PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

1

GRASSHOPPER STAFFING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

F-1

GRASSHOPPER STAFFING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

F-2

GRASSHOPPER STAFFING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

F-3

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

Grasshopper Staffing Inc (the “Company”), formally Tomichi Creek Outfitters, was formed in the state of Nevada on June 25, 2013 and its year-end is July 31.

On March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which it acquired the business and assets of Grasshopper Staffing Inc (“Grasshopper Colorado”), formed in the state of Colorado on January 13, 2015. The exchange for $10,651 was represented by 250,000 shares of the Company’s common stock in exchange for all of the outstanding shares of Grasshopper Colorado. The assets purchased include the logo and website, office supplies and office furniture. Grasshopper Colorado is operating as a wholly-owned subsidiary of the Company and is now the primary operation of its business.

Grasshopper Colorado was founded as a solution to the staffing needs presented in the blossoming cannabis industry in Colorado.

NOTE 2 - SEASONAL NATURE OF OPERATIONS

The cannabis industry in general historically experiences seasonal fluctuations in revenue and net income.  The Company’s revenues reflect two cutting periods resulting in higher revenues in the months of May through July and October through December. Therefore, the results of operations presented for the nine months ended April 30, 2017, are not necessarily representative of the results of operations for the full year.

NOTE 3 - GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern.  The Company has a history of losses, an accumulated deficit, has minimal working capital and has not generated cash from its operations to support meaningful ongoing operations. In view of these matters, the Company’s ability to continue as a going concern is dependent upon advancement of operations and to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and nine months ended April 30, 2017 and 2016 and cash flows for the nine months ended April 30, 2017 and 2016 and our financial position as of April 30, 2017 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

F-4

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Certain information and disclosures normally included in the notes to the annual audited consolidated financial statements have been condensed or omitted from these interim unaudited consolidated financial statements.  Accordingly, these interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended July 31, 2016, which are included in the Company’s annual report on Form 10-K filed on July 18, 2017. The July 31, 2016 balance sheet is derived from those statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation.

Accounts Receivable

Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. At April 30, 2017 and July 31, 2016, the Company wrote off $7,935 and $4,395, respectively to the allowance.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the statement of operations.  Depreciation is calculated using the straight-line method which depreciates the assets over the estimated useful lives of the depreciable assets ranging from five to seven years.

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  The Company did not recognize any impairment losses for any periods presented.

Intangible Assets

Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 3 years for website development. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. At April 30, 2017, no revision to the remaining amortization period of the intangible assets was made.

F-5

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.

Revenue Recognition

Revenue is derived from the placement of temporary workers.  The Company recognizes revenue when it is realized or realizable and estimable in accordance with ASC 605, “Revenue Recognition”.  The Company will recognize revenue only when all of the following criteria have been met:

·

Persuasive evidence for an agreement exists;

·

Service has been provided;

·

The fee is fixed or determinable; and,

·

Collection is reasonably assured.

Basic Net Loss Per Common Share

Basic net loss per common share is computed by dividing the loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.

Stock Based Compensation

The Company accounts for the grant of restricted stock awards in accordance with ASC 718, “Compensation-Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of equity based compensation. The expense is recognized over the period during which the employee is required to provide service in exchange for the compensation.  Any remaining unrecognized balance will be recognized ratably over the life of the vesting period and is a reduction of stockholders' equity.  

The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.”

F-6

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of April 30, 2017 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.

Recent Accounting Pronouncements

The Company has reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at April 30, 2017 and July 31, 2016:

Depreciation expense for the nine months ended April 30, 2017 and 2016 was $717 and $719 respectively.

NOTE 6 - INTANGIBLE ASSETS

Intangible assets consisted of the following at April 30, 2017 and July 31, 2016:

Amortization expense for the nine months ended April 30, 2017 and 2016 was $1,247 and $1,251 respectively.

F-7

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at April 30, 2017 and July 31, 2016:

NOTE 8 - PAYROLL LIABILITIES

The Company has past due payroll liabilities due to the Internal Revenue Service (“IRS”) for unpaid payroll taxes, penalties and interest for 2015 and 2016. The original unpaid payroll taxes to the IRS for these periods totaled $32,966.

As of April 30, 2017, the past due balance due to the IRS, including penalties, interest, and fees, totaled $66,794. On February 10, 2017, the Company paid back $10,116 of the outstanding liability, interest and penalties related to the March 31, 2016 tax period.  During the year ended July 31, 2016 the Company incurred $9,539 in penalties and interest from the IRS. During the nine months ended April 30, 2017, the Company recorded $8,838 in additional penalties and interest related to these outstanding liabilities.  The Company is working with the IRS to negotiate a payment plan for the remaining balance due.

NOTE 9 - FACTORING ARRANGEMENTS

On April 13, 2016, the Company entered into a revenue-based factoring agreement with TUV Investments LLC (“TUV”), pursuant to which for consideration of $20,000 the Company agreed to sell, assign and transfer all of the Company’s future receipts until the repayment of the agreed upon purchase price of $27,600 is paid in full pursuant to specified repayment terms.  The repayment terms provide, that the Company shall pay TUV the greater of an authorized daily debit (ACH withdrawal) of $199 on each available banking day, or 14% of the Company’s daily receipts until the $27,600 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $8,305 as factoring expenses on the date of the agreement.  The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries.  As of July 31, 2016 the Company had an outstanding liability due to TUV Investments of $13,143.  On October 4, 2016, the Company transferred the balance into a new loan agreement.  For additional consideration of $8,857, the Company agreed to the same terms as the original agreement until the agreed upon new purchase price of $30,360 is paid in full.  The Company has recognized all expenses related to this agreement in the aggregate total of $8,360 as factoring expenses on October 4, 2016.  As of April 30, 2017, this agreement has an outstanding balance of $508.

On May 6, 2016, the Company entered into a revenue-based factoring agreement with Merchant Cash Advance Fund One (“Merchant”), pursuant to which for consideration of $7,500 the Company agreed to sell, assign and transfer all of the Company’s future receipts until the repayment of the agreed upon purchase price of $10,875 is paid in full pursuant to specified repayment terms.  The repayment terms provide, that the Company shall pay Merchant the greater of an authorized daily debit (ACH withdrawal) of $108 on each available banking day, or 5% of the Company’s daily receipts until the $10,875 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $3,774 as factoring expenses on the date of the agreement.  The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries.  As of April 30, 2017, this agreement has an outstanding balance of $723.

F-8

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 9 - FACTORING ARRANGEMENTS (continued)

On May 6, 2016, the Company entered into a revenue-based factoring agreement with Samson Horus (“Samson”), pursuant to which for consideration of $7,500 the Company agreed to sell, assign and transfer all of the Company’s future receipts until the repayment of the agreed upon purchase price of $10,875 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay Samson the greater of an authorized daily debit (ACH withdrawal) of $108 on each available banking day, or 5% of the Company’s daily receipts until the $10,875 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $4,475 as factoring expenses on the date of the agreement.  The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries.  As of April 30, 2017, this agreement has an outstanding balance of $0.

NOTE 10 - CONCENTRATIONS

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the nine months ended April 30, 2017 and 2016. At April 30, 2017, two customers accounted for 37% of the Company’s total revenue.

NOTE 11 - RELATED PARTY TRANSACTIONS

In support of the Company’s efforts and cash requirements, it has relied on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note. As of April 30, 2017 and July 31, 2016, members of management have loaned the Company $187,577 and $121,935, respectively. The loans are payable on demand and carry no interest.

In addition, the Company has accrued expenses related to the January 15, 2016 consulting and advisory agreement (See Note 12).  As of April 30, 2017 and July 31, 2016, the Company has accrued $283,742 and $103,742, respectively in monthly retainer fees and travel expenses related to this agreement.

The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.

NOTE 12 - CAPITAL STOCK

The Company is authorized to issue an aggregate of 200,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued. At April 30, 2017 and July 31, 2016, the Company had 26,287,500 and 26,287,500 common shares issued and outstanding, respectively.

F-9

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 12 - CAPITAL STOCK (Continued)

Shares Issued for Services:

On June 12, 2015, the Company's Board of Directors approved the issuance of 3,175,000 shares of common stock to various employees and consultants. The fair market value of the shares was $1,301,750 at the date of grant, of which $322,533 was recognized as an expense in the year ended July 31, 2015. The remaining balance of $979,217 was recorded to additional paid in capital and is being amortized over the life of the employment agreements (15 - 18 months).  The Company recorded $921,133 of the remaining balance in the year ended July 31, 2016 and has recorded $58,083 of consulting expense during the nine months ended April 30, 2017.  The expense has been fully amortized as of April 30, 2017.

On January 15, 2016, the Company entered into a three-year consulting and advisory agreement with Platinum Equity Advisors, LLC, a related party. Compensation consists of a monthly retainer fee of $20,000. In addition, for services rendered through January 15, 2016, the Company issued on February 15, 2016, 8,000,000 shares of the Company’s common stock at a value of $0.35 per share or $2,788,000. The first month’s retainer was offset by $8,000 for the shares issued, resulting in a reduction of accounts payable and the remainder will be amortized over the life of the agreement. For the year ended July 31, 2016, the Company has recorded $503,389 in consulting expense related to this agreement. During the nine months ended April 30, 2017 the Company amortized an additional $697,000 leaving an unamortized balance of $1,587,611 as of April 30, 2017.

Warrants:

On March 29, 2016, the Company agreed to issue 6,000,000 warrants to purchase shares of the Company’s common stock as satisfaction of $6,000 in compensation that was owed to Acorn Management Partners, LLC. The warrants have an exercise price of $0.01 and expire ten years from the date of issuance.  The warrants were valued using the Black-Scholes option-pricing model and a fair value of approximately $3,200,000 was expensed.

A summary of the Company’s warrant activity during the nine months ended April 30, 2017 is presented below:

As of April 30, 2017, there are no options outstanding to acquire any additional shares of common stock of the Company.

F-10

GRASSHOPPER STAFFING, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2017

(unaudited)

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Legal Matters

In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company's management is unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Company’s financial position or results of operations.

The Company’s operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.

Operating Leases

The company’s executive offices are located at 200 S Victoria Ave, Pueblo, Co 81003.  The property is leased on a month to month basis with a monthly rental payment of $800.  

NOTE 14 - SUBSEQUENT EVENTS

The Company follows the guidance in Sections 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company has evaluated the period after the balance sheet date up through the date of filing, which is the date that the consolidated financial statements were issued, and determined that, there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements except for the following as disclosed below:

Related Party Advances

Through the date of filing there have been additional amounts representative of advances or amounts paid in satisfaction of liabilities from a director or member of management. The advances are considered temporary in nature and have not been formalized by a promissory note. As of the date of filing an additional $24,437 has been loaned to the Company. These loans are payable on demand and carry no interest (See Note 11).

F-11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1 “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

Grasshopper Staffing Inc (“Grasshopper Staffing”), formally Tomichi Creek Outfitters, was incorporated in the state of Nevada on June 25, 2013 as a development stage company with a plan of operation to provide clients with an opportunity to harvest a trophy size elk or deer or to enjoy a guided scenic tour on the western slopes of the Rocky Mountains.  Our operations are located in Sargents, Colorado which is approximately four hours southwest from Denver. Grasshopper Staffing’s primary business was in offering professionally guided Elk or Deer animal hunts.  This area of the country is home to trophy size Elk and Mule Deer.

On March 2, 2015, we entered into a Business Acquisition Agreement under which we acquired the business and assets of Grasshopper Staffing in exchange for 250,000 shares of common stock. The assets purchased include the trademark and website, office supplies and office furniture.  Grasshopper is operating as a wholly-owned subsidiary of the Company and is now the primary operation of our business.

Grasshopper Staffing was founded in 2015 by Wick, Melanie Osterman, Barbara Ianne, and Cheryl Zanotelli, as a solution to the staffing needs presented in the blossoming cannabis industry in Colorado. Grasshopper Staffing is an agency that serves the Colorado's cannabis employment needs by providing employee recruiting, training, securing proper credentials and ensuring compliance with the ever-changing local and state laws. Grasshopper Staffing specializes in providing budtenders, trimmers, janitorial, security, payroll, armored transport, edible production, infusion specialists, grow consultants, irrigation, retail sales, IT solutions, web design, and event services.

Plan of Operation

Company management and affiliated business development consultants plan to leverage our extensive operational, industry, M&A and finance contacts and experience to quickly expand upon the foundation recently established at Grasshopper Staffing.  We plan to greatly increase our staffing efforts in both the cannabis and non-cannabis space through existing business expansion and acquisitions. Potential cannabis acquisition targets have been identified in Colorado, as well as addition states where cannabis has been legalized for medical or recreational usage with plans for an eventual national footprint. In addition, staffing companies outside of the cannabis space have also been identified as potential acquisition targets, which will allow for diverse sources of revenue.

To further our diversification, the company plans to pursue additional acquisition targets within the cannabis space, including businesses specializing in security, testing, proprietary growing equipment, comprehensive facility consulting, facility leasing and unique social media entities. To this end, in the near future “Grasshopper Staffing” will change its name to simply “Grasshopper” to better reflect its plans to aggressively grow into the preeminent multifaceted cannabis company in the fastest growing business space in the United States today.

The cannabis industry in general historically experiences seasonal fluctuations in revenue and net income.  The Company’s revenues reflect two cutting periods resulting in higher revenues in the months of May through July and October through December.

2

RESULTS OF OPERATIONS

Results of Operations

For the three months ended April 30, 2017 compared to 2016

The Company had $72,859 and $60,844 of revenue during the three months ended April 30, 2017 and 2016, respectively. The increase of $12,015 was due to increased revenue achieved by contract staffing services in the three months ended April 30, 2017.

Cost of Services

Cost of services was $55,873 in the three months ended April 30, 2017, an increase of $14,484 from $41,389 in the three months ended April 30, 2016.  The increase is primarily due to the cost of hiring additional workers in the three months ended April 30, 2017.

Gross Profit

The Company had a gross profit of $16,986 in the three months ended April 30, 2017, which is a decrease of $2,469 from a gross profit of $19,455 in the three months ended April 30, 2016.  The decrease is primarily due to the increase in cost of services in the three months ended April 30, 2017.

General and Administrative Expenses

The Company’s general and administrative expenses were incurred in the amounts of $341,494 and $3,618,521 for the three months ended April 30, 2017 and 2016, respectively. This decrease of $3,277,027 was primarily due to the expense on the fair value of warrants in the amount of $3,221,070 during the three months ended April 30, 2016.

Net Loss

The comparable net loss for the three months ended April 30, 2017 was $327,643, as compared to the net loss of $3,600,873 for the three months ended April 30, 2016. This decreased net loss of $3,273,230 was primarily due to the expense of the fair value of warrants in the amount of $3,221,070 during the three months ended April 30, 2016.

For the nine months ended April 30, 2017 compared to 2016

The Company had $249,342 and $305,902 of revenue during the nine months ended April 30, 2017 and 2016, respectively. The decrease of $56,560 was due to a $140,000 reduction in revenue from two major customers, offset by the addition of new customers during the nine months ended April 30, 2017.

Cost of Services

Cost of services $189,929 in the nine months ended April 30, 2017, a decrease of $26,706 from $216,635 in the nine months ended April 30, 2016.  The decrease is primarily due to the decrease in revenue, which resulted in a decrease in the number of employees in the nine months ended April 30, 2017.

Gross Profit

The Company had a gross profit of $59,413 in the nine months ended April 30, 2017, which is a decrease of $29,854 from a gross profit of $89,267 in the nine months ended April 30, 2016.  The decrease is primarily due to the decrease in revenue and cost of services in the nine months ended April 30, 2017.

3

General and Administrative Expenses

The Company’s general and administrative expenses were incurred in the amounts of $1,080,538 and $4,856,652 for the nine months ended April 30, 2017 and 2016, respectively. This decrease of $3,776,114 was primarily due to the expense on the fair value of warrants in the amount of $3,221,070 during the three months ended April 30, 2016.  Additionally, there was an approximately $400,000 decrease in payroll and related expenses in the year ended April 30, 2017.

Net Loss

The comparable net loss for the nine months ended April 30, 2017 was $1,028,381, as compared to the net loss of $4,770,068 for the nine months ended April 30, 2016. This decreased net loss of $3,741,687 was primarily due to the expense on the fair value of warrants in the amount of $3,221,070 during the three months ended April 30, 2016. Additionally, there was an approximately $400,000 decrease in payroll and related expenses in the year ended April 30, 2017.

Liquidity and Capital Resources

Working Capital

Current assets for the nine months ended April 30, 2017 decreased compared to the year ended July 31, 2016, primarily due to a decrease in prepaid insurance and an addition reserve recorded against accounts receivable in the nine months ended April 30, 2017.

Current liabilities for the nine months ended April 30, 2017 increased compared to the year ended July 31, 2016 primarily due to an increase in the related party accrual of consulting fees for Platinum of $180,000, an increase in due to related party for expenses paid on behalf of the Company of approximately $66,000 and an increase in payroll related liabilities of approximately $15,000 related to the unpaid payroll taxes in 2015 and 2016 and approximately $9,000 related to accrued payroll for the period ending April 30, 2017.

Net Cash Used in Operating Activities

Net cash used in operations was $45,807 for the nine months ended April 30, 2017 compared to cash used in operations of $158,692 for the nine months ended April 30, 2016. This decrease was primarily attributable to a decrease in net loss along with a decrease in amortization expense of approximately $633,000 related to the amortization of deferred stock compensation, related party offset by a net increase in common stock issued for services of $191,000 and increase in accounts payable related party of $180,000 in the nine months ended April 30, 2017.

Net Cash Provided by Financing Activities

Cash flows provided by financing activities for the nine months ended April 30, 2017 were $45,807 compared to $145,806 for nine months ended April 30, 2016. This decrease is primarily attributed to an increase of approximately $40,000 in repayments of the factoring agreements and a decrease in proceeds from shareholder loans of approximately $33,000 during the nine months ended April 30, 2017.

4

Going Concern Qualification

We have a history of losses, an accumulated deficit, a negative working capital and have not generated cash from operations to support meaningful ongoing operations. Our Independent Registered Public Accounting Firm has included a “Going Concern Qualification” in their report for the years ended July 31, 2016 and 2015.  The foregoing raises substantial doubt about the Company’s ability to continue as a going concern.  We intend on financing our future development activities and working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to us. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as of April 30, 2017.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures

We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.  Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were not effective.

(b) Management’s Report on Internal Control over Financial Reporting

Our management, including our principal executive officer, principal financial officer and our Board of Directors, is responsible for establishing and maintaining a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of April 30, 2017.  Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of April 30, 2017 due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and ineffective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

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To remediate such weaknesses, we believe we would need to implement the following changes: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may not be undertaken. Until we have the required funds, we do not anticipate implementing these remediation steps.

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our principal executive officer and our principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

(c) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report for July 31, 2016 on Form 10-K, filed with the SEC on July 18, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of the Company’s equity securities during the three months ended April 30, 2017.

Item 3. Defaults Upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

There is no other information required to be disclosed under this item which was not previously disclosed.

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Item 6. Exhibits.

The exhibits listed on the Exhibit Index immediately preceding such exhibits, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.

*    Included herewith.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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