Notes to Condensed Financial Statements
Nine months ended March 31, 2017 and 2016
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Star Century Pandaho Corporation ("the
Company", “SCPD”) was organized under the laws of the State of Nevada on May 21, 2009. The Company was established
as part of the Chapter 11 reorganization of AP Corporate Services, Inc. ("AP").
Pandaho the Panda is a cartoon styled character.
On May 22, 2015, the Company secured certain licensing rights to the Pandaho character and brand though a licensing agreement with
the creator of Pandaho, Ms. Liu Li. The Company’s aim is to build Pandaho into a competitive cartoon brand in China and surrounding
areas with Pandaho-themed merchandise and multi-media exhibitions. Currently the Company does not have any operations in China.
Basis of presentation
The unaudited condensed financial statements
of the Company for the three and nine months ended March 31, 2017 and 2016 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting
on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation
of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year. The balance sheet information as of June 30, 2016 was derived from the audited financial
statements included in the Company's financial statements as of and for the fiscal year ended June 30, 2016 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2016. These
financial statements should be read in conjunction with that report.
Going concern
The accompanying condensed financial statements
have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. During the nine months ended March 31, 2017, the Company incurred a net loss of
$795,974 and used cash in operating activities of $24,511, and at March 31, 2017, had a stockholders’ deficiency of $678,078.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one
year of the date that the financial statements are issued. The Company’s independent registered public accounting firm, in
their report on the Company’s financial statements for the year ending June 30, 2016, expressed substantial doubt about the
Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments
that might result from the outcome of this uncertainty should we be unable to continue as a going concern.
The Company’s ability to continue as
a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve profitable operations.
Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenue
sufficient to cover its operating costs and allow it to continue as a going concern. Over the next 12 months, the Company expects
to expend up to approximately $50,000 for legal, accounting and administrative costs. The Company’s officers or principal
shareholders have committed to making advances or loans to pay for these legal, accounting, and administrative costs. The Company
has not yet determined the amount of cash that will be necessary to fund its planned operations in China.
The Company hopes to be able to attract suitable
investors for our business plan, which will not require us to use our cash. No assurance can be given that any future financing
will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able
to obtain additional financing, it may contain undue restrictions on our operations, in the
case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.
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 period. Actual results could differ from those estimates.
The more significant estimates and assumptions by management include, among others, the accrual of potential liabilities, the assumptions
used in valuing share-based instruments issued for services, and the valuation allowance for deferred tax assets.
Revenue
Revenue is recognized when the price is fixed
or determinable, persuasive evidence of an arrangement exists, the service has been delivered, and collectability is reasonably
assured. In transactions in which the Company brokers a sale and determines that it was not the primary obligor in the arrangement,
the Company records as net the commission earned from the transaction.
Basic and Diluted loss per share
Basic loss per share is computed by dividing
net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Diluted
loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common
shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common
shares had been issued. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive.
At March 31, 2017 and 2016, we excluded the outstanding securities
summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive:
|
|
March 31,
2017
|
|
March 31,
2016
|
Common stock issuable upon conversion of convertible and non-redeemable convertible notes payable
|
|
|
5,272,810
|
|
|
|
2,073,050
|
|
Common stock issuable upon conversion of accrued compensation
|
|
|
22,695,819
|
|
|
|
2,331,178
|
|
Total
|
|
|
27,968,629
|
|
|
|
4,404,228
|
|
Share-Based Compensation
The Company may periodically issue shares of
common stock, stock options, or warrants to employees and non-employees in non-capital raising transactions for services and for
financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative
guidance provided by the FASB whereas the value of the award is measured on the date of grant and recognized over the vesting period.
The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative
guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a)
the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity
instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line
basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately
vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's common stock
option grants are estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest
rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based
upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the
Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
Fair Value
of Financial Instruments
Fair value is defined as the price that would
be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at
the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated
based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard
expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that
is significant to the fair value measurement in its entirety. These levels are:
Level 1 – inputs are based
upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based
upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally
unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the
asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted
cash flow models, and similar techniques.
The estimated fair value of certain financial
instruments, including cash and cash equivalents and accounts payable and accrued expenses are carried at historical cost basis,
which approximates their fair values because of the short-term nature of these instruments. The recorded values of the convertible
notes-related parties and non-redeemable convertible note approximates their fair values based upon their effective interest rates.
Recent
Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers.
ASU 2014-09 is
a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current
U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies
recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
In addition, during 2016 the FASB has issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, all of which clarify certain implementation
guidance within ASU 2014-09, and ASU 2016-11, which rescinds certain SEC guidance effective upon an entity’s adoption of
ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted
only in annual reporting periods beginning after December 15, 2016, including interim periods therein. The standard can be adopted
either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.
The Company is currently in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and
disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases.
ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance
sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning
after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for
capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in
the financial statements, with certain practical expedients
available. The Company is currently evaluating the expected impact that the standard could have on its financial statements and
related disclosures.
In March 2016, the FASB issued the ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting.
The amendments in this ASU require, among other things, that all
income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for
an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability
accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted
for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could
have on its financial statements and related disclosures.
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 2. COMPENSATION AND ACCRUED COMPENSATION-RELATED
PARTIES
Compensation-related party and accrued compensation-related
party represent amounts recorded for employment contracts with three executives who are also shareholders, and a consulting agreement
with another shareholder. Pursuant to the terms of these agreements, total annual compensation for services was $396,000 (“cash
compensation”), and the executives and shareholder have the option to accept shares of the Company’s common stock in
lieu of cash based on a 50% discount to the average stock price, as defined. The option to accept shares of common stock in lieu
of cash is accounted for at the fair value of the potentially issuable common shares and is subject to adjustment at each reporting
date based on the change in market value of the shares.
On June 30, 2016, accrued compensation related
to the three executives totaled $812,775. From July 1, 2016 to December 31, 2016, additional compensation expense of $567,342 was
recorded, including $169,380 accrual of cash compensation, and a charge of $397,962 for the fair value that could be paid in shares
of common stock. At December 31, 2016, accrued compensation due to the three executives totaled $1,380,117. Effective December
31, 2016, the three executives agreed to forgive the $1,380,117, and to also terminate their employment agreements. Accordingly,
at March 31, 2017, the total due to the three executives for accrued compensation was zero. The Company determined that based on
the related party nature of the settlement, the gain on settlement of accrued compensation was treated as a capital contribution.
On June 30, 2016, accrued compensation due
to the shareholder consultant was $105,290. During the nine months ended March 31, 2017, additional compensation of $121,668 was
recorded, including $45,041 accrual of cash compensation due, and a charge of $76,627 for the fair value that could be paid in
shares of common stock. At March 31, 2017, the accrued compensation due to the shareholder consultant was $226,958, which if the
shareholder consultant elected to be paid in shares of common stock, would result in the issuance of 22,695,819 shares of the Company’s
common stock.
NOTE 3. ADVANCES
The Company from time to time borrows from
its principal shareholders, or others, to pay expenses such as filing fees, accounting fees and legal fees. These advances are
non-interest bearing, unsecured, and generally due upon demand. At March 31, 2017 and June 30, 2016, the Company was obligated
for the following advances:
|
|
March 31,
2017
|
|
June 30,
2016
|
Advances due to shareholder
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Advances due to unrelated parties
|
|
|
54,390
|
|
|
|
54,390
|
|
|
|
$
|
79,390
|
|
|
$
|
79,390
|
|
NOTE 4. CONVERTIBLE NOTES-RELATED PARTY
|
|
March 31,
2017
|
|
June 30,
2016
|
Balance due on convertible notes
|
|
$
|
211,828
|
|
|
$
|
166,581
|
|
Unamortized note discounts
|
|
|
(4,276
|
)
|
|
|
(34,942
|
)
|
|
|
$
|
207,552
|
|
|
$
|
131,639
|
|
Convertible notes-related party are unsecured,
accrue interest at 10% per annum, and are due from June 2017 through March 2018. The notes are convertible into shares of the Company’s
common stock at a conversion price ranging from of $0.01 per share to $0.10 per share. At March 31, 2017, the notes are convertible
into 4,409,210 shares of common stock. At June 30, 2016, principal and accrued interest totaled $166,581. During the nine months
ended March 31, 2017, the Company issued five convertible notes for total proceeds of $32,173, and accrued interest of $13,074
was added to principal. At March 31, 2017, principal and accrued interest totaled $211,828.
At June 30, 2016,
the unamortized discount on convertible notes was $34,942. During the nine months ended March 31, 2017, $5,000 of discount was
added for the beneficial conversion feature on issuance of a convertible note payable, and $35,666 of discount was amortized and
included in interest expense. At March 31, 2017, the unamortized discount on convertible notes is $4,276, and is to be amortized
through December 2017
.
NOTE 5. NON-REDEEMABLE CONVERTIBLE NOTE-RELATED
PARTY
Non-redeemable convertible note-related party
is secured by all the assets of the Company, accrues interest at 20% per annum, and is due August 1, 2017. The Company may prepay
the note in readily available funds at any time prior to the maturity date. The Company has the right to convert the note into
shares of the Company’s common stock at any time prior to the maturity date at a fixed price of $0.05 per share of common
stock. At June 30, 2016, principal and accrued interest totaled $42,551. During the nine months ended March 31, 2017, interest
of $629 was accrued and added to principal. At March 31, 2017, principal and accrued interest totaled $43,180 and are convertible
into 863,600 shares of common stock. As it is the Company’s choice to convert the note into shares of the Company’s
common stock or to pay the note in cash, the note is presented below current liabilities on the accompanying balance sheets.