BMXC Bemax Inc (PK)

Notes to the Financial Statements

February 28, 2018

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

BEMAX INC. (“The Company”) was incorporated in the State of Nevada on November 28, 2012 to engage in the business of exporting disposable baby diapers manufactured in the United States and then distributing them throughout Europe and South Africa.

NOTE 2 - GOING CONCERN

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has had minimal revenue and has an accumulated a deficit of $2,515,072 as of February 28, 2018. The Company requires capital for its contemplated operational and marketing activities. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future, loans from officers/directors and/or private placement of common stock. Obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The unaudited financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending May 31, 2018. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2017.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Inventory

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

Derivative Financial Instruments

Derivative liabilities are recognized in the balance sheets at fair value based on the criteria specified in Financial Accounting Standards Board ( “FASB” ) Accounting Standards Codification ( “ASC” ) Topic 815-15 – Derivatives and Hedging – Embedded Derivatives ( “ASC 815-15” ). Pursuant to ASC Topic 815-15 an evaluation of the embedded conversion feature of convertible debt is evaluated to determine if the bifurcated debt conversion feature is required to be classified as a derivative liability. Since the terms of the embedded conversion features of the Company’s convertible debt provides for the issuance of shares of common stock at the election of the holders and the number of shares is subject to adjustment for a decline in the price of the Company’s common stock, the Company determined that the embedded conversion option met the criteria of a derivative liability. The estimated fair value of the embedded conversion feature of debt classified as derivative liabilities are determined using the Black-Scholes option pricing model. The model utilizes Level 3 unobservable inputs to calculate the fair value of the derivative liabilities at each reporting period. The Company determined that using an alternative valuation model

such as a Binomial-Lattice model would result in minimal differences. The fair value of the embedded conversion feature of debt classified as derivative liabilities are adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded as other income or expense in the statement of operations. As of February 28, 2018, and May 31, 2017, the embedded conversion feature of $577,569 and $449,975, respectively, of convertible notes payable was classified as a derivative liability. Each reporting period the embedded conversion feature is re-valued and adjusted through the caption “change in fair value of derivative liabilities” on the statements of operations.

Fair value of financial instruments

The Company follows Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 825-10-50-10, Financial Instruments—Overall—Disclosure, for disclosures about fair value of our financial instruments and ASC 820-10-35-37, Fair Value Measurement—Overall—Subsequent Measure—Fair Value Hierarchy, to measure the fair value of our financial instruments. ASC 820-10-35-37 establishes a framework for measuring fair value GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10-35-37 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820-10-35-37 are described below:

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of:

February 28, 2018:

May 31, 2017:

Revenue Recognition

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

Pre-payment Policy: All sales to our customers will be solely on a pre-payment basis. Once the order is completed and payment is received, we will place an order with the North American supplier of disposable baby diapers and arrange shipping directly to our customers. The process is expected to take three weeks to complete. The pre-payment will be recorded as deferred revenue until the delivery is executed.

Reclassifications

Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the unaudited financial statements for the nine months ended February 28, 2018.

Recent Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting pronouncements to have any significant impact on the Company’s results of operations, financial position or cash flow. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

Depreciation Expense

Depreciation expense for the nine months ended February 28, 2018 and 2017, was $2,392 and $0, respectively.

NOTE 5 – OTHER ASSETS

On March 27, 2017, the Company entered into an Option to obtain a Property Lease Agreement (“the lease”) with Simfox Enterprises aka Achievers Nursery School. This is a development property situated in Lagos, Nigeria. The lease is for 30 years with two successive five-year extensions at the option of the Company. Consideration for the Option is $300,000 with $110,000 due immediately and the balance by installments by August 30, 2017. As of February 28, 2018, the Company has paid the full $300,000. In addition, the Company has agreed, subject to the signing of the Definitive Document, to pay Simfox Enterprises, a $390,000 refundable good faith deposit, of which $390,000 has been paid. The definitive document is currently under negotiation. The deposit will be held by Simfox in an interest-bearing account to be returned to Bemax plus interest, on completion of the development of the property by the Company. 

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

NOTE 6 - RELATED PARTY TRANSACTIONS

The President of the Company provides management services and office premises to the Company for a fee of $1,500 per month, the right to which the President has agreed to assign to the Company until such a time as the Company closes on an equity or debt financing of not less than $750,000. The assigned rights are valued at $1,000 per month for rent and $500 for executive compensation. As of February 28, 2018, and May 31, 2017, there is $58,500 and $45,000, respectively, accrued for these fees.

As of February 28, 2018, and May 31, 2017, there are loans from the majority shareholder of $11,438 and $11,438, respectively. These loans were made in order to assist in meeting general and administrative expenses. These advances are unsecured, due on demand and non-interest bearing.

NOTE 7 - STOCKHOLDERS’ EQUITY

On December 5, 2016, the Company issued 7,500,000 shares of common stock per the terms of a one-year consulting agreement. The shares were valued at $0.01 per share for total non-cash expense of $75,000. The expense was being amortized over the term of the agreement. As of February 28, 2018, the full $75,000 has been debited to consulting expense.

On January 24, 2017, the Company allowed Taiwo Aimasiko, its CEO to retire 150,000,000 shares of common stock in exchange for 50,000,000 Series B preferred shares.

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

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

On January 8, 2018, the Board of Directors consented to increase the Company’s authorized common shares to 1,700,000,000 from 950,000,000, par value to remain at $0.0001.

On January 10, the Company’s Board of Directors approved the retirement of 40,000,000 common shares owned by the Company’s CEO, Taiwo Aimasiko, in exchange for 40,000,000 Series C Preferred Shares, effectively reducing the Company’s total common shares issued and outstanding by 9.3%.

During the nine months ended February 28, 2018, the Company converted $104,675 and $14,039 of principal and interest, respectively, into 219,447,951 shares of common stock.

On October 10, 2017, the Company executed an Agreement for IR Services. The agreement is for six months and requires a fee of 10 million shares of common stock. The first 5,000,000 shares of common stock are required upon the execution of the agreement and were granted by the Board of Directors on October 10, 2017. The next 2.5 million shares are due in thirty days and the remaining 2.5 million, thirty days after that. The Company issued the 5,000,000 shares valued at $0.0023 per share for total non-cash expense of $11,500. On November 10, 2017, the Company issued another 2,500,000 shares of common stock valued at $0.0022 per share for total non-cash expense of $5,500. On December 10, 2017, the Company issued the last 2,500,000 shares of common stock valued at $0.001 per share for total non-cash expense of $2,500. All expense is being amortized over the remaining term of the agreement. As of February 28, 2018, $15,025 has been debited to consulting expense. As of February 28, 2018, 5,000,000 of the shares have not yet been issued by the transfer agent; therefore, they have been credited to the stock payable account.

NOTE 8 – PREFERRED STOCK 

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

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

On January 24, 2017, the Company allowed Taiwo Aimasiko, its CEO to retire 150,000,000 shares of common stock in exchange for 50,000,000 Series B preferred shares.  

On January 8, 2018, the Company amended and restated its Articles of Incorporation to designate 40,000,000 of the 100,000,000 shares of Preferred Stock as Series C Preferred Stock. Each share of Series C preferred stock has voting rights of 40 votes per share, and will vote alongside the common stock, not as a separate class. Each share of preferred stock can be converted into one share of common stock at any time after a one-year anniversary. Holders are entitled to dividends, if declared, equivalent to if they had converted to common stock. The Series C preferred stock have no liquidation rights. 

On January 10, 2018, the Company allowed Taiwo Aimasiko, its CEO to retire 40,000,000 shares of common stock in exchange for 40,000,000 Series C preferred shares.   

  NOTE 9 - CONVERTIBLE LOANS

On December 28, 2016, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan is $46,000 with an original issue discount of $6,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 28, 2017. Crown Bridge Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 45% applied to the lowest trading price for fifteen days prior to the actual date of conversion. On June 8, 2017, the Company repaid the $46,000 of principal, $1,575 of accrued interest and a $23,925 early payment penalty. As a result of repayment of the note the Company recognized the remaining debt discount. The Company repaid the note prior to when the convertible feature was effective; therefore, there are no derivatives related to the embedded conversion feature.

On March 20, 2017, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan is $114,000 with an original issue discount of $14,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on March 20, 2018. Crown Bridge Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 43% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $170,236 based on the Black Scholes Merton pricing model and a corresponding debt discount of $114,000 to be amortized utilizing the interest method of accretion over the term of the note. During the nine months ended February 28, 2018, the Company converted $12,380 of principal into 15,000,000 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $104,810. In addition, $110,921 of the debt discount has been amortized to interest expense.

On March 27, 2017, the Company issued a Convertible Promissory Note in favor of JSJ Investments, Inc. The principal amount of the loan is $125,000 with an original issue discount of $9,250 and carried an interest rate of 8% per annum. Upon default the interest rate has increased to 12%. It becomes due and payable with accrued interest on December 22, 2017. JSJ Investments, Inc. has the option to convert the Note plus accrued interest into common shares of the Company at any time. The conversion rate will be at a discount of 40% applied to the average of the three lowest trading prices for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $204,373 based on the Black Scholes Merton pricing model and a corresponding debt discount of $125,000 to February 28, 2018, the Company converted $42,374 of principal into 41,953,384 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $79,047. In addition, $125,000 of the debt discount has been amortized to interest expense. This note is currently in default.

On April 4, 2017, the Company issued a Convertible Promissory Note in favor of Auctus, Fund, LLC. The principal amount of the loan is $145,000 with an original issue discount of $15,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 22, 2017. Auctus Fund, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 40% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $257,720 based on the Black Scholes Merton pricing model and a corresponding debt discount of $145,000 to be amortized utilizing the interest method of accretion over the term of the note. During the nine months ended February 28, 2018, the Company converted $17,621 and $12,365 of principal and interest, respectively into 90,275,800 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $81,727. In addition, $145,000 of the debt discount has been amortized to interest expense. This note is currently in default and has incurred a $15,000 penalty that has been added to the principal amount due.

On August 3, 2017, the Company issued a Convertible Promissory Note in favor of JSJ Investments, Inc. The principal amount of the loan is $60,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on May 3, 2018. JSJ Investments, Inc. has the option to convert the Note plus accrued interest into common shares of the Company at any time. The conversion rate will be at a discount of 40% applied to the average of the three lowest trading prices for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $73,676 based on the Black Scholes Merton pricing model and a corresponding debt discount of $60,000 to be amortized

utilizing the interest method of accretion over the term of the note. As of February 28, 2018, the Company fair valued the derivative at $57,402. In addition, $45,954 of the debt discount has been amortized to interest expense.

On June 2, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $132,000 with an original issue discount of $6,600 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on June 2, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $172,690 based on the Black Scholes Merton pricing model and a corresponding debt discount of $132,000 to be amortized utilizing the interest method of accretion over the term of the note. During the nine months ended February 28, 2018, the Company converted $32,300 and $1,673 of principal and interest, respectively into 72,218,767 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $92,291. In addition, $67,303 of the debt discount has been amortized to interest expense.

On July 18, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $105,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on July 18, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $192,097 based on the Black Scholes Merton pricing model and a corresponding debt discount of $105,000 to be amortized utilizing the interest method of accretion over the term of the note. As of February 28, 2018, the Company fair valued the derivative at $116,078. In addition, $28,123 of the debt discount has been amortized to interest expense.

On October 19, 2017, the Company issued a Convertible Promissory Note in favor of Einstein Investments. The principal amount of the loan is $36,200 with an original issue discount of $5,200 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on July 19, 2018. Einstein Investments has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 43% applied to the lowest trading price for 15 days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $86,715 based on the Black Scholes Merton pricing model and a corresponding debt discount of $36,200 to be amortized utilizing the interest method of accretion over the term of the note. As of February 28, 2018, the Company fair valued the derivative at $46,215. In addition, $20,869 of the debt discount has been amortized to interest expense.

On October 26, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $125,000 with an original issue discount of $6,250 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on October 26, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of February 28, 2018, $2,084 of the debt discount has been amortized to interest expense.

On January 10, 2018, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $105,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on January 10, 2019. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of February 28, 2018, $667 of the debt discount has been amortized to interest expense.

On February 12, 2018, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $125,000 with an original issue discount of $6,250 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on October 26, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of February 28, 2018, $260 of the debt discount has been amortized to interest expense.  

A summary of outstanding convertible notes as of February 28, 2018 and May 31, 2017 is as follows:

During the year ended May 31, 2017, the Company converted $318,631 of principal and accrued interest into 185,348,336 shares of common stock. During the nine months ended February 28, 2018, the Company converted $104,675 and $14,039 of principal and interest, respectively, into 219,447,951 shares of common stock.

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

A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the nine months ended February 28, 2018 is as follows:

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management. 

NOTE 10 – CORRECTION OF ERRORS

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