NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
1. ORGANIZATION
SOLO INTERNATIONAL, INC. was founded in the State of Nevada on April 30, 2010 as a Poland based corporation intending to provide services in interior architectural design in Poland.
On October 12, 2011, Mr. Michel Plante acquired control of three million (3,000,000) pre-split shares of the Company’s issued and outstanding common stock, representing approximately 77.32% of the Company’s total issued and outstanding common stock, from Mr. Yury Shcharbakou in accordance with a stock purchase agreement by and between Mr. Plante and Mr. Shcharbakou, thus effecting a change in control of the Company.
On October 13, 2011, the Board of Directors of the Company authorized a forward split of its issued and outstanding common shares, whereby every one (1) old share of common stock will be exchanged for one hundred (100) new shares of the Company's common stock.
The effect of the stock split has been recognized retroactively in the stockholders’ deficit accounts as of April 30, 2010, and in all shares and per share data in the financial statements.
With the change in control of the Company, management determined not to pursue its operations in Poland and determined to enter into the mining business in the Province of Quebec and incorporated a wholly-owned Quebec subsidiary, 9252-4768 Quebec Inc. On November 15, 2011, the Company, through its wholly-owned Quebec subsidiary, entered into a Property Option Agreement with 9228-6202 Quebec Inc., a Quebec corporation. Pursuant to the Option Agreement, 9252-4768 Quebec Inc. acquired the exclusive option to acquire an undivided 100% right, title and interest in and to certain mineral claims located in Portland Township, Outaouais, Quebec subject to a royalty reserved to 9228-6202 Quebec Inc.
The Company is an Exploration Stage Company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 915, Development Stage Entities. The Company's principal business is the acquisition and exploration of mineral resources. The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable.
Since Inception (April 30, 2010) through December 31, 2013, the Company has not generated any revenue and has an accumulated deficit of $1,030,824.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Consolidated operating results for the three month period ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ending September 30, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our Form 10-K Report for the fiscal year ended September 30, 2013 filed with the Securities and Exchange Commission on December 30, 2013
.
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of Presentation
The unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim consolidated financial information and pursuant to the rules and regulations of the SEC. Accordingly; they do not include all the information and footnotes required by GAAP for complete consolidated financial statements. However, management believes that the disclosures made are adequate to make the information not misleading. Management has evaluated subsequent events through the date the financial statements were issued.
Going Concern
The consolidated financial statements have been prepared on a going concern basis that assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $1,030,824 as of December 31, 2013 and further losses are anticipated in the development of its business raising 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 and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of common stock. These financials do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.
Cash and Cash equivalents
For purposes of Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of six months or less to be cash equivalents.
Use of Estimates and Assumptions
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.
Foreign Currency Translation
The Company's functional currency and its reporting currency is the United States dollar.
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Basic and Diluted Loss Per Share
Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had the following potential common stock equivalents at December 31, 2013:
Since the Company reflected a net loss in fiscal years 2013 and 2012, respectively, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Stock-based Compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718, which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Mineral Property Costs
Mineral exploration and development costs are accounted for using the successful efforts method of accounting.
Property acquisition costs - Mineral property acquisition costs are capitalized as mineral exploration properties. Upon achievement of all conditions necessary for reserves to be classified as proved, the associated acquisition costs are reclassified to prove properties
Exploration costs - Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are expensed as incurred.
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of Mineral Properties
Unproved mineral properties are assessed at each reporting period for impairment of value, and a loss is recognized at the time of the impairment by providing an impairment allowance. An asset would be impaired if the undiscounted cash flows were less than its carrying value. Impairments are measured by the amount by which the carrying value exceeds its fair value. Because the Company uses the successful efforts method, the Company assesses its properties individually for impairment, instead of on an aggregate pool of costs. Impairment of unproved properties is based on the facts and circumstances surrounding each lease and is recognized based on management’s evaluation. Management’s evaluation follows a two-step process where (1) recoverability of the carrying value of the asset is reviewed to determine if there is sufficient value recoverable to support the capitalized value at the report date; and, (2) If assets fail the recoverability test, impairment testing is conducted, including the evaluation of various criteria such as: prior history of successful operations; production currently in place and/or future projected cash flows (if any); reserve reports or evaluations from which management can prepare future cash flow analyses; the Company’s ability to monetize the asset(s) under evaluation; and, Management’s intent regarding future development.
Beneficial Conversion Feature
From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Fair value of financial instruments
The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157),
“Fair Value Measurements and Disclosures"
for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:
·
|
Level 1: Quoted prices in active markets for identical assets or liabilities.
|
·
|
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
|
·
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments (continued)
The following are the major categories of liabilities measured at fair value on a recurring basis as of December 31, 2013 and September 30, 2013, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
|
|
|
December 31, 2013
|
|
|
September 30, 2013
|
|
Derivative liabilities
|
Level 3
|
|
$
|
35,500
|
|
|
$
|
-
|
|
Derivative Liabilities
Fair value accounting requires bifurcation of embedded derivative instruments, such as ratchet provisions or conversion features in convertible debt or equity instruments, and measurement of their fair value. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once derivative liabilities are determined, they are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value is recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
3. MINERAL PROPERTY
On November 15, 2011, the Company through its wholly-owned Quebec subsidiary, 9252-4768 Quebec Inc., entered into a Property Option Agreement with 9228-6202 Quebec Inc., a Quebec corporation (the “Optionor”). Pursuant to the option agreement, the Company received the exclusive option to acquire an undivided 100% right, title and interest in and to certain mineral claims located in Portland Township, Outaouais, Quebec subject to a royalty reserved to the Optionor. To fully exercise the option and acquire an undivided 100% right, title and interest in and to the Property, the Company was required to: 1) pay an aggregate sum of two hundred and five thousand dollars ($205,000) to Optionor; 2) incur an aggregate of at least sixty-five thousand dollars ($65,000) of expenditures on or with respect to the Property; and 3) issue to Optionor an aggregate number of restricted shares of common stock of the Company equal to twenty thousand US dollars ($20,000). On, November 27, 2012, the Company’s wholly owned subsidiary, 9252-4768 Quebec Inc. entered into a second addendum to the original property option agreement with 9228-6202 Quebec Inc. whereby the parties acknowledged that 9252-4768 Quebec Inc. had earned its 100% right, title and interest in and to certain mineral claims, located in Portland Township, Outaouais, Quebec. The cash payments, expenditures and stock issuance were scheduled to be completed as follows:
Cash Payments
:
The Company was required to pay the cash payments to Optionor, all of which have been paid as of December 31, 2013, in the following amounts and by the dates described below:
i.
|
$50,000 within 2 business days of the execution of the Option Agreement
|
ii.
|
$70,000 within 30 days following the First Option Payment
|
iii.
|
$70,000 within 30 days following the Second Option Payment
|
iv.
|
$15,000 within 30 days following the Third Option Payment
|
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
3. MINERAL PROPERTY (continued)
Expenditures
:
During the three months ended December 31, 2013 and December 31, 2012, the Company expended $0 and $13,753 on exploration respectively.
Stock Issuances:
The Company was required to issue an aggregate number of restricted shares of common stock of the Company equal to twenty thousand US dollars ($20,000) pursuant to the terms and conditions of the Property Option Agreement, The Company was required to issue the shares within 10 days of the completion of the forward split or no later than 90 days of execution of the Property Option Agreement. The Company issued the shares on May 8, 2012 and issued a total of 200,000 shares of common stock at a deemed price of $0.10 per share which was the first trading price of the stock after the completion of the forward split.
The Company made cash payments in the amount of $205,000 and issued a total of 200,000 shares of common stock at a deemed price of $0.10 per share to 9228-6202 Quebec Inc. pursuant to the cash payment and stock payment schedule noted above, which amount was capitalized as option costs on the mineral property as of September 30, 2012. At the close of the period ended September 30, 2012, the Company evaluated the recoverability of the amount paid for the option and determined to impair the amount in full, as the Company is currently in the exploration phase, with no proven or probable reserves having yet been determined.
On November 27, 2012, the Option Agreement was further amended to revise the requirement to expend the $65,000 on exploration expenditures to read that the Optionee has earned its 100% right and interest in the Property for the payment of all expenditures to November 27, 2012 and for allowing the Optionor to utilize a portion of the expenditures expended by the Optionee to apply to certain of the Optionor’s claims. The Company has transferred the title to the Property to its wholly owned subsidiary, 9252-4768 Quebec Inc.
4. COMMON STOCK
The authorized capital of the Company is 900,000,000 common shares with a par value of $ 0.001 per share.
As of December 31, 2013, 288,200,000 common stock shares were issued and outstanding.
5. CONVERTIBLE PROMISSORY NOTE, NET and DERIVATIVE LIABILITIES
(i)
|
Craigstone Ltd. (“Craigstone”)
|
On November 4, 2011, the Company entered into a Securities Purchase Agreement with Craigstone pursuant to which the Company received $100,000 as a loan from Craigstone in exchange for one (1) Unit consisting of: a Convertible Promissory Note convertible to common stock in whole or in part, at any time and from time to time before maturity at the option of the holder at seventy-five percent (75%) of the average traded price of the common stock for the thirty (30) trading days immediately preceding the conversion date; and a three (3) year Warrant (the “Warrant”) to purchase two hundred fifty thousand (250,000) shares of the Company’s Common Stock exercisable at the lower of : (i) a price of $0.20 per share or (ii) seventy-five percent (75%) of the average traded price of common stock for the thirty (30) trading days immediately preceding the exercise date. The Note earns simple interest accruing at ten percent (10%) per annum and was due on or before the twelfth month anniversary of the date of execution. The due dates were extended as described further herein.
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
5. CONVERTIBLE PROMISSORY NOTE, NET and DERIVATIVE LIABILITIES (continued)
(i)
|
Craigstone Ltd. (“Craigstone”) (continued)
|
During the fiscal year ended September 30, 2012, the Company entered into additional Securities Purchase Agreements with Craigstone pursuant to which the Company received collectively $320,000 as loans whereby each funding received one (1) Unit consisting of: a Convertible Promissory Note convertible to common stock in whole or in part, at any time and from time to time before maturity at the option of the holder at seventy-five percent (75%) of the average traded price of the common stock for the thirty (30) trading days immediately preceding the conversion date; and a three (3) year Warrant (the “Warrant”). Collectively under the Securities Purchase Agreements, Craigstone was granted the rights to purchase seven hundred twelve thousand five hundred (712,500) shares of the Company’s Common Stock exercisable at the lower of : (i) a price of $0.20 per share or (ii) seventy-five percent (75%) of the average traded price of common stock for the thirty (30) trading days immediately preceding the exercise date. The Notes earn simple interest accruing at ten percent (10%) per annum and were due on or before the twelfth month anniversary of the date of execution. The due dates were extended as described further herein.
During the fiscal year ended September 30, 2013, the Company entered into three additional Securities Purchase Agreements with Craigstone pursuant to which the Company received a total of $45,000 as loans in exchange for which each funding received one (1) Unit consisting of a Convertible Promissory Note convertible to common stock in whole or in part, at any time and from time to time before maturity at the option of the holder at seventy-five percent (75%) of the average traded price of the common stock for the thirty (30) trading days immediately preceding the conversion date; and collectively received a three (3) year Warrant (the “Warrant”) to purchase one hundred twelve thousand five hundred (112,500) shares of the Company’s Common Stock exercisable at the lower of: (i) a price of $0.20 per share or (ii) seventy-five percent (75%) of the average traded price of common stock for the thirty (30) trading days immediately preceding the exercise date. The Notes earn simple interest accruing at ten percent (10%) per annum and is due on or before the twelfth month anniversary of the date of execution.
The beneficial conversion feature resulting from the discounted conversion price compared to market price was valued on the dates of grant to be $215,439 on the notes, and $60,439 on the warrants. This value was recorded as a discount on debt and offset to additional paid in capital. Amortization of the discount was $2,335 for the three months ended December 31, 2013 (December 31, 2012 - $57,669), which amount has been recorded as interest expense.
|
|
December 31, 2013
|
|
|
September 30, 2013
|
|
|
Issue Date
|
|
Convertible Promissory Note – face value, due on March 31, 2015
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Convertible Promissory Note – face value, due on November 4, 2014
|
|
|
115,000
|
|
|
|
115,000
|
|
|
|
115,000
|
|
Convertible Promissory Note – face value, due on March 31, 2015
|
|
|
85,000
|
|
|
|
85,000
|
|
|
|
85,000
|
|
Convertible Promissory Note – face value, due on March 31, 2015
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
35,000
|
|
Convertible Promissory Note – face value, due on May 11, 2014
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible Promissory Note – face value, due on June 19, 2014
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible Promissory Note – face value, due on March 31, 2015
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
35,000
|
|
Convertible Promissory Note – face value, due on March 31, 2015
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
Convertible Promissory Note – face value, due on March 31, 2015
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
Convertible Promissory Note – face value, due on May 30, 2014
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
Total convertible promissory note – face value
|
|
|
465,000
|
|
|
|
465,000
|
|
|
|
465,000
|
|
Less: beneficial conversion feature
|
|
|
(2,119
|
)
|
|
|
(4,225
|
)
|
|
|
(215,439
|
)
|
Warrant discount
|
|
|
(65
|
)
|
|
|
(294
|
)
|
|
|
(60,439
|
)
|
|
|
$
|
462,816
|
|
|
$
|
460,480
|
|
|
$
|
189,122
|
|
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
5. CONVERTIBLE PROMISSORY NOTE, NET and DERIVATIVE LIABILITIES (continued)
Interest expenses:
|
|
For the three month period
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
|
Amortization of debt discount
|
|
$
|
2,335
|
|
|
$
|
57,669
|
|
Interest at contractual rate
|
|
|
11,720
|
|
|
|
11,157
|
|
Totals
|
|
$
|
14,055
|
|
|
$
|
68,826
|
|
On January 31, 2013, Craigstone agreed to extend the maturity dates of certain notes due and payable on November 4, 2012, January 4, 2012 and February 3, 2013 for a period of one year or greater so that the respective notes are now due and payable on November 4, 2013, November 4, 2014 and February 3, 2014.
On May 31, 2013, Craigstone agreed to extend the maturity dates of certain notes due and payable on March 8, 2013, May 11, 2013 and June 19, 2013 to March 8, 2014, May 11, 2014 and June 19, 2014. On February 6, 2014 the Craigstone agreed to extend the maturity dates of certain notes due and payable on September 11, 2013, October 19, 2013, October 26, 2013, November 4, 2013, February 3, 2014 and March 8, 2014 to March 31, 2015.
Effective February 15, 2013, the Company entered into a Securities Purchase Agreement with Adams Ale Inc. (“Adams”) pursuant to which Adams agreed to undertake a private placement in the amount of $100,000. On May 1, 2013, Adams had not fully funded the private placement, having funded an amount of $50,000 and agreed to convert to a Convertible Promissory Note on the same commercial terms as the Craigstone notes discussed above. The Company agreed to enter into a Securities Purchase Agreement with Adams for the funded amount of $50,000 in exchange for one (1) Unit consisting of: a Convertible Promissory Note convertible to common stock in whole or in part, at any time and from time to time before maturity at the option of the holder at seventy-five percent (75%) of the average traded price of the common stock for the thirty (30) trading days immediately preceding the conversion date; and a three (3) year Warrant (the “Warrant”) to purchase one hundred twenty-five thousand (125,000) shares of the Company’s Common Stock exercisable at the lower of : (i) a price of $0.20 per share or (ii) seventy-five percent (75%) of the average traded price of common stock for the thirty (30) trading days immediately preceding the exercise date. The Note earns simple interest accruing at ten percent (10%) per annum and is due on or before the twelfth month anniversary of the date of execution.
The beneficial conversion feature resulting from the discounted conversion price compared to market price was valued on the date of grant to be $17,473 on the note, and $806 on the warrants. This value was recorded as a discount on debt and offset to additional paid in capital. Amortization of the discount for the three months ended December 31, 2013 was$4,608 (December 31, 2012 - $nil), which amount has been recorded as interest expense.
|
|
December 31, 2013
|
|
|
September 30, 2013
|
|
|
Issue Date
|
|
Convertible Promissory Note – face value, due on February 15, 2014
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Total convertible promissory note – face value
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Less: beneficial conversion feature
|
|
|
(2,106
|
)
|
|
|
(6,511
|
)
|
|
|
(17,473
|
)
|
Warrant discount
|
|
|
(97
|
)
|
|
|
(300
|
)
|
|
|
(806
|
)
|
|
|
|
47,797
|
|
|
|
43,189
|
|
|
|
31,721
|
|
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
5. CONVERTIBLE PROMISSORY NOTE, NET and DERIVATIVE LIABILITIES (continued)
Interest expenses:
|
For the three month period
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
Amortization of debt discount
|
|
$
|
4,608
|
|
|
$
|
-
|
|
Interest at contractual rate
|
|
|
1,260
|
|
|
|
-
|
|
Totals
|
|
$
|
5,868
|
|
|
$
|
-
|
|
(iii)
|
Asher Enterprises, Inc.
|
On October 22, 2013, we raised $37,500, through a private offering of a convertible promissory note. Under the terms of the Note, interest shall accrue at 8% per annum until June 20, 2014 (the “Maturity Date”), at which time, unless converted, all principal and accrued interest shall be due and payable. Any amount of principal or interest on the Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. The holder shall have the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of the note (dated September 18, 2013) to convert the Note, in whole or in part, into full paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price which shall mean shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market.
In our evaluation of the financing arrangement, we concluded that the conversion features were not afforded the exemption as a conventional convertible instrument and it did not otherwise meet the conditions set forth in current accounting standards for equity classification. Accordingly, they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities.
Since equity classification is not available for the conversion feature, we were required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value. Derivative financial instruments are carried initially and subsequently at their fair values.
We estimated the fair value of the compound derivative on the inception dates, and subsequently, using the Black-Scholes Merton valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk free rates) that are necessary to fair value complex compound derivate instruments.
As a result of the application of ASC No. 815 in period ended December 31, 2013and issued date of October 22, 2013; the fair value of the conversion feature is summarized as follows:
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
5. CONVERTIBLE PROMISSORY NOTE, NET and DERIVATIVE LIABILITIES (continued)
(iii)
|
Asher Enterprises, Inc. (continued)
|
Derivative liabilities, October 22, 2013
|
|
$
|
35,500
|
|
Fair value mark to market adjustment
|
|
|
-
|
|
Derivative liabilities, December 31, 2013
|
|
$
|
35,500
|
|
The Company recorded the debt discount in the amount of $35,500.
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2013 and commitment date (October 22, 2013):
|
|
Commitment Date
|
|
|
Re-measurement
December 31, 2013
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
259.49
|
%
|
|
|
284.20
|
%
|
Expect term
|
|
0.66 years
|
|
|
0.47 years
|
|
Risk free interest rate
|
|
|
0.04
|
%
|
|
|
0.10
|
%
|
Amortization of the $35,500 discount over the three month period ended December 31, 2013 was $10,311 (December 31, 2012- $nil), which amount has been recorded as interest expense and is reflected on the Company's balance sheet as Convertible Note Liabilities, Net. The unamortized discount of $25,189 will be expensed in future periods.
|
|
December 31, 2013
|
|
|
Issue Date
|
|
Convertible Promissory Note – face value, due on June 20, 2014
|
|
$
|
37,500
|
|
|
$
|
37,500
|
|
Total convertible promissory note – face value
|
|
|
37,500
|
|
|
|
37,500
|
|
Less: Debt discount
|
|
|
(25,189
|
)
|
|
|
(35,500
|
)
|
|
|
|
12,311
|
|
|
|
2,000
|
|
Interest expenses:
|
For the three month period
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
Amortization of debt discount
|
|
$
|
10,311
|
|
|
$
|
-
|
|
Interest at contractual rate
|
|
|
576
|
|
|
|
-
|
|
Totals
|
|
$
|
10,887
|
|
|
$
|
-
|
|
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
6. RELATED PARTY TRANSACTIONS
On September 13, 2013, Mr. Michael Jacob Cooper Smith was appointed to the Board of Directors and as an officer of the Company.
On September 30, 2013, the Company entered into a three-year employment agreement with Mr. Michael Jacob Cooper Smith. Under the terms of the agreement, the Company shall pay Mr. Smith a base salary of $30,000 per annum, paid monthly. The amount of base salary may be increased from time to time by the Board of Directors of the Company. Mr. Smith shall be eligible for periodic bonus in amounts to be determined by the Board of Directors.
During the three month period ended December 31, 2013, Mr. Michael Jacob Cooper Smith invoiced the Company for his services in the amount of $7,500. In addition, he received bonus in the amount of $3,500 during the three month period ended December 31, 2013. The Company paid $13,000 in cash, leaving $500 on the balance sheets as accounts payable and accrued liability – related party (September 30, 2013 - $2,500) at December 31, 2013.
7. WARRANTS
An aggregate of 1,200,000 warrants were issued and outstanding as at December 31, 2013 and September 30, 2013 as required under the terms of a series of Securities Purchase Agreements discussed above in Note 5. The warrants are exercisable for a period of three years from the date of issue, exercisable at the lower of : (i) a price of $0.20 per share or (ii) seventy-five percent (75%) of the average traded price of the Company’s common stock for the thirty (30) trading days immediately preceding the exercise date.
The fair value of the 1,200,000 warrants totaling $61,245 was recorded as a discount on the convertible notes payable upon issuance. This value was calculated using the Black-Scholes model. The key inputs for the calculation are shown below:
Stock Price on Measurement Date
|
$
|
0.0068 ~ 0.135
|
|
Exercise Price of Warrants
|
$
|
0.0051 ~ 0.101
|
|
Term of Warrants (years)
|
|
3.00
|
|
Computed Volatility
|
|
125.84% ~ 147.91%
|
%
|
Annual Dividends
|
|
0.00
|
%
|
Discount Rate
|
|
0.33 ~ 0.49
|
%
|
A summary of the Company’s warrants as of December 31, 2013 and September 30, 2013 as follows:
|
|
December 31, 2013
|
|
|
September 30, 2013
|
|
|
|
Warrants
|
|
|
Weighted average
exercise price
|
|
|
Warrants
|
|
Weighted average
exercise price
|
|
Outstanding at the beginning of the period
|
|
|
1,200,000
|
|
|
$
|
0.060
|
|
|
|
962,500
|
|
$
|
0.069
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
237,500
|
|
|
0.024
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
Outstanding at the end of the period
|
|
|
1,200,000
|
|
|
$
|
0.060
|
|
|
|
1,200,000
|
|
$
|
0.060
|
|
Vested and exercisable at the end of period
|
|
|
1,200,000
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
|
Weighted average fair value per share of warrants
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
$
|
0.060
|
|
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
7. WARRANTS (continued)
The following table summarizes information regarding stock purchase warrants outstanding at December 31, 2013:
|
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
Exercise prices
|
|
Number
Outstanding
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Weighted
average
exercise
price
|
|
Number
exercisable
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Weighted
average
exercise
price
|
|
$
|
0.00563-0.10
|
|
|
1,200,000
|
|
|
1.30
|
|
$
|
0.060
|
|
1,200,000
|
|
1.30
|
|
$
|
0.060
|
|
As at December 31, 2013, the Company had the following warrants outstanding:
Exercise Price
|
|
Expiry Date
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Outstanding at
September 30, 2013
|
|
|
Issued
|
|
|
Exercised
|
|
|
Expired
|
|
|
Outstanding at
December 31, 2013
|
|
$
|
0.075
|
|
November 4, 2014
|
|
|
0.84
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
$
|
0.075
|
|
November 4, 2014
|
|
|
0.84
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
$
|
0.101
|
|
February 3, 2015
|
|
|
1.09
|
|
|
|
177,083
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
177,083
|
|
$
|
0.041
|
|
March 8, 2015
|
|
|
1.19
|
|
|
|
72,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,917
|
|
$
|
0.052
|
|
May 11, 2015
|
|
|
1.36
|
|
|
|
62,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,500
|
|
$
|
0.03
|
|
June 19, 2015
|
|
|
1.72
|
|
|
|
62,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,500
|
|
$
|
0.03
|
|
September 11, 2015
|
|
|
1.47
|
|
|
|
87,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,500
|
|
$
|
0.064
|
|
October 19, 2015
|
|
|
1.80
|
|
|
|
37,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
$
|
0.056
|
|
October 26, 2015
|
|
|
1.82
|
|
|
|
37,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
$
|
.008
|
|
February 15, 2016
|
|
|
2.12
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
$
|
0.005
|
|
May 30,2016
|
|
|
2.41
|
|
|
|
37,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
|
|
|
|
|
|
1.30
|
|
|
|
1,200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,200,000
|
|
8. INCOME TAXES
The Company has losses carried forward for income tax purposes at December 31, 2013. There are no current or deferred tax expenses for the current period ended December 31, 2013 due to the Company’s loss position. The Company has fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.
SOLO INTERNATIONAL, INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
8. INCOME TAXES (continued)
Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.
|
|
December 31, 2013
|
|
|
September 30, 2013
|
|
Net operating loss carry forward
|
|
|
1,030,824
|
|
|
|
960,853
|
|
Effective Tax Rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Deferred Tax Assets
|
|
|
360,788
|
|
|
|
336,200
|
|
Less: Valuation Allowance
|
|
|
(360,788
|
)
|
|
|
(336,200
|
)
|
Net deferred tax asset
|
|
$
|
0
|
|
|
$
|
0
|
|
The valuation allowance for deferred tax assets as of December 31, 2013 and September 30, 2013 was $360,788 and $336,200 respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2013 and September 30, 2013, and recorded a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2013 and September 30, 2013:
|
|
December 31, 2013
|
|
|
September 30, 2013
|
|
Federal statutory tax rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
Permanent difference and other
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The net federal operating loss carry forward will expire between 2030 and 2033. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.
9. SUBSEQUENT EVENTS
Subsequent to December 31, 2013 the Company received $22,500, through a private offering of a convertible promissory note (the “Note”). Under the terms of the note, interest shall accrue at 8% per annum until September 20, 2014 (the “Maturity Date”), at which time, unless converted, all principal and accrued interest shall be due and payable. Any amount of principal or interest on the Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. The holder shall have the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of the note (dated December 18, 2013) to convert the Note, in whole or in part, into full paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price which shall mean shall mean 55% multiplied by the
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
(Unaudited)
9. SUBSEQUENT EVENTS (continued)
Market Price (as defined herein) (representing a discount rate of 45%) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market.
The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there were no other events to disclose.