2. GOING CONCERN AND MANAGEMENT'S PLAN

Edgar Glimpses |

These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated revenue during the three and nine months ended , and incurred a net loss of $2,731,841 and $9,494,826 for the three and nine months ended , respectively. The Company has an accumulated deficit of $16,557,211 as of . The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise money from either equity or debt financing, and the attainment of profitable operations from the Company's future business. Additionally, the Company is actively seeking strategic alliances in order to accelerate its growth in the industry. These factors raise substantial doubt regarding the Company's ability to continue as a going concern for a period of one year from the date these financial statements are issued. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.



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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Principles of Consolidation


The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including Cannavoices, Inc. and FH Acquisition Corp. ("FHA"). All significant intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented. The reclassifications had no impact on net loss or total assets and liabilities.

Consolidated Variable Interest Entity ("VIE")

On , Cannavoices entered into a share exchange agreement with FHA, whereby all the issued and outstanding capital stock of FHA was exchanged for an aggregate of 1,334,262 shares of the Cannavoices' common stock. FHA shares were exchanged on a one-for-one basis with the shares of the Cannavoices' common stock. Effective on the date of the share exchange agreement, FHA became a wholly-owned subsidiary of the Company.

The Company previously determined FHA was a VIE and Cannavoices was the primary beneficiary. This was concluded as FHA collected capital raised from investors and funded invoices of Cannavoices as directed by the Cannavoices' Board of Directors. The Company has presented the financial statements on a consolidated basis since FHA's inception (). Accordingly, intercompany activity between the Company and FHA are eliminated in consolidation.



Use of Estimates


The financial statements and accompanying notes are prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company's significant estimates and assumptions include the fair value of the Company's stock and the valuation allowance relating to the Company's deferred tax assets.



Revenue Recognition


In accordance with the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin ("SAB") Topic 13, Revenue Recognition, the Company recognizes revenue when it is realized or realizable and earned. The Company records revenues when the following four fundamental criteria under SAB Topic 13 are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers on the balance sheet. For the period from (inception) to , the Company did not recognize any revenue.



Stock-Based Compensation


The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718 "Compensation - Stock Compensation" using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.



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The Company accounts for stock-based compensation to consultants and other third parties in accordance with ASC 505-50 "Equity-Based Payments to Non-Employees." Compensation expense is determined at the "measurement date." Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.



Dividends


The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.



Advertising Costs


The Company's policy regarding advertising is to expense advertising when incurred. The Company did not incur any advertising expense for the three and nine months ended and , respectively.



Cash and Cash Equivalents


The Company considers all highly liquid instruments purchased with an original maturity of three months or less when purchased to be cash equivalents, to the extent the funds are not being held for investment purposes. As at and , the Company had no cash equivalents.

Fair Value of Financial Instruments

The carrying amounts (if any) of cash, accounts payable, and accrued liabilities approximate fair value due to the short-term nature of these instruments.

The Company measures the fair value of financial assets and liabilities based on the guidance of the FASB ASC in accordance with U.S. GAAP, ASC 820 "Fair Value Measurements and Disclosures", which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 - quoted prices in active markets for identical assets or liabilities

Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)




Convertible Instruments



U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable ASC 480-10.

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.



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Derivative Financial Instruments

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

The Company's free-standing derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and of embedded conversion options with convertible debentures. The Company evaluated these derivatives to assess their proper classification in the balance sheet as of using the applicable classification criteria enumerated under ASC 815-Derivatives and Hedging. The Company determined that certain embedded conversion and/or exercise features do not contain fixed settlement provisions. The convertible debentures contain a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands.

As such, the Company was required to record the derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.



Net Loss per Common Share


Basic loss per share is calculated by dividing the Company's net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company's net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Although there were common stock equivalents as of , they were anti-dilutive.



                                     For the Three           For the Three
                                     Months Ended            Months Ended
                                   December 31, 2017       December 31, 2016
        Net Loss                  $        (2,731,841 )   $          (475,793 )
        Weighted Average Shares            30,326,520              23,223,187
        Net Loss Per share        $             (0.09 )   $             (0.02 )




                                     For the Nine            For the Nine
                                     Months Ended            Months Ended
                                   December 31, 2017       December 31, 2016
        Net Loss                  $        (9,494,826 )   $        (3,376,593 )
        Weighted Average Shares            28,406,108              22,036,635
        Net Loss Per share        $             (0.33 )   $             (0.15 )




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The following financial instruments were not included in the diluted loss per share calculation as of and 2016 because their effect was anti-dilutive:




                                        As of December 31
                                       2017           2016
Warrants to purchase Common Stock   $   578,668     $       -
Convertible notes                     1,743,924       514,368
Total                               $ 2,322,592     $ 514,368




Income Taxes


The Company provides for income taxes under ASC 740 "Accounting for Income Taxes". ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.

The Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax expense. No interest or penalties have been recognized as of and for the quarters ended and 2016.

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Impairment of Long-Lived Assets

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Recent Accounting Pronouncements

In , the FASB issued Accounting Standards Update ("ASU") No. 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The amendments in ASU 2017-12 provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in ASU 2017-12 are effective for fiscal years beginning after , and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after , and interim periods within fiscal years beginning after . While the Company does not expect the adoption of ASU 2017-12 to have a material effect on its business, the Company is still evaluating any potential impact that adoption of ASU 2017-12 may have on its financial position, results of operations or cash flows.



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In , the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share ("EPS") in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after . Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. While the Company does not expect the adoption of ASU 2017-11 to have a material effect on its business, the Company is still evaluating any potential impact that adoption of ASU 2017-11 may have on its financial position, results of operations or cash flows.

In , FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards. ASU 2017-09 is effective for annual periods beginning after , and interim periods within those annual periods, which would be the Company's fiscal year ending . Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. While the Company does not expect the adoption of ASU 2017-09 to have a material effect on its business, the Company is still evaluating any potential impact that adoption of ASU 2017-09 may have on its financial position, results of operations or cash flows.

In , the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, to improve and simplify the accounting for the income tax consequences of intra-entity transfers of assets other than inventory, requiring companies to recognize income tax consequences upon the transfer of the asset to a third party. ASU 2016-16 is effective for annual periods beginning after , and interim periods within those annual periods, which would be the Company's fiscal year ending . While the Company does not expect the adoption of ASU 2016-16 to have a material effect on its business, the Company is still evaluating any potential impact that adoption of ASU 2016-16 may have on its financial position, results of operations or cash flows.

In , the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The Company does not expect the adoption of ASU 2016-15 to have a material effect on its business, its financial position, results of operations or cash flows.

In , the FASB issued ASU 2016-09, Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after , and interim periods within those annual periods, which would be the Company's fiscal year ending . The Company does not expect the adoption of ASU 2016-09 to have a material effect on its business, its financial position, results of operations or cash flows.



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In , the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from 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. For public companies, the amendments in this update are effective for fiscal years beginning after , including interim periods within those fiscal years, which would be the Company's fiscal year ending . The Company does not expect the adoption of ASU 2016-09 to have a material effect on its business, its financial position, results of operations or cash flows.

In , the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The updated guidance enhances the reporting model for financial instruments and requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. The guidance is effective for annual and interim reporting periods beginning after . The Company expects that this guidance will not have a material effect on its financial statements.

In , the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes,", which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies the current guidance in ASC 740, which requires entities to separately present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years beginning after , and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The Company expects that this guidance will not have a material effect on its financial statements.

In , the FASB issued ASU 2014-15, "Presentation of Financial Statements-Going Concern," which impacts the accounting guidance related to the evaluation of an entity's ability to continue as a going concern. The amendment establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. The amendment also gives guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity's ability to continue as a going concern. The amended guidance is effective prospectively for fiscal years beginning after . The Company has adopted this new guidance effective as of the inception date. The adoption of this ASU did not have a material impact on the Company's financial position, results of operations or cash flows.

In , the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In , the FASB deferred the effective date for annual reporting periods beginning after (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 beginning and apply the full retrospective approach. Until such time as the Company makes an acquisition or commences monetizing its assets, the Company does not know what the impact of this new standard will be or if it will impact the Company's disclosure.

4. CONVERTIBLE PROMISSORY NOTE RECEIVABLE

On , the Company purchased a convertible promissory note from a related party (the "Assignor") in the principal amount of $100,000. The convertible promissory note was assigned to the Company for $100,000 in cash consideration and the Assignor of the convertible promissory note relinquished any further participating interest. The convertible promissory note accrues interest at 6% compounded annually and matured on . On , the maturity date of this note was amended to . The convertible promissory note is convertible into equity of the issuer of the note, a social media company, upon events not certain to occur as of .



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The balance of the convertible promissory note receivable, including accrued interest at and was $110,500 and $106,000, respectively. For the three and nine months ended and 2016, the Company recognized $1,500 and $4,500 in interest income, respectively.

5. ASSET PURCHASE AGREEMENT - INTELLECTUAL PROPERTY

On , the Company entered into an asset purchase agreement (the "Agreement") with Interactive Systems Worldwide, Inc. ("ISWI"). Pursuant to the Agreement, the Company purchased the proprietary intellectual property assets from ISWI, which include software designed, developed and patented by ISWI for the purposes of wagering on sporting events called SportXction® and other related intellectual property rights (the "IP Assets"). SportXction® enables users to wager at fixed prices during the course of a sporting event, such as soccer, football, baseball, basketball, golf, tennis, rugby, cricket and snooker, among many others. The Company did not assume any of ISWI's liabilities.

As consideration for the IP Assets, the Company issued ISWI an aggregate of 2,000,000 shares of Company's restricted common stock. The Company determined the valuation of the 2,000,000 shares should be at the most recent arms-length transaction price of $1.00 per share or $2,000,000 to reflect the fair value of the consideration purchased based on future earnings assumptions utilizing the IP Assets. The Company considers stock sales to independent investors to be a better indicator of the true fair value of the Company's restricted common stock based on its limited trading market and lack of liquidity. The asset purchase was an arms-length transaction from an independent third party. The Company recorded the intangible IP Assets at the fair value of the consideration transferred of $2,000,000. The Company has determined to amortize the IP Assets over three years on a straight-line basis. For the nine months ended , the Company incurred $305,023 in amortization expense.



6. NOTE PAYABLE



On , the Company issued a promissory note in the principle amount of $600,000, net of associated discount of $20,000. The note bears interest at a rate of 15% per annum and interest payments were to be paid monthly beginning . The Company has the right to prepay the note at any time without penalty. The promissory note is secured by a security interest in all of the assets of the Company. The principal and accrued interest of the note became due and payable by the Company on the one-year anniversary date of the note, or . Although the Company reached an agreement with the holder of the promissory note to extend the maturity date until , the promissory note is currently in default and a lawsuit has been commenced against the Company by the holder thereof. See Note 13. - Commitments and Contingencies.

The outstanding principal of the promissory note at and was $600,000 and $598,333, respectively. For the three months ended and 2016, the Company recognized $22,500 and $62,500 in interest expense and amortization of debt discount of $0 and $1,667, respectively, included in interest expense in the accompanying statement of operations. For the nine months ended and 2016, the Company recognized $62,500 and $52,500 in interest expense and amortization of debt discount of $1,667 and $13,336, respectively, included in interest expense in the accompanying statement of operations. As of and , the Company recorded $60,000 and $0 in accrued interest expense, respectively.

7. CONVERTIBLE PROMISSORY NOTES PAYABLE

On , the Company entered into a convertible short-term promissory note (the "November Short-Term Note") with a lender that has an outstanding principal balance of $6,250 plus accrued interest of $2,646 at . The Company reached a verbal agreement with the holder of the November Short-Term Note to extend the maturity date of such note until and the note continues to accrue interest at a rate of 10% per annum. On , the Company repaid the holder of the November Short-Term Note the principal balance of $6,250 plus accrued interest of $2,646. The principal balance outstanding as of is $0.

On , the Company entered into a series of convertible short-term promissory notes (the "July Short-Term Notes") with lenders pursuant to which the lenders advanced the Company an aggregate of $50,000. Interest on such notes accrues at a rate of 10% per annum and is due at maturity. The principal and accrued interest on the July Short-Term Notes became due and payable by the Company on the ninety-day anniversary date of the July Short-Term Notes, or . On , the July Short-Term Notes and the related accrued interest of $1,260 were converted into an aggregate of 51,260 shares of the Company's common stock.



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On , the Company entered a convertible short-term promissory note (the " Short-Term Note") with a lender pursuant to which the lender advanced the Company $20,000. Interest on such note accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the 180-day anniversary date of such note, or . The Short-Term Note is a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Note may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $504 in interest expense and recorded $822 in accrued interest expense. See Note 14. - Subsequent Events.

On , the Company entered into a series of convertible short-term promissory notes (the " Short-Term Notes") with lenders pursuant to which the lenders advanced the Company an aggregate of $11,000. Interest on such notes accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Notes will be due and payable by the Company on the 180-day anniversary date of the Short-Term Notes, or . The Short-Term Notes are a general unsecured obligation of the Company. At each lender's election, the principal balance and accrued interest on the Short-Term Notes may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $277 in interest expense and recorded $413 in accrued interest expense. See Note 14. - Subsequent Events.

On , the Company entered into a convertible short-term promissory note (the " Short-Term Note") with a lender pursuant to which the lender advanced the Company $300,000. Interest on such note accrues at a rate of 5% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the one-year anniversary date of such note, or . The Short-Term Note is a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Note may be converted into common stock of the Company at a fixed rate of $0.40 per share. For the three months ended , the Company recognized $7,562 in interest expense and recorded $9,411 in accrued interest expense.

On , the Company entered a convertible short-term promissory note (the " Short-Term Note") with a lender pursuant to which the lender advanced the Company $25,000. Interest on such note accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the 120-day anniversary date of such note, or . The Short-Term Note is a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Note may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $630 in interest expense and recorded $801 in accrued interest expense. See Note 14. - Subsequent Events.

On , the Company entered a convertible short-term promissory note (the " Short-Term Note") with a lender pursuant to which the lender advanced the Company $10,000. Interest on such note accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the 180-day anniversary date of such note, or . The Short-Term Note is a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Note may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $252 in interest expense and recorded $255 in accrued interest expense.



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On , the Company entered into a series of convertible short-term promissory notes (the " Short-Term Notes") with lenders pursuant to which the lenders advanced the Company $34,000. Interest on such notes accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Notes will be due and payable by the Company on the 180-day anniversary date of such note, or . The Short-Term Notes are a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Note may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $857 in interest expense and recorded $857 in accrued interest expense.

On , the Company entered into a convertible short-term promissory note (the " Short-Term Note") with a lender pursuant to which the lender advanced the Company $31,000. Interest on such note accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the 90-day anniversary date of such note, or . The Company has the option to extend the Short-Term Note to the 240-day anniversary or if the lender elects to have this note repaid. The Short-Term Note is a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the October 11thShort-Term Note may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $781 in interest expense and recorded $781 in accrued interest expense.

On , the Company entered into a convertible short-term promissory note (the " Short-Term Note") with a lender pursuant to which the lender advanced the Company $15,000. Interest on such note accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the 180-day anniversary date of such note, or . The Short-Term Note is a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Note may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $378 in interest expense and recorded $378 in accrued interest expense.

On , the Company entered into a series of convertible short-term promissory notes (the " Short-Term Notes") with lenders pursuant to which the lenders advanced the Company $77,000. Interest on such notes accrues at a rate of 10% per annum and is due at maturity. Unless earlier converted into the Company's common stock (as discussed below), the principal and accrued interest on the Short-Term Note will be due and payable by the Company on the 90-day anniversary date of such note, or . The Short-Term Notes are a general unsecured obligation of the Company. At the lender's election, the principal balance and accrued interest on the Short-Term Notes may be converted into common stock of the Company at a fixed rate of $1.00 per share. For the three months ended , the Company recognized $357 in interest expense and recorded $357 in accrued interest expense.

Due to the nature of the issued convertible notes payable notes described below, the Company determined that the conversion feature requires classification as an embedded derivative. The accounting treatment requires that the Company record at fair value at inception as a liability and to fair value as of each subsequent reporting date which at was $1,672,175.

The fair value of the embedded derivatives at issuance of the convertible notes payable were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 228.13% to 260.33%, (3) weighted average risk-free interest rate of 0.44% to 1.35%, (4) expected lives of 0.25 to 0.49 years, and (5) estimated fair value of the Company's common stock from $1.00 to $1.50 per share.



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8. CONVERTIBLE NOTES PAYABLE




Convertible notes payable were comprised of the following as of  and :



                                                  December 31, 2017          March 31, 2017
Auctus Fund LLC notes payable                    $           259,500     $                    -
EMA Financial LLC                                            259,500                          -
Total notes payable                                          519,000                          -
Less unamortized debt discount                              (156,959 )                        -
Total notes payable net of unamortized debt
discount                                                     362,041                          -
Less current portion                                        (362,041 )                        -
Long term portion                                $                 -     $                    -




Auctus Fund LLC


During the nine months ended , the Company entered into Securities Purchase Agreements with Auctus Fund LLC ("Auctus") for the sale of 12% convertible promissory notes in aggregate principal amount of $259,500. On , the Company issued Auctus a convertible promissory note in the principal amount of $175,000 (the "Auctus April Note") and on , the Company issued Auctus a convertible promissory note in the principal amount of $84,500 (the "Auctus May Note" and together with the Auctus April Note, the "Auctus Notes"). In connection with the issuance of the Auctus Notes, the Company issued five-year warrants (the "Auctus Warrants") to purchase up to 125,000 shares of the Company's common stock at an exercise price of $2.00 per share, subject to adjustment.

The Auctus Notes bear interest at the rate of 12% per annum. Any amount of principal or interest on the Auctus Notes which is not paid when due shall bear interest at the rate of 24% per annum from the due date thereof until the same is paid (the "Auctus Default Interest"). All interest and principal must be repaid one year from the issuance date. The Auctus May Note is due on and the Auctus April Note is due on . The Company has identified the embedded derivatives related to the Auctus Notes and Auctus Warrants. These embedded derivatives included certain conversion features and reset provisions.

The Auctus May Note is convertible into shares of the Company's common stock at any time at a conversion price equal to the lesser of (i) a 50% discount to the lesser of the lowest traded price and closing bid price of the common stock during the 25 trading days prior to and (ii) 50% of the lesser of the lowest traded price and closing bid price of the common stock during the 25 trading day period prior to conversion. The Auctus April Note is convertible into shares of the Company's common stock at any time at a conversion price equal to the lesser of (i) a 60% discount to the lesser of the lowest traded price and closing bid price of the common stock during the 25 trading days prior to and (ii) 60% of the lesser of the lowest traded price and closing bid price of the common stock during the 25 trading day period prior to conversion.

If, at any time while the Auctus Notes are issued and outstanding, the Company issues or sells, or is deemed to have issued or sold shares of common stock, except for shares of common stock issued directly to vendors or suppliers of the Company in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of common stock prior to the issuance of such shares), for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the conversion price of the Auctus Notes that is then in effect on the date of such issuance of such shares of common stock (a "Auctus Dilutive Issuance"), then immediately upon the Auctus Dilutive Issuance, the conversion price of the Auctus Notes will be reduced to the amount of the consideration per share received by the Company in such Auctus Dilutive Issuance.

Auctus does not have the right to convert the Auctus Notes into shares of the Company's common stock if such conversion would result in Auctus' beneficial ownership exceeding 4.99% of our outstanding common stock at such time.



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All amounts due under the Auctus Note become immediately due and payable by us upon the occurrence of an event of default, including but not limited to, (i) our sale of all or substantially all of our assets, (ii) our failure to pay the amounts due at maturity, (iii) our failure to issue shares of common stock upon any conversion of the Auctus Notes, (iv) our breach of the covenants, representations or warranties pursuant to the Auctus Notes, (v) our appointment of a trustee, (vi) a judgment against us in excess of $100,000 (subject to a 20 day cure period), (vii) our liquidation, (viii) the filing of a bankruptcy petition by us or against us, (ix) our failure to comply with the reporting requirements of the Securities Exchange Act of 1934, (x) the delisting of our common stock from the OTC Pink or equivalent exchange, (xi) a restatement of our financial statements for any period from two years prior to the issuance date of the Auctus Notes until such notes have been paid in full, or (xi) our effectuation of a reverse stock split without 20 days prior written notice to Auctus. We are required to pay an amount equal to 150% times the sum of the then outstanding principal amount of the Auctus Notes together with accrued interest thereon with Auctus Default Interest (collectively, the "Default Sum") for failure to pay the principal amount of the Auctus Notes together with interest accrued thereon when due at the maturity date. In addition, we shall be required to pay Auctus $2,000 per day, for each day beyond the date that we are required to deliver shares of common stock to Auctus upon conversion of the Auctus notes.

Pursuant to the Auctus May Note, at any time the Company consummates a financing transaction, the Company is required to apply at least 60% of the proceeds from such sales towards the payment of the Auctus May Note. In addition, the Auctus May Note contains a prohibition with respect to the consummation of a transaction involving capital raising or financing from any party through the sale of debt and/or equity securities for a period of at least 90 days after the issuance date of the Auctus May Note, or until , without the consent of Auctus. Finally, the Auctus Notes have a cross-default provision whereby a default of the Auctus May Note constitutes a default of the Auctus April Note. See Note 14. - Commitments and Contingencies.

The Company agreed to reserve an aggregate of 2,445,000 shares of common stock for conversions of the Auctus Notes (the "Auctus Reserve"), and also agreed to adjust the Auctus Reserve to ensure that such reserve always equals at least ten times the total number of shares of common stock that is issuable upon conversion of the Auctus Notes.

The Auctus Warrants are immediately exercisable and may be exercised on a cashless basis in the event that the shares of common stock underlying the Auctus Warrants are not registered for resale with the SEC on an effective registration statement. The exercise price of the Auctus Warrants is subject to adjustment for stock dividends and splits, and also subject to dilution protection in the event that the Company issues shares of common stock or securities convertible into common stock at an effective price per share that is less than the original exercise price of the Auctus Warrants.

On , the Company received a notice of default from Auctus with respect to the Auctus Notes, and Auctus commenced a lawsuit against the Company on . Auctus alleged the Company failed to apply at least 60% of the proceeds from financing transactions consummated during its second quarter ended towards the repayment of the Auctus May Note and the Company also failed to adhere to the prohibition of the Auctus May Note, which prohibited financing transactions by the Company for at least 90 days following the issuance of such note, without prior written consent of Auctus, giving rise to an event of default. In addition, Auctus alleged a breach of the Auctus May Note resulted in a breach of the Auctus April Note by virtue of the cross-default provision contained in the Auctus April Note. At , the Auctus Notes were disputed, contingent and unliquidated, and the Company intended to litigate such allegations if a resolution could not be agreed upon by all of the parties involved. At that time, it could not be determined whether the court would find the Auctus Notes in default as alleged in the Auctus compliant. In addition, the amount of any prejudgment cost, fees or penalties were not determinable and were not accrued for by the Company as of . The Company has recorded the Auctus Notes as a liability at its principal balance and continued to accrue interest as of . The parties entered into a settlement agreement on . See Note 14. - Subsequent Events.

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Auctus Notes and to fair value as of each subsequent reporting date which at was $502,590 and $1,241,360 for the debt derivative and warrant liability, respectively. At the inception of the Auctus Notes, the Company determined the aggregate fair value of $811,555 and $423,011 of the embedded debt derivatives and warrant liability, respectively.



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EMA Financial LLC


During the nine months ended , the Company entered into Securities Purchase Agreements with EMA Financial LLC ("EMA") for the sale of 12% convertible promissory notes in aggregate principal amount of $259,500. On , the Company issued EMA a convertible promissory note in the principal amount of $175,000 (the "EMA April Note") and on , the Company issued EMA a convertible promissory note in the principal amount of $84,500 (the "EMA May Note" and together with the EMA April Note, the "EMA Notes"). In connection with the issuance of the EMA Notes, the Company issued five-year warrants (the "EMA Warrants") to purchase up to 125,000 shares of the Company's common stock at an exercise price of $2.00 per share, subject to adjustment.

The EMA Notes bear interest at the rate of 12% per annum. Any amount of principal or interest on the EMA Notes which is not paid when due shall bear interest at the rate of 24% per annum from the due date thereof until the same is paid (the "EMA Default Interest"). All interest and principal must be repaid one year from the issuance date. The EMA May Note is due on and the EMA April Note is due on . The Company has identified the embedded derivatives related to the EMA Notes and EMA Warrants. These embedded derivatives included certain conversion features and reset provisions.

The EMA May Note is convertible into shares of the Company's common stock at any time on or after 180 days following at the lower of (i) the closing sale price of the common stock on the principal market on the trading day immediately preceding the closing date and (ii) 50% of the lowest sale price for the common stock on the principal market during the 25 consecutive trading days immediately preceding the date of conversion. If the Company fails to register the shares of common stock underlying the EMA May Note within 180 days of the closing date, the conversion price will be permanently reduced to: (i) the closing sale price of the common stock on the principal market on the trading day immediately preceding the closing date and (ii) 50% of the lowest sale price for the common stock on the principal market during the 25 consecutive trading days immediately preceding the conversion date. As of , the Company has not registered the shares of common stock underlying the EMA May Note.

The EMA April Note is convertible into shares of the Company's common stock at any time on or after 180 days following at the lower of (i) the closing sale price of the common stock on the principal market on the trading day immediately preceding the closing date and (ii) 60% of the lowest sale price for the common stock on the principal market during the 25 consecutive trading days immediately preceding the date of conversion. If the Company fails to register the shares of common stock underlying the EMA May Note within 180 days of the issue date, the conversion price will be permanently reduced to: (i) the closing sale price of the common stock on the principal market on the trading day immediately preceding the closing date and (ii) 40% of the lowest sale price for the common stock on the principal market during the 25 consecutive trading days immediately preceding the conversion date. As of , the Company has not registered the shares of common stock underlying the EMA April Note.

EMA does not have the right to convert the EMA Notes into shares of the Company's common stock if such conversion would result in EMA's beneficial ownership exceeding 4.99% of our outstanding common stock at such time.



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All amounts due under the EMA Notes become immediately due and payable by us upon the occurrence of an event of default, including but not limited to, (i) our sale of all or substantially all of our assets, (ii) our failure to pay the amounts due at maturity, (iii) our failure to issue shares of common stock upon any conversion of the EMA Notes, (iv) our breach of the covenants, representations or warranties pursuant to the EMA Notes, (v) our appointment of a trustee, (vi) a judgment against us in excess of $50,000 (subject to a 20 day cure period), (vii) our liquidation, (viii) the filing of a bankruptcy petition by us or against us, (ix) our failure to comply with the reporting requirements of the Securities Exchange Act of 1934, (x) the delisting of our Common Stock from the OTC Pink or equivalent exchange, (xi) a restatement of our financial statements for any period from two years prior to the issuance date of the EMA Notes until the EMA Notes have been paid in full, or (xi) our effectuation of a reverse stock split without 10 days prior written notice to EMA. We are required to pay an amount equal to 150% times the sum of the then outstanding principal amount of the EMA Notes together with accrued interest thereon with EMA Default Interest (collectively, the "EMA Default Sum") for failure to pay the principal amount of the EMA Notes together with interest accrued thereon when due at the maturity date. In addition, we shall be required to pay EMA $1,000 per day, for each day beyond the date that we are required to deliver shares of common stock to EMA upon conversion of the EMA notes. If at any time the Company enters into any capital raising transaction, including without limitation an equity line transaction, a loan transaction or the sale of shares of common stock or securities convertible into or exercisable or exchangeable for common stock, then five trading days following the closing of such subsequent financing, at least 60% of the gross proceeds therefrom shall be paid to EMA to redeem a portion of the EMA Notes pursuant to the terms thereof.

The Company agreed to reserve an aggregate of 2,445,000 shares of common stock for conversions of the EMA Notes (the "EMA Reserve"), and also agreed to adjust the EMA Reserve to ensure that such reserve always equals at least ten times the total number of common stock that is issuable upon conversion of the EMA Notes.

The EMA Warrants are immediately exercisable and may be exercised on a cashless basis in the event that the shares of common stock underlying the EMA Warrants are not registered for resale with the SEC on an effective registration statement. The exercise price of the EMA Warrants is subject to adjustment for stock dividends and splits, and also subject to dilution protection in the event that the Company issues shares of common stock or securities convertible into common stock at an effective price per share that is less than the original exercise price of the EMA Warrants.

Pursuant to the EMA Securities Purchase Agreements, in the event that at any time on or prior to the date which is six months following the issuance date, the Company desires to borrow funds, raise additional capital and/or issue additional promissory notes, whether convertible into shares of securities of the Company or otherwise (a "Prospective Financing"), EMA shall have the right of first refusal to participate in the Prospective Financing, and the Company shall provide written notice containing the terms of such Prospective Financing to EMA prior to effectuating any such transaction, provided that this right shall not apply to (a) any transaction in which the Company receives more than $250,000 of net proceeds in a single transaction or (b) any transaction that does not involve the issuance of any securities which are directly or indirectly convertible, exercisable or exchangeable into or for capital stock of the Company.

On , the Company received a notice of default from EMA with respect to the EMA Notes, and EMA commenced a lawsuit against the Company on . EMA alleges that the Company failed to file a registration statement covering the resale of the shares of common stock underlying the EMA Notes thus giving rise to an event of default. The EMA Notes are disputed, contingent and unliquidated, and the Company intends to litigate such allegations if a resolution cannot be agreed upon by all of the parties involved. It cannot be determined at this time whether the court will find the EMA Notes in default as alleged in the EMA compliant. In addition, the amount of any prejudgment cost, fees or penalties are not determinable at this time and have not been accrued for by the Company as of . The Company has recorded the EMA Notes as a liability at its principal balance and continues to accrue interest at the stated rate of 12% per annum. The Company filed a Motion to Dismiss the Complaint based on the criminal usury defense under New York law on . EMA filed a Motion for Summary Judgment on the Complaint on . The Company cannot determine at this time whether the court will agree with the Company's position; however, the Company intends to litigate such allegations if a resolution cannot be agreed upon by the Company and EMA. The actions are still pending. See Note 14. - Commitments and Contingencies.

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of EMA Notes and to fair value as of each subsequent reporting date which at was $584,914 and $1,241,360 for the debt derivative and warrant liability, respectively. At the inception of the EMA Notes, the Company determined the aggregate fair value of $979,651 and $419,280 of the embedded debt derivatives and warrant liability, respectively.



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Summary:


The Company has identified the embedded derivatives and warrant liability related to the Auctus and EMA promissory notes and related issued warrants. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of these notes and to fair value as of each subsequent reporting date which at was $1,087,504 and $2,482.719 for the debt derivative and warrant liability, respectively.

The fair value of the embedded derivatives and warrant liability at issuance of the Auctus and EMA promissory notes, were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 234.00% to 245.43%, (3) weighted average risk-free interest rate of 1.07% to 1.92%, (4) expected lives of 1.00 to 5.00 years, and (5) estimated fair value of the Company's common stock from $1.50 to $3.74 per share.

The initial fair value of the embedded debt derivative and warrant liability in aggregate of $2,633,498 was allocated as a debt discount up to the proceeds of the notes ($470,500) with the remainder ($2,162,998) charged to current period operations as interest expense. For the three and nine months ended , the Company amortized an aggregate of $130,816 and $362,041 of debt discounts to current period operations as interest expense, respectively.



9. DERIVATIVE LIABILITIES




Warrant liability


In fiscal 2017, in connection with the issuance of convertible promissory notes, as discussed in Note 8, the Company issued five-year warrants to purchase an aggregate of 250,000 shares of the Company's common stock at an exercise price of $2.00 per share with anti-dilutive (reset) provisions.

The Company has identified embedded derivatives related to the issued warrants. These embedded derivatives included certain anti-dilutive (reset) provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date.

At , the fair value of the reset provision related to the embedded warrant liability of $2,482,719 was determined using the Binomial Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 235.92%; risk free rate: 1.92%; and expected life: 4.52 to 4.62 years. The Company recorded a loss on change in warrant liabilities of $1,640,428 during the nine months ended .



Convertible notes


In fiscal 2017, the Company issued convertible promissory notes.

These promissory notes are convertible into common stock, at the holders' option, at a discount to the market price of the Company's common stock. The Company has identified the embedded derivatives related to these promissory notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of these notes and to fair value as of each subsequent reporting date.

The fair value of the embedded derivatives at , in the amount of $2,720,852, was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 229.88%, (3) weighted average risk-free interest rate of 1.39% to 1.53%, (4) expected lives of 0.08 to 0.62 years, and (5) estimated fair value of the Company's common stock of $2.00 per share. The Company recorded a loss on change in derivative liabilities of $84,135 during the nine months ended .

Based upon ASC 840-15-25 (Emerging Issues Task Force, or EITF, Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible promissory notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.



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10. FAIR VALUE MEASUREMENT



The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.

The carrying value of the Company's cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

As of and , the Company did not have any items that would be classified as level 1 or 2 disclosures.

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in Notes 8 and 9. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Notes 8 and 9 are that of volatility and market price of the underlying common stock of the Company.

As of and , the Company did not have any derivative instruments that were designated as hedges.

The derivative and warranty liabilities as of , in the amount of $5,203,571 have a level 3 classification.



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The following table provides a summary of changes in fair value of the Company's Level 3 financial liabilities as of :



                                                    Warrant Liability       Debt Derivative
Balance, March 31, 2017                            $                 -     $               -
Total (gains) losses
Initial fair value of debt derivative at note or
warrant issuance                                               842,291             2,494,699
Mark-to-market at December 31, 2017:                         1,640,428               (84,135 )
Balance, December 31, 2017                                   2,482,719             2,410,564
Net gain (loss) for the period included in
earnings relating to the liabilities held at
December 31, 2017                                  $        (1,640,428 )   $         (84,135 )



Fluctuations in the Company's stock price are a primary driver for the changes in the derivative valuations during each reporting period. The Company's stock price decreased approximately 100% from to . As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company's derivative instruments.

The estimated fair value of these liabilities is sensitive to changes in the Company's expected volatility. Increases in expected volatility would generally result in a higher fair value measurement.

11. STOCKHOLDERS' EQUITY AND CONTRIBUTED CAPITAL




Recent Sale of Securities


The Company is authorized to issue up to 500,000,000 shares of common stock, $0.001 par value. The Company is authorized to issue up to 10,000,000 of blank check preferred stock, $0.001 par value. As of , the Company had 30,455,167 shares of common stock and 0 shares of preferred stock issued and outstanding, respectively.

In , the Company issued 67,653 shares of common stock at $0.75 per share, upon the conversion of a convertible note and accrued interest thereon of $50,740.

In , the Company issued an aggregate of 120,957 shares of common stock at $1.00 per share, upon the conversion of convertible notes and accrued interest thereon of $120,957.

In , the Company issued an aggregate of 902,500 shares of common stock to individuals for services valued at $902,500.

In , the Company sold an aggregate of 258,000 shares of common stock at $1.00 per share, for gross proceeds of $258,000.

In , the Company issued an aggregate of 21,559 shares of common stock at $1.00 per share, upon the conversion of convertible notes payable and accrued interest of $21,559.

In , the Company issued an aggregate of 159,883 shares of common stock to individuals for services valued at $159,883.

In , the Company sold an aggregate of 30,000 shares of common stock at $1.00 per share, for gross proceeds of $30,000.

In , the Company issued 30,838 shares of common stock at $1.00 per share, upon the conversion of a convertible note and accrued interest thereon of $30,838.

On , the Company issued 2,000,000 shares of common stock for the IP Assets purchased from ISWI valued at $2,000,000.

In , the Company sold 3,000 shares of common stock at $1.00 per share, for gross proceeds of $3,000.



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In , the Company issued 266,667 shares of common stock at $0.75 per share, upon the conversion of a convertible note of $200,000.

In , the Company issued an aggregate of 575,000 shares of common stock to individuals for services valued at $575,000.

In , the Company issued an aggregate of 668,750 shares of common stock to individuals for services valued at $668,750.

In , the Company sold an aggregate of 116,667 shares of common stock at $1.50 per share, for gross proceeds of $175,000.

In , the Company issued an aggregate of 128,084 shares of common stock at $1.00 per share, upon the conversion of convertible notes and accrued interest thereon of $128,084.

In , the Company issued an aggregate of 177,500 shares of common stock to individuals for services valued at $266,250.

In , the Company issued an aggregate of 51,260 shares of common stock at $1.00 per share, upon the conversion of convertible notes and accrued interest thereon of $51,260.

In , the Company sold an aggregate of 20,700 shares of common stock at $1.50 per share, for gross proceeds of $31,050.

In , the Company issued an aggregate of 40,000 shares of common stock to individuals for services valued at $30,000.

In , the Company sold an aggregate of 23,634 shares of common stock at $1.50 per share, for gross proceeds of $33,450.

In , the Company sold 2,000 shares of common stock at $1.00 per share, for gross proceeds of $2,000.

In , the Company sold 3,333 shares of common stock at $1.50 per share, for gross proceeds of approximately $5,000.

In , the Company sold 4,000 shares of common stock at $1.00 per share, for gross proceeds of $4,000.

In , the Company issued an aggregate of 117,000 shares of common stock to individuals for services valued at $117,000.

As of , there were no stock options granted, warrants to purchase up to 250,000 shares of the Company's common stock outstanding as granted in the convertible notes financing and warrants to purchase up to 328,668 shares of the Company's common stock outstanding issued together with the 164,334 shares of common stock sold at $1.50 per share during the nine months ended . For each common stock sold, the investors received one warrant to purchase one share of common stock exercisable at $2.50 per share for one year from the date of sale and one warrant to purchase one share of common stock exercisable at $5.00 per share for three years from the date of sale.

In connection with the foregoing, the Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended (the "Securities Act") for transactions not involving a public offering.

12. RELATED PARTY TRANSACTIONS

The Company's related parties are First Harvest Financial, Inc. ("FHF") and The Great American Rolling Paper Company ("GARP"), First Harvest Corp. ("FHC"), Lexington Tech Ventures Management, LLC ("Lexington"), Cannavoices, and FHA by common ownership and management.



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The related parties have provided certain management services and incurred expenses on behalf of the Company for the three and nine months ended and 2016, including accounting, administration, management, marketing, IT support, rent, due diligence and evaluation of acquisition candidates.

For the three months ended and 2016, the related parties have been reimbursed the following for management and subcontractor fees, respectively: (a) FHF - $8,005 and $16,000, and (b) GARP - $0 and contributed to the Company $26,573.

For the nine months ended and 2016, the related parties have been reimbursed the following for management and subcontractor fees, respectively: (a) FHF - $36,880 and $164,600, (b) GARP - $0 and contributed to the Company an aggregate of $57,515, (c) FHC - $0 and $200, and (d) Lexington - $0 and $3,000.

For the three and nine months ended , the Company incurred rent expense on behalf FHF of $15,000 and $45,000, respectively.

For the three and nine months ended , the Company incurred rent expense to Cannavoices of $0, and $28,953, respectively. The Company has no formal lease with Cannavoices.

For the three and nine months ended , the Company incurred rent expense to FHA of $23,500 and $51,359, respectively. The Company has no formal lease with FHA.

The majority shareholder of the related parties described above is the president and largest shareholder of the Company. For three months ended and 2016, he was paid $44,842 and $52,066, respectively. For nine months ended and 2016, he was paid $244,073 and $94,457, respectively. He currently has no formal compensation agreement. He is currently involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, he may face a conflict in selecting between the Company and his other business interests. The Company has not formulated a policy for the resolution of such conflicts.

The Company entered into a game development and licensing agreement with HKA Digital Limited ("HKA") on (the "Development Agreement"). HKA is majority owned by an officer and director of the Company. For the three months ended and 2016, the Company paid HKA $0 and $71,400, respectively. For the nine months ended and 2016, the Company paid HKA $199,000 and $572,400, respectively. The total value of the Development Agreement is $2,000,000 based on certain development parameters and ongoing scope of work.

13. COMMITMENTS AND CONTINGENCIES

Litigations, Claims and Assessments

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There were no such matters that were deemed material to the financial statements as of , except the following:

On , Hit Sum to Me, LLC ("HSTM") filed a complaint with the Circuit Court of the First Judicial Circuit in and for Okaloosa County, Florida (Filing #61355697) against Cannavoices and Kevin Gillespie. In the complaint HSTM indicates that on or about , Cannavoices entered into a Loan Agreement with HSTM and Cannavoices issued a promissory note (the "HSTM Note") in the principal amount of $600,000, which note is guaranteed by Kevin Gillespie and secured by the Security Agreement for Tangible Personal Property whereby Cannavoices and Kevin Gillespie granted HSTM a first priority security interest in all of the shares of common stock of Cannavoices (the "Cannavoices Stock"). The complaint alleges that Cannavoices breached the terms of the HSTM Note by failing to repay the principal balance of such note by and that as of , Cannavoices is indebted to HSTM in the amount of $600,000 plus accrued and accruing interest, late changes and costs of collection, including attorney's fees. Pursuant to the complaint, HSTM requests (i) that a judgment be entered against Cannavoices for all amounts owed under the HSTM Note, including damages for principal and interest due under the HSTM Note, late fees and advances, (ii) that a judgment be entered against Kevin Gillespie for all amounts owed under the HSTM Note, including damages for principal and interest due under the HSTM Note, late fees and advances, (iii) that a judgment be entered against Kevin Gillespie for possession of the Cannavoices Stock and (iv) for reasonable attorneys' fees. The Company filed an answer to the complaint on . The Company cannot determine at this time whether the court will agree with the Company's position, but the Company intends to litigate such allegations if a resolution cannot be agreed upon by the Company and HSTM. The action is still pending. See Note 6. - Note Payable.



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On , EMA filed a complaint with the United States District Court, Southern District of New York (Case No.: 1:17-cv-08072) against the Company, Cannavoices and FHA. In the complaint, EMA indicated that (i) on , the Company and EMA entered into a Securities Purchase Agreement (the "EMA SPA") and the Company issued EMA the "EMA April Note" and (ii) on , the Company and EMA entered into an additional Securities Purchase Agreement (the "EMA SPA" and together with the EMA SPA, the "SPAs") and the Company issued EMA the "EMA May Note". In the complaint EMA alleges that pursuant to the EMA SPA and a Registration Rights Agreement dated , the Company was required to file and have declared effective a registration statement with the SEC for the registration of shares of the Company's common stock issuable upon the conversion of the EMA Notes. EMA alleges that the Company failed to file a registration statement thus giving rise to an event of default pursuant to the SPAs. Pursuant to the complaint, EMA requests (i) that the Company immediately file a registration statement with the SEC with respect to the shares of the Company's common stock issuable upon the conversion of the EMA Notes, (ii) that the Company and Cannavoices and FHA, as guarantors of the EMA Notes, pay such amount in damages in excess of $259,500 which consists of the principal amount of the EMA Notes, liquidated damages and default interest and (iii) that the Company pay reasonable legal fees incurred by EMA with respect to the prosecution of the lawsuit. The Company filed a Motion to Dismiss the complaint based on the criminal usury defense under New York law on . EMA filed a Motion for Summary Judgment on the complaint on . The Company cannot determine at this time whether the court will agree with the Company's position, but the Company intends to litigate such allegations if a resolution cannot be agreed upon by the Company and EMA. The actions are still pending. See Note 8. - Convertible Notes Payable.

On , Auctus filed a complaint in the United States District Court, District of Massachusetts (Dkt. No. 1:17-cv-12329-LTS) against the Company. In the complaint, Auctus indicated that (i) on , the Company and Auctus entered into a Securities Purchase Agreement (the "Auctus SPA") and the Company issued Auctus the "Auctus April Note" and (ii) on , the Company and Auctus entered into an additional Securities Purchase Agreement (the "Auctus SPA" and together with the Auctus SPA, the "SPAs") and the Company issued Auctus the "Auctus May Note". In the complaint Auctus alleges the Company failed to apply at least 60% of the proceeds from financing transactions consummated during its second quarter ended towards the repayment of the Auctus May Note and the Company also failed to adhere to the prohibition of the Auctus May Note, which prohibited financing transactions by the Company for at least 90 days following the issuance of such note, without the prior written consent of Auctus, giving rise to an event of default. In addition, Auctus alleged a breach of the Auctus May Note resulted in a breach of the Auctus April Note by virtue of the cross-default provision contained in the Auctus April Note. Pursuant to the complaint, Auctus requests (i) that the Company pay such amount in damages in excess of $259,500 which consists of the principal amount of the Auctus Notes, liquidated damages and default interest and (ii) that the Company pay reasonable legal fees incurred by Auctus with respect to the prosecution of the lawsuit. At , the Auctus Notes were disputed, contingent and unliquidated, and the Company intended to litigate such allegations if a resolution could not be agreed upon by all of the parties involved. At that time, it could not be determined whether the court would find the Auctus Notes in default as alleged in the Auctus compliant. In addition, the amount of any prejudgment cost, fees or penalties were not determinable and were not accrued for by the Company as of . The Company recorded the Auctus Notes as a liability at its principal balance and continued to accrue interest as of . The action was settled on . See Note 8. - Convertible Notes Payable and Note 14. - Subsequent Events.



14. SUBSEQUENT EVENTS



Convertible Promissory Notes Payable

On , the Company repaid the holder of the Short-Term Note the aggregate principal balance of $25,000 plus accrued interest of $979. The principal balance outstanding as of is $0.

On , the holder of the Short-Term Note elected to convert the aggregate principal balance of $20,000 plus accrued interest of $1,036 into 42,072 shares of common stock at $0.50 per share. The principal balance outstanding as of is $0. The shares of common stock have not been issued as of .

On , the holders of the Short-Term Notes elected to convert the aggregate principal balance of $11,000 plus accrued interest of $543 into 23,086 shares of common stock at $0.50 per share. The principal balance outstanding as of is $0. The shares of common stock have not been issued as of .

Convertible Note Payable - Auctus Settlement Agreement

On , the Company and Auctus entered into a Settlement Agreement and Mutual General Release (the "Settlement Agreement"). Pursuant to the terms of the Settlement Agreement, among other things, the Company agreed to (i) initially register for resale on a registration to be filed with the Securities and Exchange Commission the ("SEC") 1,500,000 shares (the "Registrable Securities") of the Company's common stock issuable upon conversion of the Auctus Notes and (ii) upon sale of all of the Registrable Securities, register for resale on a registration statement to be filed with the SEC such additional shares of the Company's common stock to be issued to Auctus pursuant to the terms of the Settlement Agreement. In addition, if the Company files a registration statement with the SEC, Auctus shall have the right to request that the Company register shares of common stock underlying warrants issued to Auctus. The parties have agreed to release the other party together with its predecessors, parents, affiliates, subsidiaries, divisions, successors and assigns and the respective trustees, officers, directors, agents, representatives, employees, principals, shareholder, heirs, executors, administrators, attorneys and assigns from any and all liability actions, claims, damages, expenses or costs of whatever nature related to or arising out of the and Securities Purchase Agreement and the Auctus Notes. In addition, the parties have agreed to cause a Stipulation of Dismissal with Prejudice to be filed with respect to the action commenced by Auctus in the United States District Court for the District of Massachusetts (Dkt. No. 1:17-CV-12329-LTS).



Common Stock


During the period from through , the Company sold an aggregate of 126,000 shares of common stock at $0.50 per share resulting in gross proceeds of $63,000. The Company also approved the issuance of an aggregate of 153,334 shares of common stock at $0.50 per share to individuals for services valued at $76,667. The shares of common shares sold and to be issued for services have not been issued as of .



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

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition.



Business Overview


Arias Intel Corp. (the "Company") is a digital media platform for tech, media and gaming, which includes mobile gaming, augmented reality, on-demand delivery, digital and social media, and e-commerce. The Company is an early-stage company and has not generated any revenue as of . The Company plans to generate revenue primarily through in-app purchases, service fees, and cross-channel advertising.

The Company's focus is on developing innovative technologies that leverage connectivity, distribution, and social networks. The Company intends to use its digital platforms to implement its unique marketing strategy that empowers viral and social mechanisms to reach a growing demographic that utilizes (1) mobile apps and gaming, (2) social media and (3) on-demand delivery. The Company believes its platforms are entertaining, convenient, and scalable.

By combining these three fast growing business sectors - mobile apps and gaming, social media and on-demand delivery, along with our experienced development team led by the former EVP of Activision, we believe our business platform can develop into a premier technology medium that attracts, engages and monetizes.

We intend to use our platform to build our subscriber base and boost users' engagement within our digital platforms to gather analytics and target advertising directly to users based on their preferences. We are also exploring opportunities to expand a suite of mobile games and apps that target similar audience demographics. We may explore these opportunities through the acquisition of operating companies, asset purchases or internal development. Additional information on the Company may be found on our website: https://ariasintel.com.

We were originally incorporated on as "American Riding Tours, Inc.", a Nevada corporation. Our initial business plan related to providing motorcycle tours. Effective , we changed our name to "First Harvest Corp." Effective , we changed our name to "Arias Intel Corp." Prior to the reverse acquisition described below, we did not have any significant assets or operations.

On (the "Closing Date"), the Company entered into and closed an agreement and plan of merger and reorganization (the "Merger Agreement"), with CV Acquisition Corp., a wholly-owned subsidiary of the Company ("Acquisition Corp."), and Cannavoices, Inc. ("Cannavoices"). Pursuant to the Merger Agreement, effective on the Closing Date (i) Acquisition Corp. merged with and into Cannavoices, such that Cannavoices, the surviving corporation, became a wholly-owned subsidiary of the Company, and (ii) the Company issued an aggregate of 23,267,231 shares of common stock to the shareholders of Cannavoices, representing approximately 97.7% of the Company's outstanding shares of common stock, following the closing of the Merger Agreement, in exchange for the cancellation of all of the issued and outstanding shares of common stock of Cannavoices.



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Cannavoices was incorporated on as a Florida corporation. Effective on the Closing Date, pursuant to the Merger Agreement, Cannavoices became a wholly-owned subsidiary of the Company. The acquisition of Cannavoices is treated as a reverse acquisition, and the business of Cannavoices became the business of the Company. At the time of the reverse recapitalization, the Company was not engaged in any active business.

The consolidated financial statements of the Company are those of Arias Intel Corp. and of the consolidated subsidiaries from the Closing Date and subsequent periods.




Results of Operations



For the Three Months Ended Compared to the Three Months Ended

Revenues and Cost of Goods Sold. We had no revenues or cost of goods sold during the three months ended and 2016.

Total Operating Expenses. Total operating expenses for the three months ended were $752,328, as compared to $437,593 for the three months ended , an increase of $314,735, or 71.9%. This increase was primarily due to the increase in professional fees and amortization expense under general and administrative expenses.

General and administrative expenses for the three months ended were $692,486, an increase of $391,285 or 129.9%, from $301,201 for the three months ended . This increase was primarily due to higher professional fees for the three months ended , including legal and accounting expenses of $140,015, as well as non-cash amortization expense of $193,911 associated with the accounting treatment related to the intellectual property acquisition from ISWI.

During the three months ended , we incurred non-cash compensation expense of $147,000 as part of general and administrative expenses from issuing shares of common stock to various individuals as an incentive for participating in our operations and development, compared to $18,750 during the three months ended . The increase was primarily due to higher consulting fees. By issuing shares of our common stock in lieu of cash consideration, we were able to utilize outside expertise for project management and preserve cash.

General and administrative expenses to related parties for the three months ended were $59,842, a decrease of $5,150 or 7.9%, from $64,992 for the three months ended . The decrease was primarily due to the increased use of outside contractors for professional services, while prior year related party charges offset certain expenses related to the management fees and start-up of the business operations.

Research and development expenses to related parties for the three months ended were $0, a decrease from $71,400 for the three months ended . The decrease was primarily due to us not having incurred any new development expense; we only conducted beta-testing of our mobile gaming app. Our research and development expenses relate to our outside gaming app development costs for our mobile gaming app, Hemp Inc, performed by HKA Digital Limited. During the three months ended , we have primarily been in beta-test mode of our mobile gaming app to determine technical feasibility and the additional development direction of the app for the targeted audience.

Total Other Income/(Expense). Total other expenses for the three months ended were $1,979,513, as compared to $38,200 for the three months ended , an increase of $1,941,313, or 5,082.0%. This increase was primarily due to the increase in non-cash interest expense and change in derivative liabilities associated with the accounting treatment for the convertible notes payable ("Convertible Notes Payable") from two institutions in the aggregate amount of $519,000 and related issuance of 250,000 warrants.



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Interest income for the three months ended was $1,500, which reflected no change from the three months ended . The interest income is accrued interest related to our $100,000 convertible note receivable from a social media company.

Total interest expense for the three months ended was $308,546, an increase of $268,846 or 677.2%, from $39,700 for the three months ended . This increase was due to non-cash interest expenses related to the accounting treatment for embedded debt derivative and warrant liability charges for the Convertible Notes Payable.

For the three months ended , the Company incurred $34,345 in interest expense related to its promissory notes payable, a decrease of $5,355 or 13.5%, from $39,700 for the three months ended . The decrease was due to the decrease in the outstanding balance in promissory notes payable financing during the periods. This interest expense is unrelated to the non-cash interest expense associated with the accounting treatment for embedded debt derivative and warrant liability charges for the Convertible Notes Payable.

For the three months ended , the Company incurred non-cash interest expense of $281,980 related to the accounting treatment for embedded debt derivative and warrant liability charges for the Convertible Notes Payable compared to $0 for the three months ended .

The Company incurred a loss on the change in the derivative liability for the three months ended of $1,672,174 compared to $0 for the three months ended .

Net Loss. As a result of the foregoing, the net loss for the three months ended was $2,731,841 or $0.09 per common share, basic and diluted, as compared to a net loss of $475,793 or $0.02 per common share, basic and diluted, for the three months ended , an increase of $2,256,048 or 474.2%.

Reconciliation of GAAP to non-GAAP Financial Measures

The following table contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Such measures, which are unaudited and should only be read in conjunction with our financial statements and related notes included elsewhere in this report, are intended to serve as a supplement to the GAAP results. The unaudited non-GAAP information reflects the adjustment to GAAP net income attributable to common shareholders on a non-GAAP basis, whereby the effect of non-cash adjustments for each period presented for stock-based compensation and the interest expense related to the accounting treatment for embedded debt derivative and warrant liability charges and the change in the fair value of derivatives associated with the Convertible Notes Financing added back to the GAAP net income attributable to common shareholders. This non-GAAP adjustment has been used to calculate the non-GAAP earnings per share. The non-GAAP operating results for the quarters presented are not necessarily indicative of results for any future periods, but management believes these non-GAAP financial measures provide useful information to investors for a more accurate picture of the Company's operations on an ongoing basis.




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                               Arias Intel Corp.

             RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES



                                                     For the Three           For the Three
                                                     Months Ended            Months Ended
                                                   December 31, 2017       December 31, 2016

GAAP NET LOSS                                     $        (2,731,841 )   $          (475,793 )
Non-GAAP adjustments:
Add Non-Cash Charges:
Non-Cash Stock-based Compensation and Expenses    $           178,000     $            18,750
Non-Cash Amortization Expense                                 193,911                       -
Non-Cash Charge for Interest Expense Related to
Embedded Debt Derivative and Warrant Liability                281,980                       -
Non-Cash Gain for Change in the Fair Value of
Derivative                                                  1,672,175                       -
Total Non-Cash Charges                            $         2,326,066     $            18,750

Non-GAAP Net Loss                                 $          (405,775 )   $          (457,043 )

Non-GAAP Earnings (Loss) Per Share                $             (0.01 )   $             (0.02 )




For the Nine Months Ended Compared to the Nine Months Ended

Revenues and Cost of Goods Sold. We had no revenues or cost of goods sold during the nine months ended and 2016.

Total Operating Expenses. Total operating expenses for the nine months ended were $4,589,999, as compared to $3,289,768 for the nine months ended , an increase of $1,300,231, or 39.5%. This increase was primarily due to the increase in compensation expense, professional fees and amortization expense under general and administrative expenses.

General and administrative expenses for the nine months ended were $3,992,576, an increase of $1,675,291 or 72.3%, from $2,317,285 for the nine months ended . This increase was primarily due to additional compensation expense for a new director, subcontractors and consulting fees to support the development of our digital media platform and administrative expenses, as well as higher professional fees associated with ongoing lawsuits and public company costs, and non-cash amortization expense of $193,911 associated with the accounting treatment related to the intellectual property acquisition from ISWI expenses.

During the nine months ended , we incurred non-cash compensation expense of $2,750,383 as part of general and administrative expenses from issuing shares of common stock to various individuals, including a new director, as an incentive for participating in our operations and development, compared to $1,348,941 during the nine months ended , an increase of $1,401,442 or 103.9%. The increase was primarily due to higher consulting and director fees. By issuing shares in lieu of cash consideration, we were able to utilize outside expertise for project management and preserve cash.

General and administrative expenses to related parties for the nine months ended were $398,423, a decrease of $1,660 or 0.4%, from $400,083 for the nine months ended . The decrease was primarily due to the increased use of outside contractors for professional services, while prior year related party charges offset certain expenses related to the management fees and start-up of the business operations.



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Research and development expenses to related parties for the nine months ended were $199,000, a decrease of $373,400 or 65.2%, from $572,400 for the nine months ended . The decrease was primarily related to our shift in development work to our beta-test promotions and updates of our mobile gaming app. Our research and development expenses relate to our outside gaming app development costs for our mobile gaming app, Hemp Inc, performed by HKA Digital Limited. During the nine months ended , we have primarily been in beta-test mode of our mobile gaming app to determine technical feasibility and the additional development direction of the app for the targeted audience.

Total Other Income/(Expense). Total other expenses for the nine months ended were $4,904,827, as compared to $86,825 for the nine months ended , an increase of $4,818,002 or 5,549.1%. This increase was primarily due to the increase in non-cash interest expense and change in derivative liabilities associated with the accounting treatment for the Convertible Notes Payable from two institutions in the aggregate amount of $519,000 and related issuance of 250,000 warrants.

Interest income for the nine months ended was $4,500, which reflected no change from the nine months ended . The interest income is accrued interest related to our $100,000 convertible note receivable from a social media company.

Total interest expense for the nine months ended was $679,983, an increase of $588,658 or 644.6%, from $91,325 for the nine months ended . This increase was due to non-cash interest expenses related to the accounting treatment for embedded debt derivative and warrant liability charges for the Convertible Notes Payable.

For the nine months ended , the Company incurred $112,455 in interest expense related to its promissory notes payable, an increase of $21,130 or 23.1%, from $91,325 for the nine months ended . The increase was due to the increase in the outstanding balance in promissory notes payable financing during the periods. This interest expense is unrelated to the non-cash interest expense associated with the accounting treatment for embedded debt derivative and warrant liability charges for the Convertible Notes Payable.

For the nine months ended , the Company incurred non-cash interest expense of $567,528 related to the accounting treatment for embedded debt derivative and warrant liability charges for the Convertible Notes Payable compared to $0 for the nine months ended .

The Company incurred a loss on the change in the derivative and warrant liability for the nine months ended of $4,229,344 compared to $0 for the nine months ended .



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Net Loss. As a result of the foregoing, the net loss for the nine months ended was $9,494,826 or $0.33 per common share, basic and diluted, as compared to a loss from operations of $3,376,593 or $0.15 per common share, basic and diluted, for the nine months ended , an increase of $6,118,233 or 181.2%.

Reconciliation of GAAP to non-GAAP Financial Measures

The following table contains financial measures that are not calculated in accordance with GAAP. Such measures, which are unaudited and should only be read in conjunction with our financial statements and related notes included elsewhere in this report, are intended to serve as a supplement to the GAAP results. The unaudited non-GAAP information reflects the adjustment to GAAP net income attributable to common shareholders on a non-GAAP basis, whereby the effect of non-cash adjustments for each period presented for stock-based compensation and the interest expense related to the accounting treatment for embedded debt derivative and warrant liability charges and the change in the fair value of derivatives associated with the Convertible Notes Financing added back to the GAAP net income attributable to common shareholders. This non-GAAP adjustment has been used to calculate the non-GAAP earnings per share. The non-GAAP operating results for the quarters presented are not necessarily indicative of results for any future periods, but management believes these non-GAAP financial measures provide useful information to investors for a more accurate picture of the Company's operations on an ongoing basis.




                               Arias Intel Corp.

             RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES



                                                     For the Nine            For the Nine
                                                     Months Ended            Months Ended
                                                   December 31, 2017       December 31, 2016

GAAP NET LOSS                                     $        (9,494,826 )   $        (3,376,593 )
Non-GAAP adjustments:
Add Non-Cash Charges:
Non-Cash Stock-based Compensation and Expenses    $         2,750,384     $         1,348,941
Non-Cash Amortization Expense                                 305,023                       -
Non-Cash Charge for Interest Expense Related to
Embedded Debt Derivative and Warrant Liability              2,504,781                       -
Non-Cash Gain for Change in the Fair Value of
Derivative                                                  1,724,563                       -
Total Non-Cash Charges                            $         7,284,751     $         1,348,941

Non-GAAP Net Loss                                 $        (2,210,075 )   $        (2,027,652 )

Non-GAAP Earnings (Loss) Per Share                $             (0.08 )   $             (0.09 )




Going Concern


Our independent registered public accounting firm stated that our financial statements for the three and nine months ended and 2016 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as we have not generated revenue and incurred a net loss of $2,731,841 and $9,494,826 for the three and nine months ended , respectively. We had an accumulated deficit of $16,557,211 as of , expect to generate net losses for the near future, and require additional financing to fund future operations. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure.



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Our operations have not yet resulted in revenue generation and we have financed our activities using equity and debt financings. Our ability to continue as a going concern is subject to our ability to achieve and maintain profitable operations or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities or obtaining loans from various financial institutions or private sources, where possible. Our lack of revenue and continued net operating losses increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. While we continually look for additional financing sources, in the current economic environment, the procurement of outside funding is difficult and there can be no assurance that such financing will be available on terms acceptable to us, if at all.

These conditions raise substantial doubt about our ability to continue as a going concern.

Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at compared to :



                                December 31, 2017       March 31, 2017         Change
  Current Assets               $            14,763     $              -     $     14,763
  Current Liabilities          $         6,712,296     $      1,445,552     $  5,266,744
  Working Capital Deficiency   $        (6,697,533 )   $     (1,445,552 )   $ (5,251,981 )



As of and , we had a working capital deficiency of $6,697,533 and $1,445,552, respectively, an increase of $5,251,981 or 363.3%. The increase in working capital deficiency was primarily due to the accounting treatment related to the Convertible Notes Financing for the embedded debt derivative and warrant liability of $5,203,571 at compared to $0 at . The derivative financial instruments require that the Company record fair value of the derivatives as of the inception date of the Convertible Notes Financing and to fair value as of each subsequent reporting date which at was $2,720,852 and $2,482,719 for the debt derivative and warrant liability, respectively.

For the three and nine months ended and 2016, respectively, we recorded no revenue. As a result, we do not have any capital resources to meet our projected cash flow requirements to conduct our proposed operations. We presently do not have any available credit, bank financing or other external sources of liquidity. Therefore, we will require additional financing in order to develop our business. We cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, we may be unable to implement our current plans for operations and these circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations.

During the nine months ended , we used net cash of $1,511,466 in operations, and generated $1,526,229 net cash from financing activities, including common stock sales and issuance of notes payable. During the nine months ended , we used net cash of $1,968,826 in operations, and generated $1,914,000 net cash from financing activities from common stock sales and issuance of notes payable.

Off-Balance Sheet Arrangements



None.



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Critical Accounting Policies and Estimates

Revenue Recognition: We recognize revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. For the period from (inception) to , we have not recognized any revenue.

Stock-Based Compensation: We account for stock-based compensation in accordance with Accounting Standards Committee ("ASC") 718 "Compensation - Stock Compensation" using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. We account for stock-based compensation to consultants and other third parties in accordance with ASC 505-50 "Equity-Based Payments to Non-Employees." Compensation expense is determined at the "measurement date." The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

Convertible Instruments: U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable ASC 480-10.

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

Derivative Financial Instruments: The Company classifies, as equity, any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

The Company's free-standing derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and of embedded conversion options with convertible debentures. The Company evaluated these derivatives to assess their proper classification in the balance sheet as of using the applicable classification criteria enumerated under ASC 815-Derivatives and Hedging. The Company determined that certain embedded conversion and/or exercise features do not contain fixed settlement provisions. The convertible debentures contain a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands.



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As such, the Company was required to record the derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.



Recent Pronouncements


We have evaluated all the recently issued accounting pronouncements through the filing date of these financial statements and do not believe that any of these pronouncements will have a material impact on our financial position and results of operations.



JOBS Act


On , the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the "Securities Act"), for complying with new or revised accounting standards. This means that an "emerging growth company" can delay the adoption of certain accounting standards until those standards would apply to private companies. We are electing to delay such adoption of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not "emerging growth companies."

In addition, we intend to rely on other exemptions from reporting and disclosure requirements that are offered by the JOBS Act, including (i) an exemption from the need to provide an auditor's attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) an exemption from the need to comply with any Public Company Accounting Oversight Board requirement regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and our financial statements (auditor discussion and analysis). These exemptions will apply until we no longer qualify as an emerging growth company.

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Emerging Growth

The Green Organic Dutchman Holdings Ltd.

The Green Organic Dutchman Holdings Ltd through its subsidiary operates as a cannabinoid-based research and development company in Canada.