Notes to the Consolidated Financial Statements
May 31, 2016
NOTE 1 - ORGANIZATION
Music of Your Life, Inc. (the “Company”)
was incorporated under the laws of the State of Florida on January 30, 2008 under the name of “Zhong Sen International Tea
Company”. From January 2008 to May 2013, the Company operated with the principal business objective of providing sales and
marketing consulting services to small to medium sized Chinese tea producing companies who wished to export and distribute high
quality Chinese tea products worldwide. On May 31, 2013 (the “Closing Date”), the Company entered into a Merger Agreement
(the “Merger Agreement”) by and among the Company, Music of Your Life, Inc., a Nevada corporation (“MYL Nevada”)
incorporated October 10, 2012, and Music of Your Life Merger Sub, Inc., a Utah corporation ("Merger Sub"), pursuant to
which MYL Nevada merged with Merger Sub. Each shareholder of MYL Nevada received ten (10) shares of common stock of the Company
for every one (1) share of MYL Nevada held as of May 31, 2013. In accordance with the terms of the merger agreement, all of the
shares of MYL Nevada held by MYL Nevada shareholders were cancelled and 100 shares of MYL Nevada were issued to the Company. 34,860,000
shares of common stock of the Company were issued to the MYL Nevada shareholders. As a result of the merger, MYL Nevada became
a wholly-owned subsidiary of the Company, and on July 26, 2013, the Company changed its name to Music of Your Life, Inc., and is
now operating a multi-media entertainment company, producing live concerts, television shows and radio programming. On May 20,
2014 the Company acquired 100% of the outstanding stock of iRadio, Inc., a Utah corporation. A total of 20,000,000 shares were
issued to the shareholders of iRadio. The Company was the surviving corporation. iRadio was an entity related to the Company by
common ownership.
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting
policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements. The following policies are considered to be significant:
a. Accounting Method
The Company recognizes income and
expenses based on the accrual method of accounting. The Company has elected a May 31 year-end.
b. Cash and Cash Equivalents
Cash equivalents are generally comprised
of certain highly liquid investments with original maturities of less than three months.
c. Use of Estimates in the Preparation
of Financial Statements
The preparation of financial statements
in conformity with U.S. 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 reporting period. Actual results could differ from those
estimates.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
d. Basic and Fully Diluted Net
Loss per Share of Common Stock
In accordance with Financial Accounting
Standards No. ASC 260, “Earnings per Share,” basic net loss per common share is based on the weighted average number
of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of
common shares plus dilutive common share equivalents outstanding during the period. Dilutive instruments (such as convertible notes
payable and common stock purchase warrants) have not been included and calculated for the year end computations as their effect
is antidilutive.
e. Revenue Recognition
Revenue is recognized upon completion
of services or delivery of goods where the sales price is fixed or determinable and collectability is reasonably assured. Advance
customer payments are recorded as deferred revenue until such time as they are recognized. The Company does not offer any cash
rebates. Returns or discounts, if any, are netted against gross revenues.
f. Recent Accounting Pronouncements
We have reviewed accounting pronouncements
issued and have adopted any that are applicable to the Company. We have determined that none had a material impact on our financial
position, results of operations, or cash flows for the years ended May 31, 2016 and 2015.
Certain other accounting pronouncements
have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been
adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards
is not expected to be material.
g. Income Taxes
The Financial Accounting Standards
Board (FASB) has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)). FASB ASC 740-10 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement
No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that
a tax position will be sustained will be sustained upon examination based upon the technical merits of the position. If the
more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial
statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions
in accordance with recognition and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
At May 31, 2016, the Company had
net operating loss carryforwards of approximately $1,696,755 which may be offset against future taxable income through 2036. No
tax benefit has been reported in the financial statements because the potential tax benefits of the net operating loss carryforwards
are offset by a valuation allowance of the same amount.
Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual
limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to future use.
Net deferred
tax assets consist of the following components as of May 31, 2016 and 2015:
|
|
May 31, 2016
|
|
May 31, 2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL Carryover
|
|
$
|
576,897
|
|
|
$
|
375,121
|
|
Valuation allowance
|
|
|
(576,897
|
)
|
|
|
(375,121
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The income tax provision differs
from the amount of income tax determined by applying the U.S. federal and state income tax rates of 34% to pretax income for the
years ended May 31, 2016 and 2015 due to the following:
|
|
May 31, 2016
|
|
May 31, 2015
|
Expected tax (benefit) at 34%
|
|
$
|
(418,255
|
)
|
|
$
|
(125,133
|
)
|
Non-deductible provision for impairment
|
|
|
82,620
|
|
|
|
—
|
|
Non-deductible stock-based expenses
|
|
|
25,996
|
|
|
|
—
|
|
Non-deductible expense (non-taxable income) from derivative liability
|
|
|
32,316
|
|
|
|
(10,348
|
)
|
Non-deductible amortization of debt discounts
|
|
|
75,547
|
|
|
|
24,722
|
|
Change in valuation allowance
|
|
|
201,776
|
|
|
|
110,759
|
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows:
|
|
|
Year Ended May 31, 2016
|
|
|
|
Year Ended May 31, 2015
|
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions based on tax positions related to current year
|
|
|
—
|
|
|
|
—
|
|
Additions for tax positions of prior years
|
|
|
—
|
|
|
|
—
|
|
Reductions for tax positions of prior years
|
|
|
—
|
|
|
|
—
|
|
Reductions in benefit due to income tax expense
|
|
|
—
|
|
|
|
—
|
|
Ending balance
|
|
$
|
—
|
|
|
$
|
—
|
|
At May 31, 2016, the Company
had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company did not have any
tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase
or decrease within the next 12 months.
The Company includes interest
and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income
taxes. As of May 31, 2016, the Company had no accrued interest or penalties related to uncertain tax positions.
h.
Concentrations of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places cash and cash equivalents
at well known quality financial institutions. Cash and cash equivalents at banks are insured by the Federal Deposit Insurance Corporation
for up to $250,000. The Company did not have any cash or cash equivalents in excess of this amount at May 31, 2016.
i. Principles of Consolidation
The consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States and include the Company and
its wholly-owned subsidiary. All inter-company accounts and transactions have been eliminated.
j. Advertising
Advertising costs, which are expensed
as incurred, were $13,709 and $19,060 for the years ended May 31, 2016 and 2015, respectively.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
NOTE 3 - FINANCIAL INSTRUMENTS
The Company has adopted FASB ASC
820-10-50, “
Fair Value Measurements.
” This guidance defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three
levels are defined as follows:
Level 1 inputs
to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs
to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs
to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in
the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments
and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and
their expected realization and their current market rate of interest.
NOTE 4 - LOANS RECEIVABLE – RELATED PARTY
During the year ended May 31, 2013,
the Company loaned $174,950 to the Company’s current chief executive in anticipation of the merger agreement described in
Note 1. The loans are non-interest bearing and due on demand. Effective May 31, 2015, the Company agreed to waive collection of
$100,000 of the remaining $115,950 loans receivable balance in exchange for the chief executive officer’s agreement to waive
payment of the $100,000 accrued consulting fees balance due him at May 31, 2015 (see Note 10). As of May 31, 2016, the balance
due on this loan was $15,950.
NOTE 5 - DEPOSITS FOR ACQUISITION OF
INTANGIBLE ASSETS
During the years ended May 31, 2016
and 2015 the Company paid $59,000 and $158,000, respectively, to the wife of the chief executive officer as deposits for certain
trademarks and other intellectual property to be assigned to the Company. Under the agreement, if the Company failed to pay a total
of $250,000 by December 31, 2015, the Company was to forfeit all rights, title and interest in the trademarks and intellectual
property unless extended by her. As of the date of this filing, the agreement has not been extended but the Company continues to
use the intangible assets and is in negotiations to extend the agreement.
At May 31, 2016, it is not certain
whether the intangible assets will ultimately be assigned to the Company. Further, it is not more likely than not that the Company
will be able to generate sufficient future cash flows from these assets to recover any or all of the $243,000 deposits balance.
Accordingly, the Company recognized a provision for impairment expense of $243,000 at May 31, 2016 and reduced the net carrying
balance of the deposits for acquisition of intangible assets to $-0-.
NOTE 6 - MUSIC INVENTORY
The Company purchases digital music
to broadcast over the radio and internet. During the year ended May 31, 2016, the Company purchased $3,874 worth of music inventory.
The amount of music inventory held at May 31, 2016 was $8,019.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
|
|
May 31,
2016
|
|
May 31,
2015
|
Notes payable to a corporation, non interest bearing, due on demand, unsecured
|
|
$
|
30,000
|
|
|
$
|
55,000
|
|
Note payable to an individual, stated interest of $15,000, due on October 15, 2014, in default (A)
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable to an individual, due on May 22, 2015, in default (B)
|
|
|
25,000
|
|
|
|
25,000
|
|
Note payable to an individual, non interest bearing, due on August 23, 2015, in default (C)
|
|
|
25,000
|
|
|
|
—
|
|
Note payable to an entity, non interest bearing, due on February 1, 2016, in default (D)
|
|
|
50,000
|
|
|
|
—
|
|
Note payable to a family trust, stated interest of $2,500, due on October 31, 2015, in default (E)
|
|
|
25,000
|
|
|
|
—
|
|
Note payable to an individual, stated interest of $2,500, due on October 31, 2015, in default (F)
|
|
|
25,000
|
|
|
|
—
|
|
Note payable to a corporation, stated interest of $5,000, due on October 21, 2015, in default (G)
|
|
|
50,000
|
|
|
|
—
|
|
Note payable to a corporation, stated interest of $5,000, due on November 6, 2015, in default (H)
|
|
|
50,000
|
|
|
|
—
|
|
Note payable to an individual, stated interest of $2,500, due on December 20, 2015, in default (I)
|
|
|
25,000
|
|
|
|
—
|
|
Convertible note payable to an entity, interest at 10%, due on June 25, 2016 (J)
|
|
|
36,826
|
|
|
|
—
|
|
Note payable to an individual, stated interest of $2,500, due on December 18, 2015, in default (K)
|
|
|
25,000
|
|
|
|
—
|
|
Convertible note payable to an entity, interest at 12%, due on December 22, 2016 – net of discount of $11,202 (L)
|
|
|
8,798
|
|
|
|
—
|
|
Convertible note payable to an entity, interest at 12%, due on December 22, 2016 – net of discount of $11,585 (M)
|
|
|
8,415
|
|
|
|
—
|
|
Convertible note payable to an entity, interest at 10%, due on November 12, 2016 – net of discount of $21,378 (N)
|
|
|
14,122
|
|
|
|
—
|
|
Convertible note payable to an entity, interest at 10%, due on November 12, 2016 – net of discount of $26,065 (O)
|
|
|
17,935
|
|
|
|
—
|
|
Total Notes Payable
|
|
|
466,096
|
|
|
|
130,000
|
|
Less: Current Portion
|
|
|
(466,096
|
)
|
|
|
(130,000
|
)
|
Long-Term Notes Payable
|
|
$
|
—
|
|
|
$
|
—
|
|
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
(A) On August 15, 2014, the Company
issued a $50,000 Promissory Note with a stated interest amount of $15,000 due at maturity on October 14, 2014. The Company also
issued 350,000 shares of common stock, valued at $52,500, as part of the note agreement. The proceeds of the note were allocated
between the principal and the market value of the stock resulting in the Company recording a discount on the debt of $25,610. This
amount was amortized over the 60 days life of the promissory note.
(B) On April 22, 2015, the Company
issued a $25,000 Promissory Note, non-interest bearing (interest at 24% per annum after May 22, 2015), due at maturity on May 22,
2015. The Company also agreed to issue 500,000 shares of common stock, valued at $50,000 on April 22, 2015, as part of the note
agreement. The proceeds of the note were allocated between the principal and the market value of the stock resulting in the Company
recording a discount on the debt of $16,667. This amount was amortized over the 30 days life of the promissory note.
(C) On June 23, 2015, the Company
issued a $25,000 Promissory Note, non-interest bearing, due at maturity on August 23, 2015. The Company also agreed to issue 500,000
shares of common stock, valued at $20,000, as part of the note agreement. The proceeds of the note were allocated between the principal
and the market value of the stock resulting in the Company recording a discount on the debt of $11,111. This amount was amortized
over the 60 days life of the promissory note.
(D) On July 24, 2015, the Company
issued a $50,000 Promissory Note to Kodiak Capital Group, LLC (“Kodiak”) for services rendered in association with
the Equity Purchase Agreement (See Note 8). As amended and restated January 4, 2016, the note is non-interest bearing and is due
on February 1, 2016.
(E) On July 31, 2015, the Company
issued a $25,000 Promissory Note with a stated interest amount of $2,500 due at maturity on October 31, 2015. The Company also
issued 1,000,000 shares of common stock, valued at $38,000, as part of the note agreement. The proceeds of the note were allocated
between the principal and the market value of the stock resulting in the Company recording a discount on the debt of $15,079. This
amount was amortized over the 90 days life of the promissory note.
(F) On July 31, 2015, the
Company issued a second $25,000 Promissory Note with a stated interest amount of $2,500 due at maturity on October 31, 2015.
The Company also issued 1,000,000 shares of common stock, valued at $38,000, as part of the note agreement. The proceeds of
the note were allocated between the principal and the market value of the stock resulting in the Company recording a discount
on the debt of $15,079. This amount was amortized over the 90 days life of the promissory note.
(G) On August 6, 2015, the Company
issued a $50,000 Promissory Note with a stated interest amount of $5,000 due at maturity on October 21, 2015. The Company also
agreed to issue 2,000,000 shares of common stock, valued at $76,000, as part of the note agreement. The proceeds of the note were
allocated between the principal and the market value of the stock resulting in the Company recording a discount on the debt of
$30,159. This amount was amortized over the 75 days life of the promissory note.
(H) On August 21, 2015, the Company
issued a $50,000 Promissory Note with a stated interest amount of $5,000 due at maturity on November 6, 2015. The Company also
agreed to issue 2,000,000 shares of common stock, valued at $60,000, as part of the note agreement. The proceeds of the note were
allocated between the principal and the market value of the stock resulting in the Company recording a discount on the debt of
$27,273. This amount was amortized over the 75 days life of the promissory note.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
(I) On September 21, 2015, the Company
issued a $25,000 Promissory Note with a stated interest amount of $2,500 due at maturity on December 20, 2015. The Company also
agreed to issue 1,000,000 shares of common stock, valued at $30,000, as part of the note agreement. The proceeds of the note were
allocated between the principal and the market value of the stock resulting in the Company recording a discount on the debt of
$13,636. This amount was amortized over the 90 days life of the promissory note. In the event that all principal and interest are
not paid to the lender by January 20, 2016, the Company is obligated to issue another 1,000,000 shares of common stock to the lender
and for interest to accrue at a rate of 24% per annum commencing on January 21, 2016.
(J) On September 25, 2015, the Company
issued a $55,750 Convertible Promissory Note to a lender for net loan proceeds of $45,000. The note bears interest at a rate of
10% per annum (24% per annum default rate), is due on June 25, 2016, and is convertible at the option of the lender into shares
of the Company common stock at a Conversion Price equal to the lesser of (a) 55% of the lowest Trading Price during the 25 Trading
Day period prior to the Conversion Date or (b) $.00605 per share. See Note 9 (Derivative Liability).
(K) On November 13, 2015, the Company
issued a $25,000 Promissory Note with a stated interest amount of $2,500 due at maturity on December 18, 2015. The Company also
agreed to issue 200,000 shares of common stock, valued at $6,000, as part of the note agreement. The proceeds of the note were
allocated between the principal and the market value of the stock resulting in the Company recording a discount on the debt of
$4,839. This amount was amortized over the 35 days life of the promissory note. In the event that all principal and interest are
not paid to the lender by December 18, 2015, the Company is obligated to pay late fees of 5,000 shares of common stock per day
for the first 60 days after December 18, 2015, and beginning with the 61
st
day after December 18, 2015, any balance
owed shall accrue interest at a rate of 10% per annum.
(L) On December 22, 2015, the Company
issued a $20,000 Convertible Promissory Note to a lender for net loan proceeds of $15,000. The note bears interest at a rate of
12% per annum, is due on December 22, 2016, and is convertible at the option of the lender into shares of the Company common stock
at a Conversion Price equal to 50% of the lowest closing bid price during the 30 Trading Day period prior to the Conversion Date.
See Note 9 (Derivative Liability).
(M) On December 29, 2015, the Company
issued a $20,000 Convertible Promissory Note to a lender for net loan proceeds of $15,000. The note bears interest at a rate of
12% per annum, is due on December 22, 2016, and is convertible at the option of the lender into shares of the Company common stock
at a Conversion Price equal to 50% of the lowest closing bid price during the 30 Trading Day period prior to the Conversion Date.
See Note 9 (Derivative Liability).
(N) On February 12, 2016, the Company
issued a $35,500 Convertible Promissory Note to a lender for net loan proceeds of $27,000. The note bears interest at a rate of
10% per annum (24% per annum default rate), is due on November 12, 2016, and is convertible at the option of the lender into shares
of the Company common stock at a Conversion Price equal to the lesser of (a) 55% of the lowest Trading Price during the 25 Trading
Day period prior to the Conversion Date or (b) $.00605 per share. See Note 9 (Derivative Liability).
(O) On March 17, 2016, the Company
issued a $44,000 Convertible Promissory Note to a lender for net loan proceeds of $30,000. The note bears interest at a rate of
10% per annum (24% per annum default rate), is due on September 17, 2016, and is convertible at the option of the lender into shares
of the Company common stock at a Conversion Price equal to the lesser of (a) 65% of the lowest Trading
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
Price during the 30 Trading Day period
prior to the Conversion Date or (b) 65% of the lowest Market Price during the 30 day Trading Day period prior to the Conversion
Date. See Note 9 (Derivative Liability).
NOTE 8 - NOTES PAYABLE – RELATED PARTIES
Notes payable – related parties
consisted of the following:
|
|
May 31,
2016
|
|
May 31,
2015
|
Note payable to an individual significant stockholder, interest capped at $75,000, due on demand
|
|
$
|
—
|
|
|
$
|
150,000
|
|
Notes payable to two individual significant stockholders, interest at 0%, converted into a total of 450,881 shares of Company common stock on January 19, 2015
|
|
|
—
|
|
|
|
—
|
|
Note payable to wife of Company’s chief executive officer, non-interest bearing, due on demand, unsecured
|
|
|
2,688
|
|
|
|
2,688
|
|
Note payable to Company law firm, non-interest bearing, due on demand, unsecured
|
|
|
2,073
|
|
|
|
2,073
|
|
Total Notes Payable
|
|
|
4,761
|
|
|
|
154,761
|
|
Less: Current Portion
|
|
|
(4,761
|
)
|
|
|
(154,761
|
)
|
Long-Term Notes Payable
|
|
$
|
—
|
|
|
$
|
—
|
|
In December 2015, the $150,000 note
payable (and $75,000 accrued interest) was satisfied from the foreclosure of property securing the February 2013 Promissory Note.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
NOTE 9 - DERIVATIVE LIABILITY
The derivative liability at May 31,
2016 consisted of:
|
|
Face Value
|
|
Derivative Liability
|
Convertible note payable issued September 25, 2015, due June 25, 2016 (J)
|
|
$
|
36,826
|
|
|
$
|
50,218
|
|
Convertible note payable issued December 22, 2015, due December 22, 2016 (L)
|
|
|
20,000
|
|
|
|
44,000
|
|
Convertible note payable issued December 29, 2015, due December 29, 2016 (M)
|
|
|
20,000
|
|
|
|
44,000
|
|
Convertible note payable issued February 12, 2016, due November 12, 2016 (N)
|
|
|
35,500
|
|
|
|
67,773
|
|
Convertible note payable issued March 17, 2016, due September 17, 2016 (O)
|
|
|
44,000
|
|
|
|
64,307
|
|
Totals
|
|
$
|
156,326
|
|
|
$
|
270,298
|
|
The above convertible notes contain
a variable conversion feature based on the future trading price of the Company common stock. Therefore, the number of shares of
common stock issuable upon conversion of the notes is indeterminate. Accordingly, we have recorded the fair value of the embedded
conversion features as a derivative liability at the respective issuance dates of the notes ($823,405 total for the year ended
May 31, 2016) and charged the applicable amounts to debt discounts ($175,250 total for the year ended May 31, 2016) and the remainder
to other expense ($648,155 total for the year ended May 31, 2016). The increase (decrease) in the fair value of the derivative
liability from the respective issuance dates of the notes to the measurement date ($553,107 total decrease for the year ended May
31, 2016) is charged (credited) to other expense (income). The fair value of the derivative liability of the notes is measured
at the respective issuance dates and quarterly thereafter using the Black Scholes option pricing model. Assumptions used for the
calculations of the derivative liability of the notes at May 31, 2016 include (1) stock price of $0.0023 per share, (2) exercise
prices ranging from $0.0010 to $0.0013 per share, (3) terms ranging from 25 days to 212 days, (4) expected volatility of 445% and
(5) risk free interest rates ranging from 0.27% to 0.49%.
NOTE 10 - EQUITY TRANSACTIONS
During the year ended May 31, 2015,
the Company issued an aggregate of 9,400,000 shares of common stock for cash in the aggregate amount of $267,500.
During the year ended May 31, 2015,
the Company issued an aggregate of 594,559 shares of common stock for the conversion of notes payable and interest in the aggregate
amount of $70,378.
On October 14, 2014, the Company
issued 350,000 shares of common stock to an accredited investor in consideration of the investor making a $50,000 loan to the Company
(see Note 7).
On April 22, 2015, the Company agreed
to issue 500,000 shares of common stock to an accredited investor in consideration of the investor making a $25,000 loan to the
Company (see Note 7).
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
During the year ended May 31, 2016,
the Company issued an aggregate of 7,700,000 shares of common stock to accredited investors in consideration of loans made to
the Company.
During the year ended May 31, 2016,
the Company issued an aggregate of 1,000,000 shares of common stock for consulting services rendered to the Company and was recorded
as consulting fees on the statement of operations in the amount of $33,000.
During the year ended May 31, 2016,
the Company issued 1,000,000 shares of common stock for late fees on promissory notes.
During the year ended May 31, 2016,
the Company issued an aggregate of 10,164,933 shares of common stock for the conversion of notes payable and interest in the aggregate
amount of $12,560.
During the year ended May 31, 2016,
the Company issued an aggregate of 20,900,000 shares of common stock for cash in the aggregate amount of $112,600.
On March 4, 2016, the Company issued
200 shares of Series A Preferred Stock to our chief executive officer for consulting services rendered to the Company and was recorded
as consulting fees on the statement of operations in the amount of $10,000. Each share of Series A Preferred Stock is entitled
to 2,000,000 votes. The Series A Preferred Stock has no conversion, liquidation, or dividend rights.
During the years ended May 31, 2016
and 2015, 360,000 and 652,000 warrants (which were exercisable at $1.00 per share) respectively, expired without being exercised.
At May 31, 2016, there are no stock options or warrants outstanding.
NOTE 11 - COMMITMENTS AND
CONTINGENCIES
Service Agreements
On November 5, 2012, the Company
executed a General Services Agreement with the Company’s chief executive officer. The agreement provided for monthly compensation
of $10,000 and was to remain in full force and effect until either party provided 30 days notice of termination to the other party.
Effective May 31, 2015, the chief executive officer agreed to waive payment of the $100,000 accrued consulting fees balance due
him at May 31, 2015 in exchange for the Company’s agreement to waive collection of $100,000 of the remaining $115,950 loans
receivable balance due from the chief executive officer at May 31, 2015 before this transaction (see Note 4). As of May 31, 2015,
this agreement has been terminated.
On November 15, 2012 and June 3,
2013, the Company executed General Services Agreements with two other service providers. The agreements provided for monthly compensation
of $1,000 and $500, respectively, and were to remain in full force and effect until either party provided 90 days and 30 days,
respectively, notice of termination to the other party. Effective September 1, 2015, these two agreements were replaced by Consulting
Agreements to provide for monthly compensation of $5,000 to each of the two service providers. The term of the agreements is from
September 1, 2015 to December 31, 2016 and thereafter on a month-to-month basis. The Company may terminate both of these Consulting
Agreements at any time without cause.
Effective September 1, 2015, the
Company entered into a Consulting Agreement with another service provider. The agreement provides for monthly compensation of $1,000
for a term from September 1, 2015 to December 31, 2016 and thereafter on a month-to-month basis. The Company may terminate this
Consulting Agreement at any time without cause.
MUSIC OF YOUR LIFE, INC.
Notes to the Consolidated Financial Statements
May 31, 2016
Equity Purchase Agreement
On July 24, 2015, the Company executed
an Equity Purchase Agreement and a Registration Rights Agreement with Kodiak Capital Group, LLC (“Kodiak”) and issued
a Promissory Note to Kodiak with a $50,000 face value for services rendered in association with the Equity Purchase Agreement (see
Note 7). The Equity Purchase Agreement (which expires July 24, 2016) provides for Kodiak to purchase up to $1,000,000 of the Company’s
common stock to be sold at a 30% discount to market. The Company is required to file and have declared effective a Registration
Statement with the SEC relating to these shares. The Company initially filed a Registration Statement with the SEC on October 9,
2015; the amended Registration Statement was declared effective on February 17, 2016.
NOTE 12 - GOING CONCERN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit at May 31, 2016 of $2,375,737
and has experienced periodic cash flow difficulties, all of which raise substantial doubt regarding the Company’s ability
to continue as a going concern.
To date the Company has funded its
operations through a combination of loans and sales of common stock. The Company anticipates another net loss for the fiscal year
ended May 31, 2017 and with the expected cash requirements for the coming year, there is substantial doubt as to the Company’s
ability to continue operations.
The Company is attempting to improve
these conditions by way of financial assistance through issuances of additional equity and by generating revenues through sales
of products and services.
The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
NOTE 13 - SUBSEQUENT EVENTS
On July 22, 2016, the Company increased
its authorized common stock from 500,000,000 shares to 2,000,000,000 shares and reduced the par value of the common stock from
$0.001 to $0.0001 per share.
From June 1, 2016 to September
9, 2016, the Company issued an aggregate of 20,000,000 shares of its common stock to certain consulting personnel for
services provided.
From June 1, 2016 to September
9, 2016, the Company issued an aggregate of 141,944,553 shares of its common stock for the conversion of notes payable and
interest.