PART
I - FINANCIAL INFORMATION
Item
1- Consolidated Financial Statements – Unaudited
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September
30, 2016
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June
30, 2016
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AUDITED
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ASSETS
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Current assets:
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Cash
and cash equivalents
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$
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6,205
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$
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2,482
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Marketable securities
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456,686
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481,120
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Accounts Receivable
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25,000
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-
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Loans receivable
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-
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2,282
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Other current assets
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74,466
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43,417
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Total
current assets
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$
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562,357
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$
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529,302
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Fixed assets:
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Land
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82,733
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82,733
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Total
fixed assets
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82,733
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82,733
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Other assets:
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Deposit for acquisition
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75,000
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75,000
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Other Receivable
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66,955
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66,955
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Total
other assets
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141,955
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141,955
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Total
Assets
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$
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787,045
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$
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753,990
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LIABILITIES AND
STOCKHOLDERS’ DEFICIT
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Current liabilities:
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Accounts payable
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$
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138,478
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$
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144,212
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Accrued expenses
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4,435,221
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4,342,783
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Short-term notes
payable
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631,538
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673,660
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Due to officers
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885,882
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899,674
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Due to preferred
stockholders
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215,000
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215,000
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Advances from customers
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288,219
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288,219
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Other current payable
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97,350
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97,350
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Unearned revenues
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40,000
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40,000
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Client deposits
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780
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9,821
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Derivative liabilities
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160,488
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-
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Liabilities from
discontinued operations
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1,040,687
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1,045,232
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Total
current liabilities
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$
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7,933,644
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$
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7,755,950
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Stockholders’ deficit:
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Preferred stock, $.001 par value,
100,000,000 shares
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Common stock, $.001
par value; 300,000,000 shares authorized; 16,174,353 issued and 10,501,026 outstanding on 09/30/2016, and 15,370,825 issued
and 9,697,498 outstanding on 6/30/2016, respectively, adjusted for 1 for 1,500 reverse split effective March 15, 2012. on
06/30/2016.
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244,037
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243,234
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Treasury stock:
67,471 and 67,271 shares as of 09/30/2016 and 6/30/2016, cost method.
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(22,142
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)
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(21,823
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)
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Paid-in capital
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30,769,347
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30,521,209
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Acc. other comprehensive
gain (loss)
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12,533
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30,263
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Accumulated deficit
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(38,150,374
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)
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(37,774,842
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)
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Total
stockholders’ deficit
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$
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(7,146,599
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)
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$
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(7,001,960
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)
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Total
liabilities and stockholders’ deficit
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$
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787,045
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$
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753,990
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The
accompanying notes form an integral part of these audited consolidated financial statements
PHI
GROUP, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENT OF OPERATIONS
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FOR
THE QUARTERS ENDED SEPTEMBER 30, 2016 AND 2015
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UNAUDITED
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2016
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2015
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Net revenues
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Consulting,
advisory and management services
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$
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50,000
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$
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40,000
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Operating expenses:
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Salaries and wages
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59,875
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60,375
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Professional services,
including non-cash compensation
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151,299
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23,019
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General and administrative
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28,772
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13,535
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Total
operating expenses
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$
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239,946
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$
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96,929
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Income
(loss) from operations
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$
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(189,946
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)
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$
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(56,929
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)
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Other income and
expenses
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Interest expense
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(175,136
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)
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(79,576
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)
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Gain (loss) on sale
of marketable securities
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(25
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)
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156,311
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Other income (expense)
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(10,425
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)
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69
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Net
other income (expenses)
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$
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(185,585
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)
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$
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76,803
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Net
Income Loss)
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$
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(375,531
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)
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$
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19,874
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Other comprehensive
income (loss)
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Accumulated other
comprehensive gain (loss)
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12,533
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31,960
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Comprehensive
income (loss)
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$
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(362,998
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)
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$
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51,835
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Net loss per share:
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Basic
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$
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(0.04
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)
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$
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0.01
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Diluted
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$
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(0.04
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)
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$
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0.01
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Weighted average number of shares outstanding:
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Basic
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10,045,706
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3,885,838
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Diluted
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10,045,706
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3,885,838
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The
accompanying notes form an integral part of these audited consolidated financial statements
PHI
GROUP, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENTS OF CASH FLOWS
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FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
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UN-AUDITED
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2016
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2015
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Cash flows from operating
activities:
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Net
income (loss) from operations
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$
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(375,531
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)
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$
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19,874
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Adjustments to reconcile
net income to net cash used in operating activities:
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Changes
in operating assets and liabilities:
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(Increase) decrease
in other assets and prepaid expenses
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(29,332
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)
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166,820
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Increase (decrease)
in accounts payable and accrued expenses
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177,693
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329,315
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Net
cash provided by (used in) operating activities
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(227,170
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)
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516,008
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Cash flows from investing
activities:
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Land purchase and
deposit for acquisitions
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-
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(149,509
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)
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Net
cash provided by (used in) investing activities
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-
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(149,509
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)
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Cash flows from financing
activities:
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Proceeds from common
stock
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248,942
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-
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Payments on notes
payable
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-
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(5,700
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)
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Net borrowings from
officers
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-
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(15,824
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)
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Repurchase of Company’s
common stock
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(319
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)
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(14,291
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)
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Change in Accum.
other comprehensive income (loss)
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(17,730
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)
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(45,487
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)
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Change in Accumulated
Deficit
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-
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(87,108
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)
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Net
cash provided by (used in) financing activities
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230,893
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(168,410
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)
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Net decrease in cash
and cash equivalents
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3,723
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198,091
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Cash and cash equivalents, beginning
of period
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2,482
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|
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|
10,654
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Cash
and cash equivalents, end of period
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$
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6,205
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$
|
208,745
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|
The
accompanying notes form an integral part of these audited consolidated financial statements
PHI
GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1
–
NATURE OF BUSINESS
PHI
Group, Inc. (the “Company” or “PHI”) is a Nevada corporation engaged in mergers and acquisitions as a
principal (
www.phiglobal.com
). The Company has adopted plans to acquire established operating businesses in selective industries
and invest in various ventures that may potentially create significant long-term value for our shareholders. In addition, we also
provide corporate finance services, including merger and acquisition advisory and consulting services for client companies through
our wholly owned subsidiary PHI Capital Holdings, Inc. (
www.phicapitalholdings.com
). No assurances can be made that the
Company will be successful in achieving its plans.
Originally
incorporated in June 1982 as JR Consulting, Inc., the Company was foremost engaged in mergers and acquisitions and had an operating
subsidiary, Diva Entertainment, Inc., which operated two modeling agencies, one in New York and one in California. Following the
business combination with Providential Securities, Inc., a California-based brokerage firm, in late 1999, the Company changed
its name to Providential Securities, Inc. (Nevada) in January 2000. The Company then changed its name to Providential Holdings,
Inc. in February 2000. In October 2000, Providential Securities withdrew its securities brokerage membership and ceased its financial
services business. Subsequently, in April 2009, the Company changed its name to PHI Group, Inc. From October 2000 to October 2011,
the Company was engaged in mergers and acquisitions advisory and consulting services, real estate and hospitality development,
mining, oil and gas, telecommunications, technology, healthcare, private equity, and special situations. In October 2011, the
Company discontinued the operations of Providential Vietnam Ltd., Philand Ranch Limited, a United Kingdom corporation, (together
with its subsidiaries Philand Ranch - Singapore, Philand Corporation (US), and Philand Vietnam Ltd.), PHI Gold Corporation (formerly
PHI Mining Corporation), and PHI Energy Corporation, and began to mainly focus on acquisition and development opportunities in
energy and natural resource businesses. The Company has recently expanded its scope of acquisitions to include other industries
besides energy and natural resources. In addition, PHI Capital Holdings, Inc., a wholly owned subsidiary of PHI, continues to
provide corporate and project finance services, including merger and acquisition (M&A) advisory and consulting services and
arranging capital for other companies in a variety of industries.
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of PHI Group, Inc., its wholly owned subsidiary PHI Capital Holdings, Inc.,
and its discontinued operations Providential Securities, Inc., PHI Energy Corporation, PHI Gold Corp, Providential Vietnam Ltd.
and Philand Ranch Limited (including its 100% owned subsidiary Philand Corporation and Philand Vietnam Ltd), Omni Resources, Inc.,
and American Pacific Resources, Inc., collectively referred to as the “Company.” All significant inter-company transactions
have been eliminated in consolidation.
INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction
with the audited financial statements for the year ended June 30, 2016. In the opinion of management, all adjustments consisting
of normal reoccurring accruals have been made to the financial statements. The results of operation for the three months ended
September 30, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2017.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible
into cash to be cash equivalents.
MARKETABLE
SECURITIES
The
Company’s securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified
as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Typically,
each investment in marketable securities represents less than twenty percent (20%) of the outstanding common stock and stock equivalents
of the investee, and each security is quoted on either the “Pink Sheets” or the OTC Bulletin Board. As such, each
investment is accounted for in accordance with the provisions of SFAS No. 115.
Unrealized
holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of
stockholder’s equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings
based upon the adjusted cost of the specific security sold. On September 30, 2016, the marketable securities have been recorded
at $456,686 based upon the fair value of the marketable securities, including the value of 97,350,000 shares of Sports Pouch Beverage
Company’s common stock to be returned to the client company (Note 3).
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Fair
Value - Definition and Hierarchy
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether
or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial
assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement.
A
fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable inputs are to be used when available.
Valuation
techniques that are consistent with the market or income approach are used to measure fair value. The fair value hierarchy is
categorized into three levels based on the inputs as follows:
Level
1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the
ability to access.
Level
2 - Valuations based on inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly.
Level
3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Fair
value is a market-based measure, based on assumptions of prices and inputs considered from the perspective of a market participant
that are current as of the measurement date, rather than an entity-specific measure. Therefore, even when market assumptions are
not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing
the asset or liability at the measurement date. The availability of valuation techniques and observable inputs can vary from investment
to investment and are affected by a wide variety of factors, including; type of investment, whether the investment is new and
not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.
To
the extent that valuation is based upon models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially
higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree
of judgment exercised by the Fund in determining fair value is greatest for investments categorized in Level 3. In certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in
the fair value hierarchy in which the fair value measurement falls in its entirety is determined based upon the lowest level input
that is significant to the fair value measurement.
Fair
Value - Valuation Techniques and Inputs
The
Company holds and may invest in public securities traded on public exchanges or over-the-counter (OTC), private securities, real
estate, convertible securities, interest bearing securities and other types of securities and has adopted specific techniques
for their respective valuations.
Equity
Securities in Public Companies
Unrestricted
The
Company values investments in securities that are freely tradable and listed on major securities exchanges at their last reported
sales price as of the valuation date. To the extent these securities are actively traded and valuation adjustments are not applied,
they are categorized in Level 1 of the fair value hierarchy.
Securities
traded on inactive markets or valued by reference to similar instruments are generally categorized in Level 2 or 3 of the fair
value hierarchy.
Restricted
Securities
traded on public exchanges or over-the-counter (OTC) where there are formal restrictions that limit (i.e. Rule 144 holding periods
and underwriter’s lock-ups) their sale shall be valued at the closing price on the date of valuation less applicable discounts.
The Company may apply a discount to securities with Rule 144 restrictions. Additional discounts may be assessed if the Company
believes there are other mitigating factors, which warrant the additional discounting. When determining potential additional discounts,
factors that will be taken into consideration include, but are not limited to; securities’ trading characteristics, volume,
length and overall impact of the restriction as well as other macro-economic factors. Valuations should be discounted appropriately
until the securities may be freely traded.
If
it has been determined that the exchange or OTC listed price does not accurately reflect fair market value, the Company may elect
to treat the security as a private company and apply an alternative valuation method.
Investments
in restricted securities of public companies may be included in Level 2 of the fair value hierarchy. However, to the extent that
significant inputs used to determine liquidity discounts are not observable, investments in restricted securities in public companies
may be categorized in Level 3 of the fair value hierarchy.
The
Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, marketable securities,
and accounts payable.
As
of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying
values as presented on the balance sheet. This is primarily attributed to the short maturities of these instruments.
ACCOUNTS
RECEIVABLE
Management
reviews the composition of accounts receivable and analyzes historical bad debts. As of Sept 30, 2016, the Company had $25,000
in accounts receivable.
PROPERTIES
AND EQUIPMENT
Property
and equipment are carried at cost less accumulated depreciation. Depreciation is provided using the straight-line method over
the estimated useful life of the assets from three to five years. Expenditures for maintenance and repairs are charged to expense
as incurred.
REVENUE
RECOGNITION
The
Company’s revenue recognition policies are in compliance with ASC 13 (previously Staff accounting bulletin (SAB) 104). The
Company recognizes consulting and advisory fee revenues when the transaction is completed and the service fees are earned. Expenses
are recognized in the period in which the corresponding liability is incurred. Payments received before all of the relevant criteria
for revenue recognition are recorded as unearned revenue.
STOCK-BASED
COMPENSATION
Effective
July 1, 2006, the Company adopted ASC 718-10-25 (previously SFAS 123R) and accordingly has adopted the modified prospective application
method. Under this method, ASC 718-10-25 is applied to new awards and to awards modified, repurchased, or cancelled after the
effective date. Additionally, compensation cost for the portion of awards that are outstanding as of the date of adoption for
which the requisite service has not been rendered (such as unvested options) is recognized over a period of time as the remaining
requisite services are rendered.
RISKS
AND UNCERTAINTIES
In
the normal course of business, the Company is subject to certain risks and uncertainties. The Company provides its service and
receives marketable securities upon execution of transactions. Consequently, the value of the securities received from customers
can be affected by economic fluctuations and each customer’s business growth. The actual realized value of these securities
could be significantly different than recorded value.
RECENT
ACCOUNTING PRONOUNCEMENTS
Update
No. 2013-11—Income Taxes (Topic 740):
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
a Similar Tax Loss, or a Tax Credit Carryforward Exists
(a consensus of the FASB Emerging Issues Task Force)
[Download]
|
|
July
2013
|
|
Effective
for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption
is permitted.
|
|
|
|
|
|
Update
No. 2013-09—
Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic
Employee Benefit Plans in Update No. 2011-04
[Download]
|
|
July
2013
|
|
The
deferral in this amendment is effective upon issuance for financial statements that have not been issued.
|
|
|
|
|
|
Update
No. 2013-07—
Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting
[Download]
|
|
April
2013
|
|
Effective
for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013. Early
adoption is permitted.
|
Update
No. 2013-04—
Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which
the Total Amount of the Obligation Is Fixed at the Reporting Date
(a consensus of the FASB Emerging Issues Task Force)
[Download]
|
|
February
2013
|
|
Effective
for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments
are effective for fiscal years ending after December 15, 2014, and interim periods and annual periods thereafter.
|
|
|
|
|
|
Update
2013-02—
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income
[Download]
|
|
February
2013
|
|
For
public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic
entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption
is permitted.
|
|
|
|
|
|
Update
2013-01—
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
[Download]
|
|
January
2013
|
|
An
entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within
those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented.
The effective date is the same as the effective date of Update 2011-11.
|
The
Company has either evaluated or is currently evaluating the implications, if any, of each of these pronouncements and the possible
impact they may have on the Company’s financial statements. In most cases, management has determined that the pronouncement
has either limited or no application to the Company and, in all cases, implementation would not have a material impact on the
financial statements taken as a whole.
NOTE
2
– LOANS RECEIVABLE
Loans
receivable consist of the following at September 30, 2016 and June 30, 2016:
|
|
September
30, 2016
|
|
|
June
30, 2016
|
|
Loan to Myson Group, Inc.
|
|
|
-
|
|
|
$
|
2,282
|
|
TOTAL
|
|
|
-
|
|
|
$
|
2,282
|
|
NOTE
3
–
MARKETABLE EQUITY SECURITIES AVAILABLE FOR SALE
The
Company’s marketable securities are classified as available-for-sale and, as such, are carried at fair value. All of the
securities are comprised of shares of common stock of the investee. Securities classified as available-for-sale may be sold in
response to changes in interest rates, liquidity needs, and for other purposes. These marketable securities are quoted on the
OTC markets and are accounted for in accordance with the provisions of SFAS No. 115.
Marketable
securities held by the Company and classified as available for sale as of September 30, 2016 consisted of 34,010,106 shares of
Myson Group, Inc. (formerly Vanguard Mining Corporation), a public company quoted on the OTC Markets (Trading symbol “MYSN”)
and 389,400,000 shares of Sports Pouch Beverage Co., a public company quoted on the OTC Markets (Trading symbol “SPBV”).
The Company owns 292,050,000 shares of SPBV and will return 97,350,000 of the total 389,400,000 SPBV shares to the client company.
The fair value of the shares recorded as of September 30, 2016 was $456,686 (including 97,350,000 shares of SPBV to be returned
to the client company).
Securities
Available for Sale
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
September 30, 2016
|
|
|
-
|
|
|
$
|
35,619
|
|
|
$
|
421,067
|
|
|
$
|
456,686
|
|
June 30, 2016
|
|
$
|
-
|
|
|
$
|
60,054
|
|
|
$
|
323,717
|
*
|
|
$
|
383,770
|
*
|
*
Excluding 97,350,000 shares of Sports Pouch Beverage Company’s common stock held by the Company and to be returned to the
client company.
NOTE
4
– PROPERTIES AND EQUIPMENT
As
of September 30, 2016, the Company owned and held title to ten acres of land, Parcel Identification Number 09705010180 & 190,
in Suwannee County, Florida at historical cost of $82,733. The Company did not have any equipment as of September 30, 2016.
NOTE
5
– OTHER ASSETS
The
Other Assets comprise of the following as of September 30, 2016 and June 30, 2016:
|
|
September
30, 2016
|
|
|
June
30,
2016
|
|
|
|
|
|
|
|
|
Loans Receivable
|
|
$
|
66,955
|
|
|
$
|
66,955
|
|
Deposit for purchase
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Total Other Assets
|
|
$
|
141,955
|
|
|
$
|
141,955
|
|
During
the year ended June 30, 2011, the Company signed a consulting agreement to assist Agent155 Media Corp., a Delaware corporation,
with respect to its corporate restructuring and business combination with Freshwater Technologies, Inc., a Nevada corporation.
As part of the restructuring requirements, the Company made payment to Manning Elliot LLP in the amount of $24,476 on behalf of
Freshwater Technologies, Inc. and other loan amounts to Agent155 Media Corp. As of June 30, 2014, Christopher Martinez, the President
of Agent155 Media Corp., assumed the balance of $66,955 from Agent155 Media Corp. as his personal obligations to the Company.
As
of September 30, 2016, the total amounts owed by Christopher Martinez and the deposit for purchase were collectively reported
as Other Assets totaling $141,955.
NOTE
6
– DISCONTINUED OPERATIONS
As
of June 30, 2012, discontinued the businesses of PHI Gold Corp. (formerly PHI Mining Corporation), Providential Vietnam Ltd.,
PHI Energy Corp., and Philand Ranch Ltd., a United Kingdom corporation, together with its wholly-owned subsidiaries Philand Corporation
(USA), Philand Ranch Ltd. (Singapore) and Philand Vietnam Ltd. for practical business and accounting purposes. As of September
30, 2016, the Company had a balance of $1,040,687 as Liabilities from Discontinued Operations.
NOTE
7
– ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The
accounts payable and accrued expenses at September 30, 2016 and June 30, 2016 consist of the following:
|
|
September
30, 2016
|
|
|
June
30, 2016
|
|
Accounts payable
|
|
|
138,478
|
|
|
|
144,212
|
|
Accrued salaries and payroll taxes
|
|
|
1,150,154
|
|
|
|
1,090,279
|
|
Accrued interest
|
|
|
2,912,218
|
|
|
|
2,879,655
|
|
Accrued legal expenses
|
|
|
172,091
|
|
|
|
172,091
|
|
Accrued consulting fees
|
|
|
173,870
|
|
|
|
173,870
|
|
Other accrued expenses
|
|
|
26,888
|
|
|
|
26,888
|
|
Total
|
|
$
|
4,573,699
|
|
|
$
|
4,486,995
|
|
NOTE
8
– DUE TO OFFICER
Due
to officer, represents advances made by officers of the Company and its subsidiaries, which are non-interest bearing, unsecured
and due on demand. As of September 30, 2016 and June 30, 2016, the balances were $885,882 and $899,674, respectively.
Officers/Directors
|
|
September
30, 2016
|
|
|
June
30, 2016
|
|
Henry Fahman
|
|
|
797,532
|
|
|
|
811,324
|
|
Tam Bui
|
|
|
63,350
|
|
|
|
63,350
|
|
Frank Hawkins
|
|
|
12,500
|
|
|
|
12,500
|
|
Lawrence Olson
|
|
|
12,500
|
|
|
|
12,500
|
|
Total
|
|
$
|
885,882
|
|
|
$
|
899,674
|
|
NOTE
9
– LOANS AND PROMISSORY NOTES
SHORT
TERM NOTES PAYABLE:
As
of September 30, 2016 and June 30, 2016, the Company had short-term notes payable amounting to $631,538 and $673,660 with accrued
interest of $2,912,218 and $2,879,655, respectively. These notes bear interest rates ranging from 6% to 36% per annum.
CONVERTIBLE
PROMISSORY NOTES:
On
February 29, 2016, the Company issued a convertible promissory note in the amount of $56,750 to Auctus Fund, LLC, a Delaware limited
liability company. This convertible note is due and payable on November 29, 2016 with interest of 10% per annum. This note is
convertible at the election of Auctus Fund, LLC from time to time after the issuance date. In the event of default, the amount
of principal and interest not paid when due bear interest at the rate of 24% per annum and the note becomes immediately due and
payable. Should an event of default occur, the Company is liable to pay 150% of the then outstanding principal and interest. The
note agreement contains covenants requiring Auctus Fund’s written consent for certain activities not in existence or not
committed to by the Company on the issuance date of the note, as follows: dividend distributions in cash or shares, stock repurchases,
borrowings, sale of assets, certain advances and loans in excess of $100,000, and certain guarantees with respect to preservation
of existence of the Company and non-circumvention. Outstanding note principal and interest accrued thereon can be converted in
whole, or in part, at any time by Asher after the issuance date into an equivalent of the Company’s common stock determined
by 55% of the average of the two lowest closing trading prices of the Company’s common stock during the twenty (20) trading
days prior to the date the of the note. The Company may prepay the amounts outstanding to Auctus Fund at any time up to the 180
th
day following the issue date of this note by making a payment to the note holder of an amount in cash equal to 125% to 150%,
multiplied by the sum of: (w) the then outstanding principal amount of this Note
plus
(x) accrued and unpaid interest on
the unpaid principal amount of this Note
plus
(y) Default Interest, depending on the time of prepayment. On August 30,
2016, Auctus Fund, LLC converted the principal amount of $56,750 and $2,829.76 in accrued interest, totaling $59,579.76, into
529,598 shares of free-trading stock of the Company.
On
July 20, 2016, the Company issued a convertible promissory note in the amount of $50,000 to EMA Financial, LLC, a Delaware limited
liability company. The note has a coupon rate of 10%, matures in one year and is convertible to Common Stock of the Company at
a conversion price equals the lower of: (i) the closing sale price of the Common Stock on the Principal Market on the Trading
immediately preceding the Closing Date of this note, and (ii) 55% of the lowest sale price for the Common Stock on the Principal
Market during the twenty (20) consecutive Trading Days immediately preceding the Conversion Date. The note may be prepaid at 130%
- 145% of outstanding principal and interest up to 180 days.
On
August 16, 2016, the Company issued a convertible promissory note in the amount of $56,750 to Auctus Fund, LLC, a Delaware limited
liability company. The note has a coupon rate of 10%, matures on May 16, 2017 and is convertible to Common Stock of the Company
at a conversion price equals the lower of: (i) 50% multiplied by the average of the two lowest Trading Price during the previous
twenty-five Trading Day period ending on the latest complete Trading Date prior to the date of this note and (ii) 50% multiplied
by the average of the two lowest Trading Prices for the Common Stock during the twenty-five Trading Day period ending on the latest
complete Trading Day prior to the Conversion Date. The note may be prepaid at 135% - 150% of outstanding principal and interest
up to 180 days.
The
value of the derivative liability at September 30, 2010 is $160,488.
The
Company intends to prepay the outstanding convertible notes within the respective allowable prepayment time frames.
DUE
TO PREFERRED STOCKHOLDERS OF DISCONTINUED OPERATIONS
The
Company classified $215,000 of preferred stock subscribed as a current liability payable to holders of preferred stock in a previously
discontinued subsidiary of the Company due to deficiency in compliance of the preferred shares subscription agreement in connection
with the referenced subsidiary in the year 2000. The Company has made an offer for these preferred stock holders to receive shares
of common stock in the Company in exchange for the preferred shares but so far only a small number of the preferred shareholders
have accepted the offer.
The
interest expenses payable to holders of the referenced preferred stock of $419,705 and $413,255 have been included in Accrued
Interest Expenses on the balance sheets as of September 30, 2016 and June 30, 2016, respectively.
OTHER
CURRENT PAYABLE
During
the fiscal year ended 30, 2016, the Company received a total 389,400,000 shares of Common Stock of Sports Pouch Beverage Company,
Inc. and recognized 292,050,000 shares as earned revenues. The balance of 97,350,000 shares was recorded as Other Current Payable
in the accompanying consolidated financial statements as of September 30, 2016. The Company returned these shares to Sports Pouch
Beverage Company on November 2, 2016 (Subsequent Event – Note 19).
ADVANCES
FROM CUSTOMERS
As
of September 30, 2012, the Company decided to reclassify the previously recorded Unearned Revenues as Advances from Customers
because the Company has not been able to complete the consulting services for the related clients due to their inability to provide
GAAP-compliant audited financial statements in order to file a registration statement with the Securities and Exchange Commission.
As of September 30, 2016, the Company recorded $288,219 as Advances from Customers.
UNEARNED
REVENUES
As
of September 30, 2016, the Company recorded $40,000 from a client as Unearned Revenues because certain conditions have not been
met as of the date of this report.
NOTE
10
– LITIGATION
LEGAL
PROCEEDING SETTLED AND UNPAID AS OF SEPTEMBER 30, 2016:
QUANG
VAN CAO AND NHAN THI NGUYEN CAO VS. PROVIDENTIAL SECURITIES, INC. ET AL.
This
case was originally submitted to Orange County Superior Court, CA on June 25, 1997, Case No. 781121, and subsequently moved to
NASD Dispute resolution for arbitration. On or about August 24, 2000, the Company’s legal counsel negotiated with the Claimant’s
counsel and unilaterally reached a settlement that had not been approved by the Company. While the Company was in the process
of re-negotiating the terms of said settlement, the Claimants filed a request for arbitration hearing before the National Association
of Securities Dealers on October 4, 2000, Case No. 99-03160. Thereafter, the Claimants filed a complaint with the Orange County
Superior Court, CA on October 31, 2000, Case No. 00CC13067 for alleged breach of contract for damages in the sum of $75,000 plus
pre-judgment interest, costs incurred in connection with the complaint, and other relief. Without admitting or denying any allegations,
the Company reached a settlement agreement with the Claimants whereby the Company would pay the Claimants a total of $62,500 plus
$4,500 in administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgment
for $79,000. In May 2011, the Claimants filed an application for and renewal of judgment for a total of $140,490.78. As of June
30, 2016 the Company accrued $172,091 for potential liabilities in connection with this case in the accompanying consolidated
financial statements.
WILLIAM
DAVIDSON VS. DOAN ET AL.
On
or about February 01, 2010, the company was notified of a suit that was filed with the Superior Court of the State of California
for the County of Los Angeles on November 24, 2009 by William Davidson, an individual against Martin Doan, Henry Fahman, Benjamin
Tran, HRCiti Corporation, and Providential Capital, Inc. (collectively referred to as “Defendants” - Case No. BC 426831).
Plaintiff demanded an amount of not less than $140,000.00 from Defendants for promissory notes outstanding between Plaintiff and
the company.
On
July 09, 2012 William Davidson and PHI Capital Holdings, Inc. (formerly Providential Capital, Inc.), a subsidiary of the Company,
reached a settlement agreement with respect to whereby PHI Capital agreed to pay William Davidson a total of $200,000 over a period
of nineteen months beginning September 1, 2012. Since November 30, 2012, William Davidson has converted portions of the total
amount into common stock of PHI Group, Inc. in lieu of cash payment. The Company has accrued $90,000 as the required liability
associated with the balance of these notes in the accompanying consolidated financial statements as of September 30, 2016.
NOTE
11
– PAYROLL TAX LIABILITIES
The
payroll liabilities are accrued and recorded as accrued expenses in the consolidated balance sheet. During the fiscal year ended
June 30, 2014, the Company paid $41,974.22 to the Internal Revenue Service and $ 19,289.94 to the State of California Employment
Development Department towards the total balance of $118,399 of payroll tax, penalties and interest claimed by these agencies.
The Company is currently working with the Internal Revenue Service and the State of California Employment Department to resolve
the remaining balance.
NOTE
12
– BASIC AND DILUTED NET PROFIT (LOSS) PER SHARE
Net
loss per share is calculated in accordance with SFAS No. 128, “Earnings per Share”. Under the provision of SFAS No.
128, basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares
outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the
period and common stock equivalents outstanding at the end of the period. Basic and diluted weighted average numbers of shares
for the period ended September 30, 2016 were the same since the inclusion of Common stock equivalents is anti-dilutive.
NOTE
13
–
STOCKHOLDER’S EQUITY
The
total number of authorized capital stock of the Company is 400,000,000 shares with a par value of $0.001 per share, consisting
of 300,000,000 shares of voting Common Stock with a par value of $0.001 per share and 100,000,000 shares of Preferred Stock with
a par value of $0.001 per share. The rights and terms associated with the Preferred Stock will be determined by the Board of Directors
of the Company.
On
March 15, 2012, the Company effectuated a 1 for 1,500 reverse split of the Company’s Common Stock.
Treasury
Stock:
The
balance of treasury stock as of June 30, 2016 was 67,271 post-split shares valued at $21,823.
Common
Stock:
Since
July 1, 2016, the Company has issued the following amounts of its Common Stock:
On
July 29, 2016, the Company issued 225,00 shares of PHI Group, Inc.’s restricted Common Stock valued at $0.40 per share to
Milost Advisors, Inc. for buy-side advisory services in connection with contemplated acquisitions of target companies in South
Africa and North America.
On
August 29, 2016, the Company issued 48,930 shares of PHI Group, Inc.’s restricted Common Stock to an investor under the
auspices of Rule 144 for $20,000 in cash, at the price of $0.4088 per share.
On
August 30, 2016, Auctus Fund, LLC converted the principal amount of $56,750 for the convertible promissory note dated February
29, 2016 and $2,829.76 in accrued interest, totaling $59,579.76, into 529,598 shares of free-trading stock of the Company.
On
October 30, 2016, the Company issued 200,000 shares of PHI Group, Inc.’s restricted Common Stock to two independent consultants
for consulting services at the price of $0.25 per share.
As
of November 14, 2016 there were 16,174,353 shares of the Company’s $0.001 par value Common Stock issued, including 5,673,327
shares reserved for a special dividend distribution.
Preferred
Stock:
There is no preferred stock issued and outstanding.
Class
A Preferred Stock:
On April 2, 2015, the Company designated the first fifty million (50,000,000) shares of the Company’s
previously authorized 100,000,000 shares of Preferred Stock, with a par value of $0.001 per share, as Class A Cumulative Convertible
Redeemable Class A Preferred Stock (the “
Class A Preferred Stock
”) with the following rights and terms:
1)
Dividends: Each holder of Class A Preferred Stock is entitled to receive twelve percent (12%) non-compounding cumulative dividends
per annum, payable semi-annually.
2)
Conversion: Each share of the Class A Preferred Stock shall be convertible into the Company’s Common Stock any time after
one year from the date of issuance at a Variable Conversion Price (as defined herein) of the Common Stock. The “Variable
Conversion Price” shall mean 75% multiplied by the Market Price (as defined herein) (representing a discount rate of 25%).
“Market Price” means the average Trading Price for the Company’s Common Stock during the ten (10) trading-day
period ending one trading day prior to the date the Conversion Notice is sent by the Holder of the Class A Preferred Stock to
the Company via facsimile or email (the “Conversion Date”). “Trading Price” means, for any security as
of any date, the closing price on the OTC Markets, OTCQB, NASDAQ Stock Markets, NYSE or applicable trading market as reported
by a reliable reporting service (“Reporting Service”) mutually acceptable to the Company and Holder of the Class A
Preferred Stock.
3)
Redemption Rights: The Company, after a period of two years from the date of issuance, may at any time or from time to time redeem
the Class A Preferred Stock, in whole or in part, at the option of the Company’s Board of Directors, at a price equal to
one hundred twenty percent (120%) of the original purchase price of the Class A Preferred Stock or of a unit consisting of any
shares of Class A Preferred Stock and any warrants attached thereto, plus, in each case, accumulated and unpaid dividends to the
date fixed for redemption.
NOTE
14
–
STOCK-BASED COMPENSATION PLAN
On
February March 18, 2015, the Company adopted an Employee Benefit Plan to set aside 1,000,000 shares of common stock for eligible
employees and independent contractors of the Company and its subsidiaries. As of September 30, 2016 the Company has not issued
any stock in lieu of cash under this plan.
On
September 23, 2016, the Company issued incentive stock options and nonqualified stock options to certain key employee(s) (Henry
Fahman – CEO/CFO) and directors (Tam Bui, Henry Fahman, and Frank Hawkins constitute the Board of Directors) as deferred
compensation. The options allow the holders to acquire the Company’s Common Stock at the fair exercise price of the Company’s
Common Stock on the grant date of each option at $0.24 per share, based on the 10-days’ volume-weighted average price prior
to the grant date. The number of options is equal to a total of 6,520,000. The options terminate seven years from the date of
grant and become vested and exercisable after one year from the grant date. The following assumptions were used in the Monte Carlo
analysis by Doty Scott Enterprises, Inc., an independent valuation firm, to determine the fair value of the stock options:
Risk-free interest rate
|
|
|
1.18
|
%
|
Expected life
|
|
|
7
years
|
|
Expected volatility
|
|
|
239.3
|
%
|
Vesting
is based on a one year cliff from grant date.
Annual
attrition rates were used in the valuation since ongoing employment was condition for vesting the options.
The
fair value of the Company’s Stock Options as of issuance valuation date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value at
|
|
Holder
|
|
Issue
Date
|
|
Maturity
Date
|
|
Stock
Options
|
|
|
Exercise
Price
|
|
|
Issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tam Bui
|
|
9/23/2016
|
|
9/23/2023
|
|
|
875,000
|
|
|
|
Fixed
price: $0.24
|
|
|
$
|
219,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Hawkins
|
|
9/23/2016
|
|
9/23/2023
|
|
|
875,000
|
|
|
|
Fixed
price: $0.24
|
|
|
$
|
219,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Fahman
|
|
9/23/2016
|
|
9/23/2023
|
|
|
4,770,000
|
|
|
|
Fixed
price: $0.24
|
|
|
$
|
1,187,984
|
|
NOTE
15
–
RELATED PARTY TRANSACTIONS
The
Company accrued $52,500 in salaries for the President and the Secretary & Treasurer of the Company during the quarters ended
September 30, 2016 and September 30, 2015.
NOTE
16
–
CONTRACTS AND COMMITMENTS
BUSINESS
AND FINANCIAL CONSULTING AGREEMENT WITH THINH HUNG INVESTMENT CO.
During
the fiscal year ended June 30, 2010 the Company signed an agreement with Thinh Hung Investment Co., Ltd., a Vietnam-based company,
to assist Thinh Hung in identifying, locating and, possibly, acquiring various business opportunities for Thinh An Co., Ltd.,
a subsidiary of Thinh Hung, including but not limited to a reverse merger, a stock swap, or a business combination between Thinh
An and a publicly-traded company in the U.S. In exchange for the services rendered, the Company would receive compensation in
cash from Thinh Hung and common stock of the combined company. As of September 30, 2011, the Company consummated a stock purchase
and investment agreement between Thinh Anh Co., Ltd. and Vietnam Foods Corporation, a Nevada corporation. However, the combined
company has not filed a registration statement with the Securities and Exchange Commission to become a reporting company. The
Company has recognized $26,656 as only revenues from this transaction. During the fiscal year ended June 30, 2016, the Company
repaid $5,000 to Thinh Hung Investment Co.. The balance of $288,219 was booked as Customer Advances in the liability portion of
the balance sheet.
CONSULTING
AGREEMENT WITH SPORTS POUCH BEVERAGE COMPANY
On
June 3, 2015, PHI Capital Holdings, Inc., a wholly owned subsidiary of the Company, signed a Consulting Engagement Agreement with
Sports Pouch Beverage Company (“SPBV”), a Nevada corporation, to provide consulting services and assist SPBV with
respect to business development, mergers and acquisitions, corporate governance, and corporate finance. PHI Capital Holdings,
Inc. is entitled to receive up to forty percent of common stock in SPBV as compensation for the services rendered. The duration
of this agreement is one year. As of June 30, 2016 PHI Capital Holdings, Inc. has received 389,400,000 shares of SPBV stock and
recorded a total of 292,050,000 shares as earned revenues from this transaction. The balance of 97,350,000 shares will be returned
to the client and is recorded as Other Current Payable valued at $97,350 in the accompanying consolidated financial statements
(Subsequent Event – Note 19).
AGREEMENT
FOR DEFRAYAL OF EXPENSES AND STOCK COMPENSATION WITH ASIA GREEN CORPORATION
On
July 17, 2015, the Company signed an agreement to provide $75,000 to Asia Green Corporation (AGMC”), a Nevada corporation,
for AGMC to pay certain required expenses and resume its status as fully reporting company with the Securities and Exchange Commission.
In exchange for the fund, AGMC agrees to allocate 500,000 shares of its Common Stock upon the consummation of a business combination
between itself and a Vietnamese company engaged in agriculture and reforestation. This amount was recorded as Deposit for Acquisition
in the Company’s balance sheet as of September 30, 2016.
ACQUISITION
OF MAJORITY INTEREST IN A LIQUEFIED PETROLEUM GAS COMPANY IN VIETNAM
On
January 23, 2016, PHI Group, Inc. (the “Company”) entered into Private Stock Purchase and Sale Agreement to purchase
50.90% of equity ownership (the “Exchange Ownership”) in Pacific Petro Commercial Joint Stock Company (aka Pacific
Petro Trading Corporation), a Vietnamese company, hereinafter referred to as “Pacific Petro,” in exchange for a combination
of cash and Common Stock and/or Preferred Stock of the Company. The fair value for the Exchange Ownership will be determined by
the majority shareholders of Pacific Petro (the “Majority Shareholders”) and the Company after the completion of a
business valuation of Pacific Petro by Grant Thornton Vietnam Ltd. and the financial audits of Pacific Petro by a PCAOB-registered
auditing firm.
Originally
established as Binh Duong Gas LLC in 1998, Pacific Petro changed its name to Pacific Petro Commercial Joint Stock Company (aka
Pacific Petro Trading Corporation) in May 2010. This company’s headquarters is located at 99 Ich Thanh Street, Truong Thanh
Ward, District 9, Ho Chi Minh City, Vietnam. Website:
http://www.pacificpetro.com.vn/
Pacific
Petro is the third largest private liquefied petroleum gas (LPG) company in Southern Vietnam, engaged in sales of liquefied petroleum
gas (LPG), manufacturing of gas canisters and cylinders, filling of LPG, repair and maintenance of gas tanks, and wholesale of
solid fuels, liquid, gas and related petroleum products.
This
company owns a gas canister-manufacturing factory on a 215,200 square-foot lot in Ben Cat District, Binh Duong Province and a
gas filling plant on a 65,600 square-foot lot in District 9, Ho Chi Minh City, Vietnam. It has also acquired a 93,600 square-foot
lot Go Dau Industrial Park, Dong Nai Province to build a proprietary LPG storage area and has been granted 83 acres in Phu Huu
Village, Nhon Trach District, Dong Nai Province to build an integrated port for imports of energy-related commodities and products.
PHI
Group has engaged Grant Thornton to conduct an independent business valuation but has not completed the required financial audits
of Pacific Petro. After the expiration of the afore-mentioned Purchase and Sale Agreement on June 30, 2016, both parties have
agreed to a conditional extension of the transaction and intend to renegotiate the terms and conditions of payment.
MEMORANDUM
OF UNDERSTANDING FOR BUSINESS COOPERATION & INVESTMENT
On
March 9, 2016, the Company signed a Memorandum of Understanding for Business Cooperation and Investment with Ses Meas Gas Import
Export, Construction & Development Co., Ltd., (“Ses Meas”) a Cambodian company, to cooperate with each other to
develop liquefied petroleum gas (LPG) and other energy-related businesses in Cambodia, including but not limited to increasing
Ses Meas market share of LPG business in Cambodia, establishing dry port and LPG storage and logistics facilities, engaging in
waste-to-energy business, and potentially establishing and operating an oil refinery in Cambodia in conjunction with an qualified
international investor. Subsequently, the Company signed a Joint Venture Agreement with W.B.J. Import Export Co., Ltd., an affiliate
of Ses Meas, to establish, manage and operate a dry port in Cambodia.
On
April 30, 2016, the Company signed a Joint Venture Agreement with W.B.J. Import Export Co., Ltd., an affiliate of Ses Meas, to
establish, manage and operate a dry port in Cambodia. According to the Joint Venture Agreement, PHI Group, Inc. will contribute
65% investment capital to the dry port project and hold 65% equity interest in the joint venture company. In light of the recent
contemplated acquisition activities of the Company, we intend to re-evaluate the potential contribution and priority of this project
compared with other investment opportunities.
BUSINESS
COOPERATION AGREEMENT WITH PT JAYA SAKTI GLOBALINDO
On
March 17, 2016, the Company signed a Business Cooperation Agreement with PT Jaya Sakti Globalindo (JSG), an Indonesian company,
to utilize hard assets held by JSG and its affiliates as collaterals for project financing. The parties intend to enter into definitive
agreements for the collateral provision in connection with specific projects and the terms and conditions of such provisions.
As of the date of this report, the Company has not undertaken any projects that would qualify for the utilization of collateral
assets from JSG and its affiliates.
LETTER
OF INTENT TO ACQUIRE WOOD PELLET COMPANY IN ALABAMA
On
April 27, 2016, the Company signed a Letter of Intent to acquire Lee Energy Solutions, LLC, an Alabama company that owns a 100,000
MT/year wood pellet manufacturing facility in Crossville, Alabama. The Letter of Intent was amended twice and expired on September
20, 2016.
ENGAGEMENT
LETTER WITH MILOST ADVISORS, INC.
On
July 11, 2016, the Company signed an engagement letter with Milost Advisors, Inc. to assist the Company in its analysis, consideration
and, if appropriate, execution of various financial and strategic alternatives available to it, including securing additional
equity and/or debt capital, assisting the Company in its analysis and consideration of financial aspects of certain potential
strategic transactions such as mergers, acquisitions, spin-offs, joint ventures, minority investments, negotiated purchases, or
other similar transactions. In consideration for the services rendered by Milost, the Company agrees to pay Milost a retainer
fee equal to $100,000, payable in the form of $10,000 in cash and $90,000 in stock of the Company valued at $0.40 per share. The
Company also agrees to pay Milost a success fee of 8% for equity financing and 5% for mezzanine and senior debt financings.
MEMORANDUM
OF UNDERSTANDING BETWEEN MILOST GLOBAL, INC.
On
July 18, 2016, the Company signed a Memorandum of Understanding with Milost Global, Inc., a U.S. private equity firm, to cooperate
in promoting the competitiveness of each other as well as joint activities to acquire cash-flow positive companies in North America,
South Africa, Australia, Singapore and New Zealand and seek growth through M&A alternatives in order to fast-track shareholder
value and dividend distribution. Both parties agree to use Milost Advisors, Inc. as the first right of refusal advisor to conduct
a strategic planning exercise, form a new Special Purpose Company (SPC) through which the partnership activities will be carried
out. The same SPC will be held, managed and controlled by both parties pari passu. It is intended that this partnership will assist
both parties with the implementation of their combined growth strategies and will help identify areas where each party can provide
capacity building support.
LETTER
OF INTENT TO ACQUIRE A SOUTH AFRICAN MINING SERVICES COMPANY
On
July 19, 2016, the Company presented a pre-conditional non-binding undertaking to make an offer to acquire the entire issued capital
of an undisclosed South African mining services company listed on the Johannesburg Stock Exchange (“SA Target”). On
July 25, 2016, approval was given by the SA Target’s Board of Directors to its management team to enter into further discussions
with PHI Group in good faith and to proceed with the due diligence process outlined in the undertaking.
Following
the completion of the due diligence process conducted by Milost Advisors, Inc. and the Company, on September 3, 2016, the Company
presented a Letter of Intent (“LOI”) to the SA Target to acquire all its issued capital in exchange for common stock
in PHI Group. The exchange rate would be determined on the basis of 10 days’ Volume-Weighted Average Price (VWAP) of both
companies before the day of the LOI. According to the LOI, the Company also commits to the provision of a USD $ 20 million shareholder
loan facility to the SA Target. Approximately USD $ 12 million will be used for the repayment of the SA Target subsidiary’s
term loan and the remaining USD $ 8 million will be available as a draw down facility for financing the working capital requirements
of the SA Target. The USD $ 12 million facility will be non-interest bearing until the company has effectively turned around or
whilst there are minority shareholders in Buildmax. Thereafter, interest of 5% per annum will be charged on the shareholder loan
and the loan will be repaid over a period to be agreed depending on the free cash flow generated by the SA Target.
On
September 6, 2016, approval was granted by both the SA Target’s Board of Directors and Independent Board to its management
team to enter into further discussions with PHI Group in good faith and to proceed with the transaction.
On
September 14, 2016, the Company received confirmation from SA Target’s management that 77% of the shareholders of the SA
Target approved the acquisition offer by PHI Group.
On
October 10, 2016, Milost Global, Inc. submitted a revised offer to SA Target, which was declined by SA Target’s Board of
Directors on October 11, 2016. The Company intends to renegotiate the terms and conditions for this transaction under more favorable
conditions and at an appropriate time in the near future.
SECURED
LINE OF CREDIT FACILITY WITH TCA GLOBAL CREDIT MASTER FUND, LP
On
August 30, 2016, the Company signed a term sheet with TCA Global Credit Master Fund, LP (“Investor”) for a maximum
$15,000,000 senior secured line of credit, of which $4,000,000 will be made available to the Company on the first drawdown (the
“Initial Line of Credit”) for acquisition financing. The Closing Date will be the start date for the Line of Credit
Facility.
The
Company, at the discretion of the Investor, may request an increase in the line of credit at agreed upon time periods and agreed
upon amounts. The sum of the Initial Line of Credit and the subsequent line increases, if any, (the “Then Current Line Size”)
shall not exceed the maximum line of credit. Each subsequent line increase will require the Company to execute and deliver a new
or revised revolving note to the Investor and be responsible for any fees and expenses associated with the line increase.
The
line of credit may be drawn down, at the Investor’s discretion, and repaid by the Company throughout the term of the facility.
The amount requested to be drawn down (the “Advance”) shall not exceed 80% of repayments to the Investor’s designated
account, less interest and fees, if the reserve amount on the Then Current Line Size has not been satisfied. The frequency of
Advances will be mutually agreed upon between the Investor and the Company.
MILOST
GLOBAL, INC. AGREES TO INVEST UP TO $100 MILLION IN PHI GROUP, INC.
On
September 8, 2016, the Company entered into a Letter of Intent with Milost Global, Inc., a U.S. private equity firm, with respect
to the principal terms and conditions under which Milost Global, Inc. will invest up to $100 million in PHI Group, Inc. Investment
in the amount of $50 million will be as equity and $50 million as loan.
On
September 25, 2016, the Company signed an agreement with Milost Global, Inc. for up to $50 million structured as a Milost Equity
Subscription Agreement (the ‘MESA”) whereby Milost Global is willing to initially invest $15 million for working capital
needs of PHI Group. The amount of $15 million will be drawn down in tranches at a minimum of $500,000 until fully utilized. Further,
the MESA will be utilized for the share exchange between Milost Global, Inc. and PHI Group and the balance of the $50 million
facility will be available for equity leakage fir future acquisitions of PHI Group. According to the structure of the MESA, Milost
Global, Inc. is entitled to purchase shares of common stock of PHI Group for a price per share on the basis of $2 at a discount
of 20%. The Company and Milost agree that for as long as the Company’s stock price has not reached $2 per share, Milost
Global, Inc. will receive the Company’s convertible notes instead of the Company’s shares for each drawdown. Milost
Global, Inc. has the right to convert the convertible notes into common shares of the Company once the price of PHI Group’s
stock reaches the target price of $2. The Company agrees to pay Milost Global, Inc. a commitment fee equal to 4% of the total
commitment, payable within 3 business days after the price of the Company’s common stock reaches the target price of $6.
On
September 27, 2016, the Company submitted a Drawdown Notice to Milost Global, Inc. for a total of $2,750,000 from the MESA’s
total $50-million commitment in form of a convertible note bearing annual interest of 5% and convertible to common stock at 20%
discount when PHI Group’s common stock reaches $2 per share. The proceeds from this drawdown are allocated as follows: $2,150,000
towards the cash payment for the purchase of the agricultural company (“Agri Target”) in Southeastern United States,
$500,000 for due diligence and document fees for the acquisitions of the SA Target, Agri Target and an educational company in
Canada, and $100,000 for general working capital. On September 28, 2016, Milost Global, Inc. confirmed that $500,000 had been
remitted to Milost Advisors from Milost Global, Inc. on behalf of PHI Group, Inc. as part of the first Drawdown Notice presented
to Milost Global, Inc. by the Company. As of the date of this report, the Company has not received any direct disbursements from
Milost Global, Inc. for the drawdown.
LETTER
OF INTENT TO ACQUIRE AGRICULTURAL BUSINESS IN SOUTHEASTERN UNITED STATES
On
August 24, 2016, the Company tendered a Letter of Intent to acquire an undisclosed fruit and vegetable company (“Agri Target”)
in Southeastern United States for a total of 81% in cash and 19% in common stock of PHI Group. On September 6, 2016, the owner
of the Agri Target made a counter offer which was accepted by the Company on September 16, 2016. The Company is in the process
of conducting the due diligence review of the Agri Target and expects to close this transaction as soon as practical. Average
annual sales of the Agri Target are approximately $25 million.
LETTER
OF INTENT TO ACQUIRE CANADIAN EDUCATIONAL COMPANY.
On
September 3, 2016, the Company signed a Letter of Intent for Acquisition (“LOIA”) with an undisclosed educational
company in Canada (“EDU Target”) that
owns and operates 21 campuses and enrolls
approximately 20,000 students yearly in various English language and career training educational courses. According to the LOIA,
the Company will acquire all the issued and outstanding shares of the EDU Target in exchange for common stock of PHI Group and
provide a total of C$20 million in cash and stock investment in EDU Target to settle bank debts and allow for operating working
capital.
On
October 3, 2016, the Company presented a revised LOIA to EDU Target to modify the terms of the transaction, whereby the Company
agrees to acquire approximately 311,286,356 shares of EDU Target’s stock valued at C$0.0165 per shares in exchange for common
stock of PHI Group. In addition, the Company will provide C$20 million cash investment of which C$6.2 million will be for settlement
of bank debts and the remaining balance of C$13.8 as operating working capital. Both parties intend to proceed with a definitive
Sale and Purchase Agreement in order to close this transaction as soon as practical, subject to additional due diligence review
of EDU Target.
CONSULTING
SERVICE AGREEMENT WITH TANS COMPANY LTD.
On
September 9, 2016, PHI Capital Holdings, Inc. signed a Consulting Service Agreement with Tans Company, Ltd., a Vietnam-based company,
to provide advisory and consulting services on a non-exclusive basis to assist Tans Co. in becoming a publicly traded company
in the U.S. Stock Market. The Company is entitled to cash compensations from Tans Co. and a portion of equity in the new public
company.
SALE
OF LAND IN LIVE OAK, FLORIDA
On
September 21, 2016, the Company entered into a Sale and Purchase Agreement to sell two lots of land in Live Oak, Florida (Lot
18 & 19 of EAGLE’s NEST, according to Plat Book 1, Page 502, of the Public Records of Suwannee County, Florida) back
to Klausner Holding USA, Inc., a Georgia corporation, for $65,000. This transaction is scheduled to close on or before December
9, 2016.
CONSULTING
SERVICE AGREEMENT
On
September 23, 2016, the Company signed an agreement to engage a consultant for M&A due diligence, business development, and
other corporate services for a period of on year. The Company has agreed to pay the consultant a one-time fee of one hundred thousand
restricted shares of the PHI Group’s stock as compensations for the term of the agreement.
MEMORANDUM
OF UNDERSTANDING TO ACQUIRE ABOUND FARMS, INC.
On
September 30, 2016, the Company signed a Memorandum of Understanding with Abound Farms, Inc., (“AFI Target”) a U.S.
company, to acquire 100% of AFI Target. AFI Target is engaged in hydroponics and possesses proprietary water treatment systems
and nutrients that are known to substantially enhance farming yields. The MOU sets forth the guidelines for further negotiations
between AFI Target and the Company before the signing of a definitive agreement that contains representations, warranties, covenants,
and indemnities customary for a transaction of this type. The Company intends to incorporate the AFI Target’s water treatment
systems and nutrients to the Agri Target’s business after the closing of these transactions.
AGREEMENTS
FOR INVESTOR AND PUBLIC RELATIONS SERVICES
On
September 30, 2016, the Company signed agreements with two independent consulting firms for investor and public relations services
for a total period of six months. The Company has agreed to pay these companies a total of $35,000 in cash and 100,000 shares
of restricted common stock of PHI Group, Inc.
NOTE
18
–
GOING CONCERN UNCERTAINTY
As
shown in the accompanying consolidated financial statements, the Company has accumulated deficit of $38,150,374 and total liabilities
and stockholders’ deficit of $787,045 as of September 30, 2016. For the quarter ended September 30, 2016, the Company incurred
a net loss from operations of $375,531 as compared to a net income from operations in the amount of $19,874 during the same period
ended September 30, 2015. These factors as well as the uncertain conditions that the Company faces in its day-to-day operations
with respect to cash flows create an uncertainty as to the Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Management has taken action to strengthen the Company’s working capital position and generate sufficient cash to meet its
operating needs through June 30, 2017 and beyond.
In
the next twelve months the Company intends to continue pursuing its merger and acquisition program by acquiring all or controlling
interests in target companies in a number of industries, including but not limited to conventional energy, renewables, natural
resources, agribusiness, technology, transportation, education, distribution, mining, oil & gas, financial Services, healthcare,
and pharmaceuticals. In addition, the Company also plans to invest in special situations that may potentially generate significant
revenues and profitability for the Company in the short term. We believe that by closing one or more of the contemplated acquisitions
we will be able to build a critical mass and uplist to the Nasdaq Stock Market or NYSE in the near future. In addition, we will
continue to provide advisory and consulting services to international clients through our wholly owned subsidiary PHI Capital
Holdings, Inc.
The Company anticipates generating
substantial amounts of revenues through the merger and acquisition program, investment in special situations, and advisory services
mentioned herein. However, no assurances could be made that management would be successful in achieving its plan. The president
and chairman of the Company has committed to funding the Company’s operations from various sources for the next 12 months.
NOTE
19 – SUBSEQUENT EVENT
These
financial statements were approved by management and available for issuance on November 21, 2016. Subsequent events have
been evaluated through this date.
CONTRIBUTION
AND ASSIGNMENT OF INTELLECTUAL PROPERTY FOR ORGANIC FARMING
On
October 17, 2016, the Company and Mr. Van Minh Pham, an individual, (the “Assignor”) signed an Intellectual Property
Contribution and Assignment Agreement whereby the Assignor agreed to assign to the Company: (1) Intellectual Property relating
to the natural immune and symbiotic bacteria formulations for the breeding of poultry, cattle and various aquatic species and
for the growing of organic agricultural and herbal products, (2) any and all Intellectual Property Rights claiming or covering
such Intellectual Property and (3) any and causes of action that may have accrued to the Assignor in connection with such Intellectual
Property and/or Intellectual Property Rights. The Assignor’s prior inventions and applications include: (1) Eliminating
bad smell in breeding cattle and poultry, (2) Treating stagnant water and converting into drinking water for cattle and poultry,
(3) Breeding cattle and poultry without antibiotics and vaccines, and (4) Ecological shrimp breeding without using disinfectants
and antibiotics. The Company intends to apply the Intellectual Property to its organic farming programs in the U.S. and abroad
in the near future.
LETTER
OF INTENT TO ACQUIRE LIME ROCK MINE IN FLORIDA, U.S.A.
On
October 26, 2016, the Company signed a Letter of Intent with Blue Rok, Inc., a Florida corporation, to acquire a lime rock mine
at 3153 W. U.S. Highway 27 Mayo, Florida 32066, consisting of property, facilities, equipment, inventory, and licenses and permits,
including 16.6 acres of land owned free and clear by BRI and 140 acres of land leased from three discrete landowners for mining
purposes, for a total purchase price of $2,900,000. It is agreed that $1,500,000 of the total purchase price will be paid in cash
upon closing and $1,400,000 will be paid in 10 six-month installments of $140,000 each without interest. Subject to further satisfactory
due diligence review by the Company and mutual agreement between parties, the Company and Blue Rok’s controlling shareholder
will enter into a definitive Sale and Purchase Agreement for the consummation of this transaction.
ISSUANCES
OF COMPANY’S COMMON STOCK
On
October 30, 2016, the Company issued 200,00 shares of PHI Group, Inc.’s restricted Common Stock valued at $0.25 per share
to two independent consultants consulting services.
RETURN
OF SPORTS POUCH BEVERAGE COMPANY STOCK
On
November 1, 2016, PHI Capital Holdings, Inc., a wholly owned subsidiary of the Company, returned 97,350,000 shares of Common Stock
of Sports Pouch Beverage Company to this client company.
LETTER
OF INTENT TO ACQUIRE A FARM IN HOLMES COUNTY, FLORIDA
On
November 3, 2016, the Company signed a Letter of Intent to acquire a 408-acre farm together with buildings, fixtures, and
farming systems and in Bonifay, Holmes County, Florida for a total purchase price of $1,500,000. Subject to further satisfactory
due diligence review by the Company and mutual agreement between parties, the Company and the farm owners will enter into a definitive
Sale and Purchase Agreement for the consummation of this transaction. The Company intends to use this property to develop a proprietary
organic farming program in conjunction with EB-5 investment capital from qualified international investors.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except
for the audited historical information contained herein, this report specifies forward-looking statements of management of the
Company within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934
(“forward-looking statements”) including, without limitation, forward-looking statements regarding the Company’s
expectations, beliefs, intentions and future strategies. Forward-looking statements are statements that estimate the happening
of future events and are not based on historical facts. Forward- looking statements may be identified by the use of forward-looking
terminology, such as “could”, “may”, “will”, “expect”, “shall”, “estimate”,
“anticipate”, “probable”, “possible”, “should”, “continue”, “intend”
or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in this report
have been compiled by management of the Company on the basis of assumptions made by management and considered by management to
be reasonable. Future operating results of the Company, however, are impossible to predict and no representation, guaranty, or
warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements
specified in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic,
legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information
and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment.
To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results,
and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In addition, those forward-looking
statements have been compiled as of the date of this report and should be evaluated with consideration of any changes occurring
after the date of this report. No assurance can be given that any of the assumptions relating to the forward-looking statements
specified in this report are accurate and the Company assumes no obligation to update any such forward-looking statements.
INTRODUCTION
PHI
Group, Inc. (the “Company” or “PHI”) is a Nevada corporation engaged in mergers and acquisitions as a
principal (
www.phiglobal.com
). The Company has adopted plans to acquire established operating businesses in selective industries
and invest in various ventures that may potentially create significant long-term value for our shareholders. In addition, we also
provide corporate finance services, including merger and acquisition advisory and consulting services for client companies through
our wholly owned subsidiary PHI Capital Holdings, Inc. (
www.phicapitalholdings.com
). No assurances can be made that the
Company will be successful in achieving its plans.
BACKGROUND
Originally
incorporated in June 1982 as JR Consulting, Inc., the Company was foremost engaged in mergers and acquisitions and had an operating
subsidiary, Diva Entertainment, Inc., which operated two modeling agencies, one in New York and one in California. Following the
business combination with Providential Securities, Inc., a California-based financial services company, the Company changed its
name to Providential Securities, Inc. (Nevada) in January 2000. The Company then changed its name to Providential Holdings, Inc.
in February 2000. In October 2000, Providential Securities withdrew its securities brokerage membership and ceased its financial
services business. Subsequently, in April 2009, the Company changed its name to PHI Group, Inc. From October 2000 to October 2011,
the Company and its subsidiaries were engaged in mergers and acquisitions advisory and consulting services, real estate and hospitality
development, mining, oil and gas, telecommunications, technology, healthcare, private equity, and special situations. In October
2011, the Company discontinued the operations of Providential Vietnam Ltd., Philand Ranch Limited, a United Kingdom corporation
(together with its subsidiaries Philand Ranch - Singapore, Philand Corporation - US, and Philand Vietnam Ltd. - Vietnam), PHI
Gold Corporation (formerly PHI Mining Corporation, a Nevada corporation), and PHI Energy Corporation (a Nevada corporation), and
began to mainly focus on acquisition and development opportunities in energy and natural resource businesses. Starting July 2016,
the Company has engaged Milost Advisors, Inc., a New York-based investment-banking firm, as its buy-side advisor and begun to
seek acquisition opportunities in other industries besides energy and natural resources. In addition, PHI Capital Holdings, Inc.,
a wholly owned subsidiary of PHI, continues to provide corporate and project finance services, including merger and acquisition
(M&A) advisory and consulting services for other companies in a variety of industries.
BUSINESS
STRATEGY
PHI
Group Inc.’s strategy is to:
1.
Identify, build, acquire, commit and deploy valuable resources with distinctive competitive advantages;
2.
Identify, evaluate, acquire, participate and compete in attractive businesses that have large, growing market potential;
3.
Design and implement best-of-breed management systems; and
4.
Build an attractive investment that includes points of exit for investors through capital appreciation or spin-offs of business
units.
SUBSIDIARIES:
As
of September 30, 2016, the Company owns 100% of PHI Capital Holdings, Inc., a Nevada corporation, and 100% of American Pacific
Resources, Inc., a Wyoming corporation. American Pacific Resources, Inc. is inactive.
PHI
CAPITAL HOLDINGS, INC.
PHI
Capital Holdings, Inc., a Nevada corporation, was originally incorporated under the name of “Providential Capital, Inc.”
in 2004 as a wholly owned subsidiary of the Company to provide merger and acquisition (M&A) advisory services, consulting
services, project financing, and capital market services to clients in North America and Asia. In May 2010, Providential Capital,
Inc. changed its name to PHI Capital Holdings, Inc. This subsidiary has successfully managed merger plans for several privately
held and publicly traded companies and continues to focus on serving the Pacific Rim markets in the foreseeable future.
AMERICAN
PACIFIC RESOURCES, INC.
American
Pacific Resources, Inc. is a Wyoming corporation established in April 2016 with the intention to serve as a holding company for
various natural resource projects in Southeast Asia. As of the date of this report American Pacific Resources, Inc. has not begun
any business operation.
DISCONTINUED
OPERATIONS:
The
Company has discontinued the operations of Providential Vietnam Ltd., Philand Ranch Limited – UK (together with its subsidiaries
Philand Ranch Ltd-Singapore, Philand Corporation-USA and Philand Vietnam Ltd.), PHI Gold Corporation (now known as NS International
Corp.), and PHI Energy Corporation since June 30, 2012.
Cornerstone
Biomass Corporation, a Florida corporation, was set up in January 2015 by the Company and the principals of AG Materials, LLC,
an Alabama company, to engage in biomass energy. The Company holds 51% and the principals of AG Materials hold 49% of equity ownership
in Cornerstone Biomass Corporation. This subsidiary’s plan was to develop and establish a 200,000 MT wood pellet plant adjacent
to Klausner Lumber Mill in Live Oak, Florida. In July 2015, the Company purchased a 10-acre parcel of land from Klausner Holding
USA Corporation in order to build the wood pellet plant. Due to subsequent changes in market conditions affecting industrial pellet
usage in Europe, Cornerstone Biomass Corp. decided not to pursue this project. The Company has written off its initial investment
in Cornerstone Biomass Corp. as of June 30, 2016 in the amount of $ 2,550 and is in the process of selling the land parcel for
cash. Cornerstone Biomass Corporation was dissolved effective September 23, 2016.
SPUN-OFF
SUBSIDIARIES:
TANS
GLOBAL, INC. (Formerly PROVIMEX, INC.)
Provimex,
Inc. was originally formed on April 10, 2001 under the name “Providential Imex”, to focus on trade commerce with Vietnam.
This division changed its name to Provimex on July 5, 2001. Provimex began to generate revenues from its import and export activities
in August 2002 through the fiscal year ended June 30, 2005 and was incorporated as a Nevada corporation on September 23, 2004.
The Company distributed a 15% stock dividend of Provimex, Inc. to PHI Group, Inc.’s shareholders of record as of September
15, 2004. On June 3, 2011, Provimex, Inc. signed an agreement to acquire all the issued and outstanding capital stock of Humex
Medical Group Corp., a California corporation, (“Humex”) in exchange solely for a certain amount of shares of Provimex’s
common stock, par value 0.001, to engage in stem research and therapy in Southeast Asia. On June 13, 2012 this transaction was
rescinded in its entirety effective retroactively June 3, 2011. On June 19, 2012, Provimex, Inc. changed its name to HP.ITA Corporation.
On July 20, 2012, HP.ITA Corporation (“HPUS”) signed a Corporate Combination Agreement to merge with HP.ITA Joint
Stock Company (“HPVN”), a Vietnamese company, in order to go public in the United States but the Corporate Combination
Agreement was subsequently rescinded because HPVN was not able to implement its business plan and complete financial audits according
to the U.S. Generally Accepted Accounting Principals (“GAAP”). On September 16, 2016 HP.ITA Corp. changed its name
to Tans Global, Inc. with the intention to merge with an operating company and file a registration statement with the Securities
and Exchange Commission to become a fully reporting public company in the U.S. PHI Group is expected to hold a small portion of
stock in Tans Global, Inc. following the contemplated business combination.
OMNI
RESOURCES, INC. (Formerly TOUCHLINK COMMUNICATIONS, INC.)
Touchlink
Communications was formed on July 7, 2003 as a division of the Company to provide point-of-sale (POS) terminals and prepaid calling
cards to retailers, convenient stores and non-profit organizations across the US. This subsidiary was later incorporated as a
Nevada corporation in February 2004 under the name of Touchlink Communications, Inc. as a wholly owned subsidiary of the Company
to provide long distance services to residential and business customers in the United States. The Company has declared a 15% stock
dividend of Touchlink Communications, Inc. to shareholders of record as of September 15, 2004. On November 03, 2008, this subsidiary
changed its name to Vietnam Media Group, Inc. with the intent to develop a multi-media business in Vietnam and subsequently resumed
the corporate name of Touchlink Communications, Inc. in February 2011. On April 4, 2014, this company changed its name to Asia
Green Corporation (“AGC”) and entered into a business combination agreement with Asia Green Limited Liability Company,
a Vietnam-based company, to become a holding company for agroforestry and afforestation business in Vietnam and Southeast Asia.
On July 28, 2014, AGC changed its corporate name to Omni Resources, Inc. The Company expects to hold about 10% equity interest
in Omni Resources, Inc. following Omni’s recapitalization. As of the date of this report Omni Resources, Inc. is inactive
and has not implemented any reorganization plan.
STOCK
OWNERSHIPS:
CATALYST
RESOURCE GROUP, INC. (formerly JEANTEX GROUP, INC.)
As
of June 30, 2016, the Company owned 22,535,714 shares of Catalyst Resource Group, Inc. common stock, a Florida corporation, or
equivalent to 2.56%. This company is currently inactive.
MYSON
GROUP, INC. (formerly VANGUARD MINING CORPORATION)
As
of September 30, 2016, PHI Group, Inc. and PHI Capital Holdings, Inc., a wholly owned subsidiary of the Company, together owned
34,010,106 shares of Common Stock of Myson Group, Inc., a Nevada corporation currently traded on the OTC markets under the symbol
“MYSN.”
SPORTS
POUCH BEVERAGE COMPANY, INC.
As
of September 30, 2016, the Company through PHI Capital Holdings, Inc. owned 292,050,000 shares of Sports Pouch Beverage Company,
Inc., a Nevada corporation traded on the OTC Markets under the symbol “SPBV”.
CRITICAL
ACCOUNTING POLICIES
The
Company’s financial statements and related public financial information are based on the application of accounting principles
generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported.
These estimates can also affect supplemental information contained in the external disclosures of the Company including information
regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere
to GAAP and are consistently and conservatively applied. Valuations based on estimates are reviewed by us for reasonableness and
conservatism on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject
to the use of estimates, assumptions and the application of judgment include acquisitions, valuation of long-lived and intangible
assets, recoverability of deferred tax and the valuation of shares issued for services. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially
from these estimates under different assumptions or conditions.
Valuation
of Long-Lived and Intangible Assets
The
recoverability of long-lived assets requires considerable judgment and is evaluated on an annual basis or more frequently if events
or circumstances indicate that the assets may be impaired. As it relates to definite life intangible assets, we apply the impairment
rules as required by SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of”
as amended by SFAS No. 144, which also requires significant judgment and assumptions related to the expected future cash flows
attributable to the intangible asset. The impact of modifying any of these assumptions can have a significant impact on the estimate
of fair value and, thus, the recoverability of the asset.
Income
Taxes
We
recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the
tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation
allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary
differences. As of March 31, 2016, we estimated the allowance on net deferred tax assets to be one hundred percent of the net
deferred tax assets.
RESULTS
OF OPERATIONS
The
following is a discussion and analysis of our results of operations for the three-month periods ended September 30, 2016 and 2015,
our financial condition at September 30, 2016 and factors that we believe could affect our future financial condition and results
of operations. Historical results may not be indicative of future performance.
This
discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included
elsewhere in this Form 10-Q. Our consolidated financial statements are prepared in accordance with Generally Accepted Accounting
Principles in the United States (“GAAP”). All references to dollar amounts in this section are in United States dollars.
Three
months ended September 30, 2016 compared to the three months ended September 30, 2015
Total
Revenues:
The
Company had $50,000 in revenue from consulting services for the quarter ended September 30, 2016 as compared to $40,000 in revenue
for the quarter ended September 30, 2015, an increase of $10,000 between the two periods.
Operating
Costs and Expenses:
Total
operating expenses were $239,946 and $96,929 for the three months ended September 30, 2016, and 2015, respectively.
The
variance of $143,017 in operating expenses between the two periods was primarily due to an increase in professional services of
$128,280, and an increase in general and administrative expenses of $15,237 during the quarter ended September 30, 2016 compared
to the corresponding period in 2015. The increase in professional services was due to additional expenses in connection with due
diligence review of new acquisition targets during the current quarter. General and administrative expenses were $28,772 and $13,535
for the three months ended September 30, 2016, and 2015, respectively. The increase in general and administrative expenses between
the two comparable periods was primarily due to an increase in advertising expenses of $8,695 and an increase in filing fees of
$4,168, respectively.
Income
(Loss) from Operations:
Loss
from operations for the three months ended September 30, 2016 was $189,946, as compared to loss from operations for the same period
ended September 30, 2015 was $56,929, respectively, due to factors mentioned in Total Revenues and Operating Costs and Expenses
above.
Other
Income and Expenses:
Net
other expenses were $185,585 for the three months ended September 30, 2016, as compared to net other income of $76,803 for the
three months ended September 30, 2015. The increase in other expenses of $262,388 between the two periods was mainly due to an
increase in interest expense of $95,559 in connection with the conversion of the promissory note dated February 29, 2016 into
common stock of the Company by Auctus Fund, LLC, an increase in other expense of $10,494, and a variance of $156,335 due to loss
on sale of marketable securities, respectively.
Interest
expenses were $175,136 and $79,576 for the three months ended September 30, 2016 and 2015, respectively.
Net
Income (Loss):
Net
loss for the three months ended September 30, 2016 was $375,531, as compared to a net income of $76,803 for the same period in
2015, which is equivalent to ($0.04) per share for the current period and $0.01 for the corresponding period ended September 30,
2015, based on the weighted average number of basic and diluted shares outstanding at the end of each corresponding period.
CASH
FLOWS
The
Company’s cash and cash equivalents balance were $6,205 and $208,745 as of September 30, 2016 and September 30, 2015, respectively.
Net
cash used in the Company’s operating activities during the three-month period ended September 30, 2016 was $227,170, as
compared to net cash provided by operating activities of $516,008 during the three-month period ended September 30, 2015. This
represents a variance of $743,178 in net cash used in operating activities and net cash provided by operating activities between
the two periods. The underlying reason for the variance was primarily due to a net loss from operations of $375,531 during the
three-month period ended September 30, 2016, as compared to a net income from operations in the amount of $19,874 during the corresponding
three-month period ended September 30, 2015; an increase in other assets and prepaid expenses in the amount of $29,332 during
the three-month period ended September 30, 2016, as compared to a decrease in other assets and prepaid expenses in the amount
of $166,820 during the corresponding three-month period ended September 30, 2015; and an increase in accounts payable and accrued
expenses in the amount of $177,693 during the three-month period ended September 30, 2016, as compared to an increase in accounts
payable and accrued expenses in the amount of $329,315 during the three months ended September 30, 2015.
The
Company used $149,509 in investing activities during the three-month period ended September 30, 2015 and did not have any investing
activities during the three-month period ended September 30, 2016.
Cash
provided by financing activities was $230,893 for the three-month period ended September 30, 2016, as compared to cash used in
financing activities in the amount of $168,410 for the three-month period ended September 30, 2015. The primary underlying reasons
for the variance of $399,303 between the two periods were due to an increase in proceeds from common stock of $248,942 during
the current period as a result of certain creditors’ conversions of debts into common stock of the Company, a change in
Accumulated Other Comprehensive Income (loss) of $27,757, a change in Accumulated Deficit of $87,108, a change in Treasury Stock
of $13,972, and a change in net borrowings from officers in the amount of $15,824 between the current three-month periods ended
September 30, 2016 and the corresponding previous period ended September 30, 2015.
HISTORICAL
FINANCING ARRANGEMENTS
SHORT
TERM NOTES PAYABLE AND ISSUANCE OF COMMON STOCK: In the course of its business, the Company has obtained short-term loans from
individuals and institutional investors and from time to time raised money by issuing restricted common stock of the Company under
the auspices of Rule 144. As of September 30, 2016 and June 30, 2016, the Company had short-term notes payable amounting to $631,538
and $673,660 with accrued interest of $2,912,218 and $2,879,655, respectively. These notes bear interest rates ranging from 0%
to 36% per annum.
CONVERTIBLE
PROMISSORY NOTES:
On
February 29, 2016, the Company issued a convertible promissory note in the amount of $56,750 to Auctus Fund, LLC, a Delaware limited
liability company. This convertible note is due and payable on November 29, 2016 with interest of 10% per annum. This note is
convertible at the election of Auctus Fund, LLC from time to time after the issuance date. In the event of default, the amount
of principal and interest not paid when due bear interest at the rate of 24% per annum and the note becomes immediately due and
payable. Should an event of default occur, the Company is liable to pay 150% of the then outstanding principal and interest. The
note agreement contains covenants requiring Auctus Fund’s written consent for certain activities not in existence or not
committed to by the Company on the issuance date of the note, as follows: dividend distributions in cash or shares, stock repurchases,
borrowings, sale of assets, certain advances and loans in excess of $100,000, and certain guarantees with respect to preservation
of existence of the Company and non-circumvention. Outstanding note principal and interest accrued thereon can be converted in
whole, or in part, at any time by Auctus after the issuance date into an equivalent of the Company’s common stock determined
by 55% of the average of the two lowest closing trading prices of the Company’s common stock during the twenty (20) trading
days prior to the date the conversion notice is sent by Auctus. The Company may prepay the amounts outstanding to Auctus Fund
at any time up to the 180
th
day following the issue date of this note by making a payment to the note holder of an
amount in cash equal to 125% to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note
plus
(x) accrued and unpaid interest on the unpaid principal amount of this Note
plus
(y) Default Interest, depending on
the time of prepayment.
On
August 30, 2016, Auctus Fund, LLC converted the principal amount of $56,750 and $2,829.76 in accrued interest, totaling $59,579.76,
into 529,598 shares of free-trading stock of the Company.
On
July 20, 2016, the Company issued a convertible promissory note in the amount of $50,000 to EMA Financial, LLC, a Delaware limited
liability company. The note has a coupon rate of 10%, matures in one year and is convertible to Common Stock of the Company at
a conversion price equals the lower of: (i) the closing sale price of the Common Stock on the Principal Market on the Trading
immediately preceding the Closing Date of this note, and (ii) 55% of the lowest sale price for the Common Stock on the Principal
Market during the twenty (20) consecutive Trading Days immediately preceding the Conversion Date. The note may be prepaid at 130%
- 145% of outstanding principal and interest up to 180 days.
On
August 16, 2016, the Company issued a convertible promissory note in the amount of $56,750 to Auctus Fund, LLC, a Delaware limited
liability company. The note has a coupon rate of 10%, matures on May 16, 2017 and is convertible to Common Stock of the Company
at a conversion price equals the lower of: (i) 50% multiplied by the average of the two lowest Trading Price during the previous
twenty-five Trading Day period ending on the latest complete Trading Date prior to the date of this note and (ii) 50% multiplied
by the average of the two lowest Trading Prices for the Common Stock during the twenty-five Trading Day period ending on the latest
complete Trading Day prior to the Conversion Date. The note may be prepaid at 135% - 150% of outstanding principal and interest
up to 180 days.
The
Company intends to prepay these notes within the respective allowable prepayment time frames.
The
value of the derivative liabilities at September 30, 2010 is $160,488.
COMPANY’S
PLAN OF OPERATION FOR THE FOLLOWING 12 MONTHS
In
the next twelve months the Company intends to continue pursuing its merger and acquisition program by acquiring all or controlling
interests in target companies in a number of industries, including but not limited to conventional energy, renewables, natural
resources, agribusiness, technology, transportation, education, distribution, mining, oil & gas, financial Services, healthcare,
and pharmaceuticals. In addition, the Company also plans to invest in special situations that may potentially generate significant
revenues and profitability for the Company in the short term. We believe that by closing one or more of the contemplated acquisitions
we will be able to build a critical mass and uplist to the Nasdaq Stock Market or NYSE in the near future. Moreover, we will continue
to provide advisory and consulting services to international clients through our wholly owned subsidiary PHI Capital Holdings,
Inc.
The Company anticipates generating substantial
amounts of revenues through the merger and acquisition program, investment in special situations, and advisory services mentioned
herein. However, no assurances could be made that management would be successful in achieving its plan. The president and chairman
of the Company has committed to funding the Company’s operations from various sources for the next 12 months.
FINANCIAL
PLANS
MATERIAL
CASH REQUIREMENTS: We must raise substantial amounts of capital to fulfill our plan of acquiring energy-related and natural resource
assets as part of our scope of business. We intend to use equity, debt and project financing to meet our capital needs for acquisitions.
Management
has taken action and formulated plans to strengthen the Company’s working capital position and generate sufficient cash
to meet its operating needs through June 30, 2017 and beyond. The working capital cash requirements for the next 12 months are
expected to be generated from operations, sale of marketable securities and additional financing. The Company plans to generate
revenues from its consulting services, merger and acquisition advisory services, and acquisitions of target companies with cash
flows.
AVAILABLE
FUTURE FINANCING ARRANGEMENTS: In September 2016 the Company
signed an agreement with Milost
Global, Inc., a U.S. private equity firm, for a commitment of up to $100 million to finance the Company’s future acquisitions
and provide for working capital needs. Investment in the amount of USD 50 million will be as equity and USD 50 million as loans.
In addition, the Company may use other sources of funds, including short-term loans and long-term debt and equity financing,
as may be needed. The Company believes it will be able to secure the required capital to implement its business plan; however,
no assurances could be made that management would be successful in achieving its plan.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
following discussion about PHI Group Inc.’s market risk involves forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements.
Currency
Fluctuations and Foreign Currency Risk
Some
of our operations are conducted in other countries whose official currencies are not U.S. dollars. However, the effect of the
fluctuations of exchange rates is considered minimal to our business operations.
Interest
Rate Risk
We
do not have significant interest rate risk, as most of our debt obligations are primarily short-term in nature to individuals,
with fixed interest rates.
Valuation
of Securities Risk
Since
majority of our income is paid with the marketable securities, the value of our assets may fluctuate significantly depending on
the market value of the securities we hold.
ITEM
4.
Controls and Procedures
Disclosure
Controls and Procedures
As
required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management
carried out an evaluation, with the participation of our Chief Executive Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act), as of the period covered by this
report. Disclosure controls and procedures are defined as controls and other procedures that are designed to ensure that information
required to be disclosed by us in reports filed with the SEC 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 its principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure. Based upon their evaluation, our management (including our Chief Executive Officer) concluded that
our disclosure controls and procedures were not effective as of June 30, 2015, based on the material weaknesses defined below.
Internal
Control over Financial Reporting
Management’s
Report on Internal Control of Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive
and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
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pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of
our assets,
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provide
reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in
accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors, and
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provide
reasonable assurance regarding prevention or timely detection of authorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements.
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Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted
that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Under
the supervision and with the participation of management, including its principal executive officer and principal financial officer,
the Company’s management assessed the design and operating effectiveness of internal control over financial reporting as
of June 30, 2015 based on the framework set forth in
Internal Control—Integrated Framework (2013)
issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We
have identified material weaknesses in our internal control over financial reporting:
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(i)
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inadequate
segregation of duties consistent with control objectives;
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(ii)
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ineffective
controls over period-end financial disclosure and reporting processes.
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If
we fail to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results in a timely manner, which may adversely affect investor confidence in our company.
Based
on this assessment, management concluded that the Company’s internal control over financial reporting was not effective
as of September 30, 2016.
Management’s
Remediation Plan
We
plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered
by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate
such weaknesses, we plan to implement the following changes in the future:
(i)
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appoint
additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and
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(ii)
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adopt
sufficient written policies and procedures for accounting and financial reporting.
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The
remediation efforts set out in (i) are largely dependent upon our company securing additional financing to cover the costs of
implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected
in a material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management
believes that despite our material weaknesses set forth above, our consolidated financial statements for the quarterly report
ended September 30, 2016 are fairly stated, in all material respects, in accordance with US GAAP.
Attestation
Report of the Registered Accounting Firm
This
Quarterly Report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to Rule 308(b) of Regulation S-K, which permits the Company to provide only management’s
report in this Annual Report.
Changes
in Internal Control over Financial Reporting
No
changes in the Company’s internal control over financial reporting have come to management’s attention during the
fiscal quarter ended September 30, 2016 that have materially affected, or are likely to materially affect, the Company’s
internal control over financial reporting.