating loss carryforwards  $1,800,000   $1,800,000 
Valuation allowance   1,800,000    1,800,000 
           
Net deferred assets  $—     $—   

 

As a result of the completion of the Company’s federal tax return for fiscal 2017, the amount of the net operating loss carryforwards for fiscal 2017 has been adjusted from $2,100,000 to $1,800,000. The net operating loss carryforwards and the valuation allowance both remain at $1,800,000 at April 30, 2018. Although the Company reported book income of $131,129 in fiscal 2018, the taxable income is estimated to be $158,772 less due to tax depreciation that is available on the Company’s federal tax return for fiscal 2018 that was recorded on the Company’s financial statements as an impairment expense in fiscal 2017. Consequently, the net operating loss carryforwards and the valuation allowance had not materially changed from April 30, 2017, and they remain at $1,800,000 on April 30, 2018.

 

The following is a reconciliation of the tax provisions for the years ended April 30, 2018 and 2017 with the statutory Federal income tax rates:

   Percentage of Pre-Tax Income
   2018  2017
       
Statutory Federal income tax rate   34.0%   34.0%
Loss generating no tax benefit   (34.0)   (34.0)
           
Effective tax rate   —      —   

 

The Company did not have any material unrecognized tax benefits as of April 30, 2018 and 2017. The Company does not expect the unrecognized tax benefits to significantly increase or decrease within the next twelve months.  The Company recorded no interest and penalties relating to unrecognized tax benefits as of and during the years ended April 30, 2018 and 2017. The Company is subject to U.S. federal income tax, as well as taxes by various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending April 30, 2015 through 2018.

 

6. Commitments and Contingencies

 

Litigation

 

The Company may be subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, is not likely to have a material effect on the financial condition, results of operations or liquidity of the Company. However, as the outcome of litigation or legal claims is difficult to predict, significant changes in the estimated exposures could occur.

 

F-12

 
 

The Company utilizes office space in Boston, Massachusetts, under a month-to-month lease agreement that allows to company to end its lease by providing 30-day written notice. The lease agreement includes a deposit of $6,300.

7. Stockholders’ Deficit

 

The Company is authorized to issue 900,000,000 shares of its common stock, par value $0.001, 731,694,210 and 530,000,000 shares were outstanding as of April 30, 2018 and 2017, respectively. In fiscal 2018 38,416,668 shares were issued for stock-based compensation, 153,277,542 shares were issued for debt settlement transactions and 10,000,000 shares were issued to purchase a 20% interest in software development company. In fiscal 2017, 12,000,000 shares were issued for consulting services and 10,000,000 shares were issued to purchase shares and membership units in a total of seven early-stage companies. The following tables summarize information about options outstanding at April 30, 2018 and 2017.

 

    Options Outstanding     Options Exercisable
          Weighted-                  
          Average     Weighted-           Weighted-
          Remaining     Average           Average
    Number     Contractual     Exercise     Number     Exercise
Range of Exercise Prices   Outstanding     Life (Years)     Price     Outstanding     Price
                             
As of April 30, 2018                            
$0.03     18,000,000       1.02     $ 0.03       18,000,000     $ 0.03
                                       
As of April 30, 2017                                      
$0.03     18,000,000       2.02     $ 0.03       17,913,777     $ 0.03

 

 

    Number of
Shares
  Exercise Price
Per Share
  Average
Exercise
Price
Outstanding April 30, 2016     18,000,000     $ 0.03     $ 0.03  
                         
Granted during year ended April 30, 2017     -       -       -  
                         
Exercised/canceled during year ended April 30, 2017     -       -       -  
                         
Outstanding April 30, 2017     18,000,000      $ 0.03     $ 0.03  
                         
Granted during year ended April 30, 2018           -       -  
                         
Exercised/canceled during year ended April 30, 2018     -       -       -  
                         
Outstanding April 30, 2018     18,000,000     $ 0.03     $ 0.03  
                         
Options exercisable, April 30, 2018     18,000,000       $0.03     $ 0.03  

 

On May 7, 2014, the Company granted 5-year stock options that fully vest over a three year period to three consultants. Each consultant was granted an option to purchase up to 6 million shares of the Company’s common stock at a price of $0.03 per share. The Company entered consulting agreements to issue common stock and options to purchase common stock, and recorded the applicable non-cash expense in accordance with the authoritative guidance of the Financial Accounting Standards Board.

 

F-13

 
 

 

For the years ended April 30, 2018 and 2017, the Company recorded $130,203 and $164,295, respectively, in stock-based compensation expense. As of April 30, 2018 and 2017, there was $60,699 and $16,423 of prepaid stock-based compensation expense.

 

The shares of Common Stock issued to pay for services in fiscal 2018, and their corresponding value, are listed in the table below. The 10,000,000 shares valued at $70,000, for a marketing agreement, are for a two-year service period and theses shares account for the $60,699 of prepaid stock-compensation expense. $16,425 in prepaid stock compensation expense at April 30, 2017 was recognized as stock-based compensation in fiscal 2018. All other shares of Common Stock issued in fiscal 2018 were issued after services had been performed.

 

   Shares  Value of
Description  Issued  Shares
Chief Executive Officer   13,375,000   $35,525 
Chief Financial Officer   13,375,000    60,525 
Chief Technology Officer   1,250,000    1,989 
Marketing agreement   10,000,000    70,000 
Marketing consultant   416,668    6,438 
Total   38,416,668   $174,477 
           


In fiscal 2017, one payment of 12,000,000 shares of Common Stock to a third-party vendor was valued at $14,400, and was the only stock issuance for services. The majority of the stock compensation expense in fiscal 2017 was related to the issuance of stock options in fiscal 2015, which vested over a three-year period.

 

In the third quarter of fiscal 2018, the Company issued 350,000 shares of restricted common stock in conjunction with a contract of sale dated January 21, 2018, to purchase a digital marketing database, via an agreement to acquire Dreamfunded Marketplace LLC. On April 16, 2018, the Company and DreamFunded Marketplace LLC agreed to rescind the January 21, 2018 contract of sale, and the owner of DreamFunded MarketPlace LLC agreed to return the 350,000 shares of common stock, which have been treated by the Company as though they were never issued.

  

8. Earnings (Loss) Per Common Share

 

Earnings (loss) per common share data was computed as follows:

 

 

   2018  2017
       
Net income (loss)  $131,129   $(828,121)
           
Weighted average common shares outstanding   637,660,247    512,195,042 
Effect of dilutive securities   —      —   
Weighted average dilutive common shares outstanding   637,660,247    512,195,042 
           
Earnings (loss) per common share – basic  $0.00   $(0.00)
           
Earnings (loss) per common share – diluted  $0.00   $(0.00)


For the year ended April 30, 2018 the Company excluded 18,000,000 shares of common stock issuable upon the exercise of outstanding stock options from the calculation of earnings per share because the exercise price of the stock options was greater than the closing market price of the common stock on April 30, 2018, and the effect would be anti-dilutive. For the year ended April 30, 2017, the Company excluded 38,733,333 shares of common stock issuable upon the exercise of outstanding stock options and fixed-rate convertible debt from the calculation of net loss per share because the effect would be anti-dilutive.

 

F-14

 
 

  

9. Related Party Transactions

 

Our largest shareholder, Vaxstar LLC, is also our working capital lender. As of April 30, 2018, we owe our largest shareholder $1,000,000, under a term note agreement that bears interest at an annual rate of 1.25%. We have not made any principal or interest payments to our working capital lender. Unpaid interest has been accrued.

 

In connection with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledge to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures.

 

We owe Steven Geary, a director, $31,680 as of April 30, 2018. This obligation is not interest bearing. $16,680 is recorded as a related party trade accounts payable and $15,000 as a related party note payable. We have no signed agreements for the indebtedness to Mr. Geary.

 

At April 30, 2018, we owe $61,000 to a company controlled by one of our directors

 

10. Investments

During fiscal 2018, the Company acquired a 20% interest in AthenaSoft Corp., an entity that provides programming work services and sales to our wholly owned subsidiary, AthenaSoft Inc. The Company has no influence over the operations of AthenaSoft Corp. and recorded its investment at cost. During fiscal 2017, the Company acquired an equity interest in seven early-stage companies, Zelgor Inc., MadHat Media Inc, Chronability, Dark LLC, Storeboard Inc, Splyst LLC and Rivetz Corp. by issuing 10,000,000 shares of its common stock. When the Company acquires equity in another entity in exchange for consulting services, the Company only recognizes consulting revenues on its income statement and the cost of the investment on its balance sheet in instances where the value of the early-stage company can be determined through publicly available evidence such as audited financial statements or a market value on a trading platform. The Company recorded a valuation loss on investments at April 30, 2018 and 2017 of $0 and $6,000, respectively.

 

11. Subsequent Events

 

On May 1, 2018, the Company executed an agreement to purchase all the outstanding shares of common stock of SpaceoutVR, Inc., in exchange for 200,000 shares of common stock of the Company.

 

The Company hired a Chief Marketing Officer on May 14, 2018, as reported in the Current Report on Form 8-K dated May 14, 2018.

 

The Company evaluated subsequent events through July 30, 2018, the date these financial statements were available to be issued. There were no other material subsequent events that required recognition or additional disclosure in these financial statements

 

F-15