UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: October 31, 2018

 

OR

 

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-55036

 

VALUESETTERS INC.

(Exact name of registrant as specified in its charter)

 

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

 

745 Atlantic Avenue Boston MA 02111

(Address of principal executive offices)

 

(781) 925-1700

(Registrant’s telephone number, including area code)

 

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

 

As of December 17, 2018, the Company had 746,894,212 shares of its common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

 

	Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	11
Item 3. Quantitative and Qualitative disclosures about Market Risk.	14
Item 4. Controls and Procedures.	14
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.	15
Item1A. Risk Factors.	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	15
Item 3. Defaults Upon Senior Securities.	15
Item 4. Mine Safety Disclosures.	15
Item 5. Other Information.	15
Item 6. Exhibits.	15
Signatures.	16

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

VALUESETTERS, INC.

Condensed Balance Sheets

 

		October 31, 2018				April 30, 2018
			(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	5,025			$	1,655
Accounts receivable			6,750				6,750
Prepaid expenses			35,000				35,000
Total current assets			46,775				43,405
Non-current prepaid expenses			8,055				25,700
Deposits			6,300				6,300
Investments at cost			23,000				23,000
Total assets		$	84,130			$	98,405
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable
Trade		$	278,752			$	278,987
Related party			16,680				16,680
Accrued expenses			148,353				149,457
Deferred revenue			848				885
Notes payable – related parties			76,100				76,100
Loan payable – bank			34,547				37,487
Demand notes payable			15,800				22,800
Total current liabilities			571,080				582,396
Long-term secured note payable to related party			1,000,000				1,000,000
			1,571,080				1,582,396
Commitments and Contingencies							—
Stockholders’ deficit:
Common stock, $.001 par value; 900,000,000 shares authorized, 746,894,212 and 731,694,210 shares issued and outstanding at October 31, 2018 and April 30, 2018, respectively			746,894				731,694
Capital in excess of par value			1,443,731				1,434,328
Accumulated deficit			(3,677,575	)			(3,650,013	)
Total stockholders’ deficit			(1,486,950	)			(1,483,991	)
Total liabilities and stockholders’ deficit		$	84,130			$	98,405

 

 

See Accompanying Notes to the Financial Statements

 

VALUESETTERS, INC.

Condensed Statements of Operations

(Unaudited)

 

 

 

		For the Six Months Ended								For the Three Months Ended
		October 31, 2018				October 31, 2017				October 31, 2018				October 31, 2017
Revenues		$	160,640			$	26,052			$	68,722			$	24,119
Cost of revenues			12,703				—				8,124				—
Gross profit			147,937				26,052				60,598				24,119
Costs and expenses:
Stock-based compensation			36,547				86,312				21,031				53,097
Selling, general and administrative			133,895				81,101				57,192				44,135
Total costs and expenses			170,442				167,413				78,223				97,232
Loss from operations			(22,505	)			(141,361	)			(17,625	)			(73,113	)
Other income (expense):
Interest expense			(9,657	)			(56,046	)			(4,630	)			(26,997	)
Gain on debt settlement			—				299,964				—				312,259
Other income			4,600				950				1,900				—
Total other income (expense)			(5,057	)			244,868				(2,730	)			285,262
Net income (loss) before taxes			(27,562	)			103,507				(20,355	)			212,149
Income tax			—				—				—				—
Net income (loss)		$	(27,562	)		$	103,507			$	(20,355	)		$	212,149
Basic earnings (loss) per share		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
Diluted earnings (loss) per share		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
Weighted average number of common shares outstanding:
Basic			735,127,838				559,841,092				738,318,668				586,109,876
Diluted			735,127,838				559,841,092				738,318,668				586,109,876

 

See Accompanying Notes to the Financial Statements

 

 

VALUESETTERS, INC.

Condensed Statements of Cash Flows

(Unaudited)

		Six Months				Six Months
		Ended				Ended
		October 31,				October 31,
		2018				2017
Operating activities
Net income (loss)		$	(27,562	)		$	103,507
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation			36,547				86,312
Gain on debt settlement			—				(299,964	)
Changes in non-cash working capital balances
Accounts receivable			—				(2,000	)
Deposits and other assets			—				(10,500	)
Accounts payable			(235	)			(3,378	)
Accrued expenses			177				82,744
Deferred revenue			(37	)			(169	)
Cash provided by (used in) operating activities			8,890				(43,448	)
Financing activities
Payments on bank loan			(3,520	)			(1,320	)
Payment on related party note			—				(100	)
Payments on demand note			(7,000	)
Proceeds from sale of common stock			5,000
Proceeds from notes payable			—				21,700
Proceeds from related party note			—				8,500
Proceeds from note payable – secured related party			—				14,107
Cash provided by (used in) financing activities			(5,520	)			42,887
Increase  (decrease) in cash and cash equivalents during the period			3,370				(561	)
Cash and cash equivalents, beginning of the period			1,655				3,324
Cash and cash equivalents, end of the period		$	5,025			$	2,763
Cash paid for:
Interest		$	1,329			$	1,286
Income taxes		$	—			$	—
Non-cash financing activities
Common stock issued for debt settlement		$	—			$	230,480
Common stock issued for investment		$	—			$	23,000

 

 

 

See Accompanying Notes to the Financial Statements

        

VALUESETTERS, INC.

 

Notes To Condensed Financial Statements (Unaudited)

 

Note 1– Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six- and three-month periods ended October 31, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ended April 30, 2019. For further information, refer to the audited financial statements and footnotes thereto in our Annual Report on Form 10-K for the year ended April 30, 2018.

 

In May 2014, the FASB issued guidance based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. We adopted this guidance in fiscal year 2019 under the modified retrospective approach. The adoption of this guidance does not have a material impact on our consolidated financial statements.

 

Note 2 – Going Concern Matters and Realization of Assets

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. However, the Company has sustained recurring losses from its continuing operations as of October 31, 2018, had negative working capital of $524,305 and a stockholders’ deficit of $1,486,950. In addition, the Company is unable to meet its obligations as they become due and sustain its operations. The Company believes that its existing cash resources are not sufficient to fund its continuing operating losses, capital expenditures, lease and debt payments and working capital requirements.

 

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

 

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

 

Management’s plans include:

 

1.

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

 

2.

Continue to look for software niches and other digital products that can be sold via an Internet-based store. Various acquisition opportunities may help us generate the revenues we are seeking and be a quicker path to profitability than organic growth.

 

3.

Continue to provide advisory services to companies seeking to raise capital and assist them with capital raises.

 

Management has determined, based on its recent history and its liquidity issues that it is not probable that management’s plan will sufficiently alleviate or mitigate, to a sufficient level, the relevant conditions or events noted above. Accordingly, the management of the Company has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of these financial statements.

 

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

 

Note 3 – Earnings (Loss) Per Common Share

 

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

 

		Six Months Ended October 31, 2018				Six Months Ended October 31, 2017				Three Months Ended October 31, 2018				Three Months Ended October 31, 2017
Net income (loss) attributable to common stockholders – basic		$	(27,562	)		$	103,507			$	(20,355	)		$	212,149
Adjustments to net income (loss)			—				—				—				—
Net income (loss) attributable to common stockholders – diluted		$	(27,562	)		$	103,507			$	(20,355	)		$	212,149
Weighted average common shares outstanding – basic			735,127,838				559,841,092				738,318,668				586,109,876
Effect of dilutive securities			—				—				—				—
Weighted average common shares outstanding – diluted			735,127,838				559,841,092				738,318,668				586,109,876
Earnings (loss) per common share – basic		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
Earnings (loss) per common share – diluted		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00

 

For the six- and three-month periods ended October 31, 2018, the Company excluded 18,000,000 shares of common stock, issuable upon the exercise of outstanding stock options from the calculation of net loss per share because the effect would be anti-dilutive. For the six- and three-month periods ended October 31, 2017, the Company excluded 46,133,333 and 38,733,333 shares of common stock, respectively, issuable upon the exercise of outstanding stock options and fixed-rate convertible debt from the calculation of net income per share because the effect would be anti-dilutive.

 

Note 4 – Principal Financing Arrangements

 

The following table summarizes components debt as of October 31, 2018 and April 30, 2018:

 

		October 31, 2018				April 30, 2018				Interest Rate
Secured lender (affiliate)		$	1,000,000			$	1,000,000				1.25	%
Notes payable – related parties			76,100				76,100				0.0 – 8.0	%
Demand notes payable			15,800				22,800				0.0 – 10.0	%
Loan payable – bank			34,547				37,487				5.5	%
Total Debt		$	1,126,447			$	1,136,387

  

 

As of October 31, 2018 and April 30, 2018, the Company owed its principal lender (“Lender”) $1,000,000 under a loan and security agreement (“Loan”) dated April 28, 2011, that was amended on July 26, 2014 and again on October 31, 2017. The Lender is also the largest shareholder of the Company, owning 271,371,454 shares of common stock, or 36.3% of the 746,894,212 shares issued and outstanding, as of October 31, 2018.

 

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

 

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

 

As of October 31, 2018 and April 30, 2018, the Company’s related-party unsecured notes payable totaled $76,100. The Company also owes $34,547 and $37,487 as of October 31, 2018 and April 30, 2018, respectively, to Chase Bank. The Company pays monthly principal payments on the outstanding balance, plus the monthly interest expense, which is calculated at a rate of 5.5% per annum.

 

The debt to Chase Bank is personally guaranteed by a former Chief Executive Officer and Chairman of the Board (the “Former CEO”). The Former CEO sold shares of the Company to a third-party, and in addition to payments to the Former CEO, the contract of sale requires the third-party make monthly payments to Chase Bank to pay down the money owed to Chase Bank. Total payments received from the third-party in the six and three months ended October 31, 2018 amounted to $4,600 and $1,900, respectively. Total payments received from the third-party in the six and three months ended October 31, 2017 amounted to $950 and $0, respectively. These payments were recorded as other income.

 

Demand notes payable totaled $15,800 and $22,800 at October 31, 2018 and April 30, 2018.

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

A second note for $333,066 (the “Second Note”), accrued interest at 3% per annum was due in June 2017. This note plus accrued interest was converted into shares of common stock on October 5, 2017. The Second Note was settled by issuing a total number of shares of 52,301,100, which were valued at $130,753, for the settlement of obligations of $443,011, resulting in a gain on debt settlement of $312,259 in the second quarter of fiscal 2018.

In addition to the above conversions of debt into equity, in the first quarter of fiscal 2018, the Company recorded a loss of $12,295 upon the issuance of 24,590,000 shares of stock to retire $24,590 in debt.

 

Note 5 – Income Taxes

 

At October 31, 2018 and April 30, 2018, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $1,800,000 expiring in the years of 2019 through 2034. Utilization of the net operating losses may be subject to annual limitations provided by Section 382 of the Internal Revenue Code and similar State provisions.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act makes broad and significantly complex changes to the U.S. corporate income tax system by, among other things; reducing the U.S. federal corporate income tax rate from 35% to 21%, and potentially impacting our net operating loss carryforwards. Given the significant changes resulting from and complexities associated with the Act, the estimated financial impacts for fiscal 2018 are provisional. The ultimate outcome may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of the Act. Actual impacts on the Company’s net operating loss carryforwards are expected to be finalized after the Company's fiscal 2019 U.S. corporate income tax return is filed, which is the first time the Company will use the 2018 federal tax forms.

 

Due to the loss for the six-and three-month periods ended October 31, 2018, the Company has recorded no income tax expense in either of these periods. Due to the non-taxable nature of the gain incurred by the company for the six-and three-month periods ended October 31, 2017, the Company has recorded no income tax expense in either of these periods.

 

Note 6 – Related Party Transactions

 

The Company’s largest shareholder is also its principal lender. As of October 31, 2018 and April 30, 2018, the Company owed its largest shareholder, under a secured lending agreement, $1,000,000. Under the existing loan agreement, as amended, the maximum amount of the loan is $1,250,000, and the loan matures on October 31, 2020. The largest shareholder of the Company owns 271,371,454 shares of common stock, or 36.9% of the 735,831,711 shares issued and outstanding.

 

The Company owes a director $16,680 as of October 31, 2018 and April 30, 2018, which is recorded as accounts payable, plus $15,000 in a non-interest bearing note payable.

 

The Company owes a related party $61,100 as of October 31, 2018 and April 30, 2018 under a note payable with interest at 8% per annum, which had a maturity date of November 18, 2017.

 

Accrued interest payable on related party debt amounted to $16,111 and $7,990 at October 31, 2018 and April 30, 2018, respectively. Such amounts are included in accrued expenses.

 

Note 7 – Stockholders’ Deficit

 

The Company is authorized to issue 900,000,000 shares of its common stock, par value $0.001. 746,894,212 and 731,694,210 shares were outstanding as of October 31, 2018 and April 30, 2018, respectively.

 

In the first quarter of fiscal 2018, the Company issued 10,000,000 shares of restricted stock to its chief executive officer and 24,590,000 to a creditor to settle $24,590 in debt.

 

In the second quarter of fiscal 2018, the Company issued an aggregate of 12,875,000 shares of restricted common stock to its three officers, as compensation expense. The Company also issued 10,000,000 shares of restricted common stock to AthenaSoft Corp., to purchase a 20% ownership. The Company can exert no influence on AthenaSoft Corp., considers its ownership a passive investment and has no access to the financial records of AthenaSoft Corp. Consequently, the investment is recorded using the cost method. In conjunction with the acquisition, the Company incorporated a new wholly owned subsidiary, AthenaSoft Inc., a Delaware corporation, for the purpose of being a U.S. marketing arm for programming projects that AthenaSoft Corp. completes with its labor force in India. Additionally, the Company issued 96,499,346 shares of restricted common stock to settle debt obligations, including accrued interest payable, of $896,042.

 

In the first quarter of fiscal 2019, the Company issued 200,000 restricted shares of stock in conjunction with the purchase of a virtual reality game known as SpaceoutVR. The Company also issued 3,937,501 restricted shares of common stock as part of stock-based compensation agreements. Shares issues for compensation amounted to 3,312,501 shares to Company officers, and 312,501 to a consultant.

 

In the second quarter of fiscal 2019, the Company sold $5,000 of restricted common stock in a private placement and issued 2,800,000 shares of restricted stock. The Company also issued 8,262,501 restricted shares of common stock as part of stock-based compensation agreements. Shares issued for compensation amounted to 2,750,000 shares to Company officers, and 5,512,501 to three consultants.

 

Expense was recorded of $17,644 and $8,822 for the six- and three- month periods ended October 31, 2018, for previously issued shares in conjunctions with a consulting agreement.

 

Note 8 – Fair Value

 

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

 

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

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

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

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

 

Note 9 – Stock-Based Compensation Plans

 

The Company entered consulting agreements to issue common stock and options to purchase common stock, and recorded the applicable non-cash expense in accordance with the authoritative guidance of the Financial Accounting Standards Board.  For the six and three-month periods ended October 31, 2018, the Company recorded $36,547 and $21,031 respectively, in stock-based compensation expense. For the six and three-month periods ended October 31, 2017, the Company recorded $86,312 and $53,097, respectively, in stock-based compensation expense. As of October 31, 2018, there was $43,055 of prepaid stock-based compensation expense for services that end in January 2020.

 

Note 10 – Deposits and Commitments

 

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

 

The Company has a business development arrangement with an independent contractor to compensate the contractor up to 20% of the revenue generated and collected from customers, pursuant to the Company’s commission policy.

 

 

Note 11 – Concentrations

 

For the six- and three-month periods ended October 31, 2018, the Company had one customer that constituted 78% and 73% of its revenues, respectively.

 

 

Note 12 – Subsequent Events

 

 

The Company evaluated subsequent events through December 17, 2018, the date these financial statements were available to be issued. There were no other material subsequent events that required recognition or additional disclosure in these financial statements.

 

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

 

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the U.S. Securities and Exchange Commission (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

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

 

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

In those cases where we take an equity stake in an early-stage company for which we consult, we do not always record the investment as an asset on our books.  Our policy is to record the investment, based on the value of our services rendered, only in instances where the early-stage company begins generating revenues.  If the early-stage company is unable to generate revenues by the time we file our periodic reports, we do not consider our consulting services as revenue to our company.

 

One such company that we own equity in, as a result of our consulting services, is NetCapital Systems LLC (“NetCapital”).  This company owns a Title III JOBS Act funding portal, and as of today is one a only a few dozen FINRA approved crowdfunding portals allowed to sell securities in startup companies to non-accredited investors, via the Internet.  We continue to consult for NetCapital (see https://netcapital.com) and have invested in additional early-stage companies that we met through NetCapital by providing our consulting services.  In the first quarter of fiscal 2019, $75,000 in revenues came from consulting we performed for a company that intends to prepare an offering statement and use NetCapital for a crowdfunding raise.  Furthermore, we owned 15% of a company, KingsCrowd LLC, that recently raised the maximum amount it was seeking, $106,699, on the NetCapital portal. KingsCrowd was founded with the vision that everyone should have access to institutional grade research and analytics tools that enable informed startup investment decisions, regardless of investment experience.

 

We also consulted for Zelgor, a mobile phone game company, which builds massive multiplayer online social games on top of the real world map.  It combines elements of classic arcade games and GPS technology, and ValueSetters currently owns 5% of Zelgor, which recently raised additional capital through the Netcapital platform.  See http://www.zelgor.com.

 

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

 

Results of Operations

 

For the Six Months Ended October 31, 2018 Compared to the Six Months Ended October 31, 2017

 

Our revenues for the six months ended October 31, 2018 increased by $134,588, or 517%, to $160,640 as compared to $26,052 reported for the six months ended October 31, 2017.  The increase in revenues is attributable to an increase in consulting services. With the hiring in May of a Chief Marketing Officer, we have been able to expand our digital marketing capabilities.  We remain cautiously optimistic about the revenue pipeline for our advisory business going forward.

 

Selling, general and administrative expenses increased by $52,794, or 65%, to $133,895 for the six months ended October 31, 2018, from $81,101 for the six months ended October 31, 2017.  The increase is primarily attributed to an increase compensation expense, due to the hiring of a Chief Marketing Officer.

 

Stock-based compensation expense decreased by 58% to $36,547 for the six months ended October 31, 2018, as compared to $86,312 reported for the six months ended October 31, 2017. The decrease in expense is primarily due to the lower price per share of our common stock when shares were issued in fiscal 2019.

 

Interest expense decreased by $46,389 to $9,657 for the six-month period ended October 31, 2018, as compared to $56,046 for the six months ended October 31, 2017.  The decrease in interest expense is attributable to a decrease in our debt at October 31, 2018, as compared to October 31, 2017, and the lowering of the annual interest rate from our senior secured lender from 8.0% to 1.25%.

 

For the six-month period ended October 31, 2017, we recorded a gain on debt settlement of $299,964, as compared to no gain in the six-month period ended October 31, 2018. No debt settlements have occurred in fiscal 2019. Each instance of a debt settlement gain or loss is contingent upon the price of our stock and the amount of debt retired.

For the Three Months Ended October 31, 2018 Compared to the Three Months Ended October 31, 2017

 

Our revenues for the three-months ended October 31, 2018 increased by $44,603, or 185%, to $68,722 as compared to $24,119 reported for the three months ended October 31, 2017.  The increase in revenues is attributable to the new consulting services, including digital marketing, that we provided to companies seeking to raise capital in the quarter ended October 31, 2018.  

 

Costs of revenues increased by $8,124, to $8,124 for the three-months ended October 31, 2018 from $0 reported in the three-months ended October 31, 2017.  The increase is primarily attributable to services we purchased in fiscal 2019 in conjunction with providing consulting services for our customers to raise capital via equity crowdfunding.  Such services were not provided by us in fiscal 2018.

 

Selling, general and administrative expenses increased by $13,057, to $57,192 for the three-months ended October 31, 2018 from $44,135 reported in the three-months ended October 31, 2017.  The increase is primarily attributable to compensation we paid our Chief Marketing Officer in the October 31, 2018 quarter.

 

Stock-based compensation decreased by $32,066, to $21,031 for the three-months ended October 31, 2018 from $53,097 reported in the three-months ended October 31, 2017.  The decrease in expense is primarily due to the lower price per share of our common stock when shares were issued in fiscal 2019.

 

Interest expense decreased by $22,367 to $4,630 for the three-months ended October 31, 2018, as compared to $26,997 for the three months ended October 31, 2017.  The decrease in interest expense is attributable to reduced debt amounts of more than $700,000 at October 31, 2018, and a reduction in interest expense from 8% per annum to 1.25% per annum from our senior secured lender.  

 

Liquidity and Capital Resources

 

At October 31, 2018, we had cash and cash equivalents of $5,025 and negative working capital of $524,305 as compared to cash and cash equivalents of $1,655 and negative working capital of $538,991 at April 30, 2018.

 

Net cash provided by (used in) operating activities amounted to $8,890 and ($43,448) in the six-months ended October 31, 2018 and 2017, respectively.  The principal use of cash from operating activities in the six-months ended October 31, 2018 was the net loss of $27,562, but it was offset by a non-cash item, stock-based compensation of $36,547. Net cash used in operating activities amounted to $43,448 in the six months ended October 31, 2017. The principal source of cash from operating activities in the six-month period ended October 31, 2017 came from net income of $103,507, plus stock-based compensation of $86,312 and an increase in accrued expenses of $82,744, which was offset by a gain on debt settlement of $299,964.  

 

There was no investing activity in the six-months ended October 31, 2018 and 2017.

 

For the six months ended October 31, 2018, net cash used in financing activities amounted to $5,520, which consisted of $10,520 in principal payments of outstanding loans, offset by proceeds from the sale of common stock of $5,000. Net cash provided by financing activities aggregated $42,887 in the six-month period ended October 31, 2017. The principal source of cash from financing activities in the six-month period ended October 31, 2017 came from loan proceeds of $14,107 from our secured lender, $8,500 from a related party, and $21,700 from a single investor.

 

In the six-months ended October 31, 2018 and 2017, there were no expenditures for capital assets.  We do not anticipate any capital expenditures in fiscal 2019.

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of our company as a going concern. However, we have sustained net losses from operations during the last several years, and we have very limited liquidity. Management anticipates that we will be dependent, for the near future, on additional capital to fund our operating expenses and anticipated growth, which we intend to achieve through consulting services and the further development of our game applications. Although we are choosing methods of growth that potentially minimize the use of cash, and we were successful in the six-month period ended October 31, 2018 to generate positive cash flow from operations of $8,890, we cannot be assured that we will be able to continue our success until we have secured customers that will provide us with repeat business. Furthermore, the most recent report of our independent registered public accounting firm expresses doubt about our ability to continue as a going concern. Although we have not had to borrow from a related party in fiscal 2019, in the past, our operating losses have been funded primarily through borrowings from related-party lenders.

 

We have not paid principal or interest on any related party debt; the interest accrues each month. We believe our related party creditors will not demand payment of our current liabilities to them, in the near future, although each lender may have a change in circumstances and demand payment. Any demand for payment from a related party will have an adverse impact on our ability to achieve our longer-term business objectives, and will adversely affect our ability to continue operating as a going concern.

 

Although we are not yet profitable, we generated cash from operations in the six-months ended October 31, 2018, and were able to make debt service payments to non-affiliated lenders without borrowing money. We believe we have short-term financing available from our largest shareholder to fund a monthly cash-flow deficit, if needed. While we continually look for other financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable to us. Failure to generate sufficient revenues or raise additional capital will have an adverse impact on our ability to achieve our longer-term business objectives, and will adversely affect our ability to continue operating as a going concern.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide information under this item.

 

Item 4. Controls and Procedures.

 

(a) Disclosure Controls and Procedures.

 

The Company’s management, with the participation of the Company’s principal executive officer (“PEO”) and principal financial officer (“PFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the PEO and PFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses in our disclosure controls and procedures consisted of:

 

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

 

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

 

 

(b) Changes in Internal Control Over Financial Reporting

 

There have not been any changes in our internal control over financial reporting (as such term is 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.

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our 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 are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide information under this item.

 

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

 

During the three-month period ended October 31, 2018, we issued 2,800,000 shares of common stock in a private placement and 8,262,501 shares of common stock to our executives and consultants as stock-based compensation.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

31       Rule 13a-14(a) Certification

32       Rule 13a-14(b) Certification

 

101.INS

XBRL Instance

101.SCH

XBRL Schema

101.CAL XBRL Calculation

101.DEF

XBRL Definition

101.LAB

XBRL Label

101.PRE

XBRL Presentation

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Date: December 17, 2018	VALUESETTERS, INC.
	By: /s/ Cecilia Lenk
	Cecilia Lenk
	Chairman of the Board and Chief Executive Officer
	By: /s/ Coreen Kraysler
	Coreen Kraysler
	Principal Financial Officer