NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Description of the Company
Stony Hill Corp. (formerly First Fixtures, Inc. or the “Company”) was incorporated in the State of Nevada on February 21, 2014 and established a fiscal year end of March 31. Effective October 24, 2016 the Company changed its name from First Fixtures Inc. to Stony Hill Corp. The Company is organized for various investments to be made under the Stony Hill brand as well as to conduct any other related business and activities. The Company is the owner and has right to intellectual property, including trademark, trade dress, images, likenesses and other associated intellectual property such as the name "Stony Hill", related to Damian Marley.
Merger
On November 4, 2016, the Company, entered into a Share Exchange Agreement by and among the Company, Stony Hill Ventures Corp. (“Stony Hill Ventures”), and the holders of common stock of Stony Hill Ventures, which consisted of 26 stockholders. Stony Hill Ventures was incorporated on March 15, 2016, in Nevada and was organized for various investments under the Stony Hill brand as well as to conduct any other related business and activities.
Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 10,830,000 shares of common stock of the Company in consideration for all the issued and outstanding shares in Stony Hill Ventures. The effect of the issuance is that the former Stony Hill Ventures stockholders obtained approximately 73% of the then issued and outstanding shares of common stock of the Company, and Stony Hill Ventures became a wholly-owned subsidiary of the Company and now represents the Company’s principal business.
As a result of the Merger, Damian Marley became the Company’s President and Chief Executive Officer and sole member of the Board of Directors, and is the holder of 3,150,000 shares, or 21.2%, of the outstanding common stock of the Company. Dan Dalton became the Company’s Treasurer and is the holder of 2,250,000 shares, or 15.1%, of the outstanding common stock of the Company. John Brady became the Company’s new Secretary and is holder of 2,000,000 shares, or 13.4%, of the outstanding common stock of the Company. The Company’s new officers and sole director, therefore, controlled an aggregate of 7,400,000, or 49.8%, of the outstanding common stock of the Company after the transaction.
The merger between the Company and Stony Hill Ventures was treated as a reverse acquisition for financial statement reporting purposes with Stony Hill Ventures deemed the accounting acquirer and the Company deemed the accounting acquiree. Accordingly, Stony Hill Ventures’ assets, liabilities and results of operations became the historical financial statements of the Company. No step-up in basis or intangible assets or goodwill was recorded in this transaction. In connection with the Share Exchange Agreement, the Company paid $325,000 to the former shareholders of Stony Hill and assumed $1,842 of accounts payable and $49,524 of an amount owed to the former CEO of the Company, which has been recorded as an expense of the reverse merger in the accompanying statement of operations for the period ended December 31,2016. Prior to the Share Exchange, 6,002,584 shares of the Company’s then outstanding common stock were cancelled, and the remaining 4,001,757 shares of common stock were considered to be shares issued upon the reverse merger.
On October 3, 2016, the Company declared a 1 for 10 stock split. All share and per share amounts have been retro actively restated as if the split had occurred as of the earliest period presented
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
Going concern
These consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As reflected in the consolidated financial statements, the Company has only recently started to generate revenues from its business operations and as of March 31, 2017, and has incurred a net loss of $515,920 and used $150,835 of cash from operating activities during the fiscal year ended March 31, 2017. These and other factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements are issued. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and income from operations. During the fiscal year ended March 31, 2017, the Company raised $1,125,000 through the sale of 937,500 aggregate shares of its common stock to accredited investors. However, the Company will need and is currently working on obtaining additional funds to operate its business through and beyond the date of this Form 10-K filing. There is no assurance that such funds will be available or at terms acceptable to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Vita Products LLC, and VitaCBD LLC, an 80% owned entity, both State of Washington Limited Liability Companies. Intercompany transactions and balances have been eliminated in consolidation. Management evaluates its investments on an individual basis for purposes of determining whether or not consolidation is appropriate.
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Among other things, management estimates include the collectability of its accounts receivable, recoverability of inventory, assumptions made in determining impairment of investments and intangible assets, accruals for potential liabilities, and realization of deferred tax assets. These estimates generally involve complex issues and require judgments, involve analysis of historical information and the prediction of future trends, and are subject to change from period to period. Actual amounts could differ significantly from these estimates.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1
|
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
|
Level 3
|
|
Pricing inputs that are generally observable inputs and not corroborated by market data.
|
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as accounts receivables and accounts payable, approximate their fair values because of the short maturity of these instruments. The Company uses Level 3 inputs for its investments.
Revenue Recognition
The Company receives revenue from two main sources - license fees and sale of products. For license fees, revenue arrangements provide for the payment of contractually determined monthly ongoing fees in consideration for the grant of right to use intellectual property of the Company, including trademark, trade dress, images, likenesses and other associated intellectual property, such as the name “Stony Hill” related to Damian Marley and in some cases mutually agreed upon marketing and special appearances by certain members of the Company. Revenue from product sales relate to shipments of cannabidiol (“CBD”) brand products. There is no right of returns other than for goods damaged during shipment.
For both license fees and sale of products, revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectibility of amounts is reasonably assured.
Shipping Cost
The Company recognizes amounts billed to a customer in a sale transaction related to shipping as revenue. The costs incurred by the Company for shipping are classified as cost of goods sold in the Consolidated Statements of Operations.
Advertising
The Company expenses advertising costs as incurred. Advertising expense for the fiscal periods ended March 31, 2017 and 2016 amounted to $15,414 and nil, respectively, and are included in "General and Administrative expenses" in our Consolidated Statements of Operations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventories consists of finished goods held for sale. Management regularly reviews inventory quantities on-hand and records an inventory provision for excess or obsolete inventory based on the future expected demand for our products. Inventory write-downs are measured as the difference between the cost of the inventory and market value, based upon assumptions about future demand that are inherently difficult to assess. There was no provision for inventory obsolescence necessary as of March 31, 2017 and 2016.
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
Earnings (Loss) per Share
The basic earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the weighted average number of common shares during the period. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items. For the fiscal periods ended March 31, 2017 and 2016, there were no common stock equivalents outstanding.
Weighted average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period presented.
Investments
For investments that are not required to be consolidated, the Company uses either the equity method or the cost method of accounting. The Company uses the equity method for unconsolidated equity investments in which the Company is considered to have significant influence over the operations of the investee. The Company uses the cost method for all other investments. Under the cost method, there is no change to the cost basis unless there is an other-than-temporary decline in value or dividends are received. If the decline is determined to be other-than-temporary, the Company writes down the cost basis of the investment to a new cost basis that represents realizable value. Distributions received from the income of an investee on cost method investments are included in "Equity method investments (loss)/income, net." Investments accounted for under the equity method or cost method of accounting above are included in the caption "Equity investments" on the Consolidated Balance Sheets. As of March 31, 2017, management estimates that the cost basis approximates the fair market value.
Intangible Asset
Intangible assets are recorded when such assets are acquired and are amortized over the estimated useful life of the intangible asset. The Company regularly reviews intangible assets to determine if facts and circumstances indicate that the useful lives have changed from the original estimate or that the carrying amount of the assets may not be recoverable. If such facts and circumstances exist, the Company assesses the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets and occur in the period in which the impairment determination was made.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances and tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
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. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-05, all of which clarify certain implementation guidance within 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 (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company will adopt the provisions of this statement in the quarter beginning April 1, 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases. This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The new guidance clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The new standard will become effective beginning in the first quarter of fiscal 2019. However, early adoption is permitted and as such, the Company adopted this pronouncement in January 2017. Adoption did not have a significant impact on its consolidated financial statements and disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-01.
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 3 – EQUITY INVESTMENTS
Equity investments relate to purchases of stock in certain entities with ownership percentages of less than 5% and consist of the following:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Cannabi-Tech Ltd.
|
|
$
|
50,000
|
|
|
$
|
-
|
|
Hightimes Holdings Corp.
|
|
|
250,000
|
|
|
|
-
|
|
|
|
$
|
300,000
|
|
|
$
|
-
|
|
In November 2016, the Company purchased 29,571 shares of Preferred A stock at a price of $1.69086 per share for less than 5% investment in Cannabi-Tech Ltd. (“Cannabi”), a private company incorporated in the State of Israel. Cannabi is a provider of lab-grade medical cannabis quality control testing systems used to test the quality of medical marijuana flowers.
In January 2017, the Company entered in to an agreement to purchase 59,524 shares of Class A common stock at a price of $4.20 per share for less than 5% investment in Hightimes Holdings Corp. (“Hightimes”), a private company incorporated in the State of Delaware. The agreement was finalized on May 31, 2017. Hightimes owns Hight Times Magazine and hosts festivals, events and competitions including the High Times Cannabis Cup and multiple e-commerce properties, including HighTimes.com, CannabisCup.com and 420.com.
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
As the Company does not participate in the management of these companies nor has the ability to exercise significant influence over these companies, the Company recorded these investments at cost and will recognize dividends, if any, when received, and will recognize gains or loss upon either selling the securities or recognize a loss prior to selling the securities if there is evidence that the fair market value of the investment has declined to below the recorded historical cost.
NOTE 4 – ACQUISITION OF INTANGIBLE ASSET
On February 23, 2017, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with mCig, Inc., a Nevada corporation (“mCig”). Pursuant to the terms and conditions of the Asset Purchase Agreement, the Company acquired 80% of certain assets that comprise the VitaCBD business, which principally consisted of a brand name (the “Assets”) from mCig, and an option (the “Option”) to acquire the remaining 20% for an additional purchase price of $200,000. At the Closing, the Company formed a special purpose entity, VitaCBD LLC (the “Entity”), a Washington State LLC, into which the Company assigned the Assets as consideration for 80% ownership of the entity, and into which mCig will assign the 20% of assets related to the Assets held by mCig as consideration for 20% ownership of the Entity. The Company shall have a majority control of the board of directors and officers and a majority control of the managers, directors and officers of the Entity. Profits and losses will be allocated based on ownership percentages.
The VitaCBD business is primarily a line of cannabidiol (“CBD”) retail brand products that include CBD tinctures, ejuices, edibles, islates, salves, waxes, oils and capsules, as well as related trade names, social media, accounts and other related assets. The purchase price comprised of the following:
Purchase Price
|
|
|
|
Cash
|
|
$
|
150,000
|
|
Fair value of 200,000 shares at $2.84 per share issued
|
|
|
|
|
upon close of Asset Purchase Agreement
|
|
|
568,000
|
|
Fair value of 150,000 shares at $2.84 per share issued on May 24, 2017 (recorded as contractual consideration as of March 31, 2017)
|
|
|
426,000
|
|
Total purchase price
|
|
$
|
1,144,000
|
|
The Company applied the provisions of ASC 805, Business Combinations and ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in accounting for the Asset Purchase Agreement. Under this guidance, the Company accounted for the transaction as an asset purchase. As such, the Company recorded an intangible asset of $1,138,135 consisting of the VitaCBD brand and $5,865 of inventory received from mCig. The intangible is being amortized over a period of 5 years, the estimated life of the brand acquired. Amortization totaled $19,956 for the fiscal year ended March 31, 2017 and will total $227,627 in each of the following 5 years.
In accordance with the Asset Purchase Agreement, if the average common stock market price of the Company’s common stock held by mCig falls below $1.57 per share, or $550,000 total value (“Market Value”), during any 7-day period during the first year following the Second Stock Issuance (May 24, 2017), then the Company is obligated to issue to mCig additional shares of the Company’s common stock to increase the then Market Value held by mCig to $550,000. As of March 31, 2017, the trading price of common stock held by mCig was above the Market Value threshold.
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
NOTE 5 – RELATED PARTY TRANSACTIONS
As of March 31, 2016, the Company owed $5,916 to shareholders for general and administrative expenses paid on behalf of the Company by the shareholders. During the fiscal year ended March 31, 2017, the shareholders advanced an additional $47,052. During the fiscal year ended March 31, 2017, the Company repaid $33,681 of the amounts owed. As such, outstanding balance owed to these shareholders as of March 31, 2017 was $19,287. All amounts owed are payable on demand and are unsecured.
Included in the assumed liabilities upon the reverse merger was a payable of $49,524 to Colin Povall, the former CEO. Chris Bridges, the Company’s current CEO, purchased this debt from Mr. Povall in a separate private transaction. On March 20, 2017, the Company issued 18,343 shares of it’s common stock to Mr. Bridges in exchange for the cancellation of $49,524 of debt.
During the year ended March 31, 2017, the Company paid $25,279 for consulting services to SBS Management, a company owned by a shareholder.
Since the Company’s inception on March 16, 2016, the Company’s office facility had been provided, without charge, by a shareholder of the Company. Such cost was not material to the financial statements and accordingly, has not been reflected therein. In view of the Company’s limited operations and resources, none of the Company’s directors and/or officers received any compensation from the Company during the fiscal periods ended March 31, 2017 and 2016.
Upon issuance of the initial shares of common stock of the Company to Damian Marley, the Company obtained an exclusive, perpetual, royalty-free license from Damian Marley with respect to his name, likeness, image and voice for use in our businesses. The Company also obtained the right to intellectual property, including trademark, trade dress, images, likenesses and other associated intellectual property, such as the name “Stony Hill” related to Damian Marley.
NOTE 6 – LICENSE AND MARKETING AGREEMENTS
License Agreement with OGE Management, LLC
In July 2016, the Company entered in a License Agreement OGE Management, LLC (the “Licensee”) whereby the Company agreed to license certain intellectual property owned by the Company to the Licensee. As consideration for the rights granted to the Licensee by this Agreement, the Licensee shall pay to the Company an ongoing license fee for all products sold related to this agreement. During the fiscal year ended March 31, 2017, the Company had not received any revenues related to this agreement.
Marketing Agreement with Mile High Medical Cannabis LLC
In September 2016, the Company entered into a Marketing Agreement whereby the Company agreed to license the name “Stony Hill” to Mile High Medical Cannabis LLC along with mutually agreed upon marketing and special appearances by certain members of the Company in exchange for an ongoing monthly fee. The license is exclusive to the State of Colorado and is for an initial term of 180 days. The Marketing Agreement was terminated in February 2017.
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
NOTE 7 – EQUITY
Preferred Stock
The Company has authorized 5,000,000 shares of $0.00001 par value, undesignated Preferred Stock. As of March 31, 2017, the Company has not issued any shares of Preferred Stock nor has the Company designated any class of Preferred Stock.
Shares Issued to Founders
Upon incorporation of Stony Hill Ventures, the Company issued 10090,000 shares of its common stock to founders for $101 at a price equal to par value.
Shares Issued in Private Offering
In August 2016, the Company began a private offering whereby the Company offered up to 750,000 shares of the Company’s common stock to accredited investors at a purchase price of $1.00 per share for an aggregate offer of up to $750,000. During the fiscal year ended March 31, 2017, the Company had issued 750,000 shares of its common stock for total proceeds of $750,000.
In January 2017, the Company began a private offering where by the Company offered up to 1,000,000 shares of the Company’s common stock to accredited investors at a purchase price of $2.00 per share for an aggregate offer of up to $2,000,000. During the fiscal year ended March 31, 2017, the Company had issued 187,500 shares of its common stock for total proceeds of $375,000.
NOTE 8 – INCOME TAXES
The Company has no tax provision for any period presented due to our history of operating losses. As of March 31, 2017, the Company had net operating loss carry forwards of approximately $524,000 that may be available to reduce future years' taxable income through 2037. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as management has determined that their realization of the Company’s net deferred tax assets of approximately $178,000 was not likely to occur and accordingly, the Company has recorded a full valuation allowance for the deferred tax asset relating to tax loss carry-forward.s.
Components of deferred tax assets in the balance sheets are as follows:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Net deferred tax assets – non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax benefit from NOL carry-forwards
|
|
$
|
524,000
|
|
|
$
|
8,100
|
|
Less valuation allowance
|
|
|
(524,000
|
)
|
|
|
(8,100
|
)
|
Deferred tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
STONY HILL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2016 (INCEPTION) TO MARCH 31, 2016, AND
FOR FISCAL YEAR ENDED MARCH 31, 2017
Income Tax Provision in the Statements of Operations
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows:
|
|
For the
fiscal
year ended March 31,
2017
|
|
|
For the
reporting
period ended March 31,
2016
|
|
|
|
|
|
|
|
|
Federal statutory income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance on net operating loss carry-forwards
|
|
|
(34.0
|
)
|
|
|
(34.0
|
)
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of March 31, 2017, no liability for unrecognized tax benefits was required to be recorded.
NOTE 9 – SUBSEQUENT EVENTS
Shares Issued in Private Offering
On May 24, 2017, the Company issued to mCig an additional 150,000 shares of the Company’s common stock (“Second Stock Issuance”) valued at $426,000 (see Note 4). The Company recorded the Second Stock Issuance as contractual consideration as of March 31, 2017.
Establishment of Advisory Board and Adoption of Charter
On April 28, 2017, the Company established an advisory board (the “Advisory Board”) and approved and adopted a charter (the “Advisory Board Charter”) to govern the Advisory Board. The Advisory Board shall be comprised of one or more directors, and up to six independent, non-Board, non-employee members, all of whom shall be appointed and subject to removal by the Board of Directors at any time. In connection with the establishment of the Advisory Board, the Board of Directors appointed Dr. James Mulé, an independent, non-Board and non-Company employee to the Advisory Board. In connection with Dr. Mulé’s appointment to the Advisory Board, the Company entermeted into a Consulting Agreement (the “Consulting Agreement”), dated effective May 1, 2017, whereby the Company shall pay Dr. Mulé an annual consulting fee of $50,000 worth of shares of common stock of the Company, based on the stock price of the Company on the last day of each calendar year, and reimburse Dr. Mulé for reasonable out-of-pocket expenses. In addition, the Dr. Mulé may be eligible for an annual discretionary bonus based on performance and entirely at the discretion of Board. The Consulting Agreement has a term of three years.
Colorado Marketing Agreement and License
On May 25, 2017, the Company entered into a Marketing Agreement (the “Agreement”), effective May 15, 2017, with BTE LLC, a Colorado limited liability company (“BTE”), pursuant to which, the Company licensed the name and phrase “Damian Marley’s Stony Hill” to BTE for use in the State of Colorado for a term which expires on February 28, 2018. BTE operates a retail cannabis businesses in Colorado, and has agreed to rename the its retail business located at 1269 Elati St., Denver, Colorado, to “Damian Marley’s Stony Hill by Tru Cannabis.” As consideration for the license, BTE is obligated to a cash fee to the Company for each retail location in Colorado in which it uses the “Damian Marley’s Stony Hill” name. Additionally, if BTE sells a dispensary, BTE is obligated to pay the Company that amount equal to a percentage of the net profits of the sale.
Oregon Marketing Agreement and License
On May 25, 2017, the Company entered into a Marketing Agreement (the “Agreement”), effective May 15, 2017, with SBR Broadway Retail LLC, a Colorado limited liability company (“SBR”), pursuant to which, the Company licensed the name and phrase “Damian Marley’s Stony Hill” to SBR for use in the State of Oregon for a term which expires on February 28, 2018. SBR operates a retail cannabis businesses in Oregon, and has agreed to rename the its retail business located at 801 NE Broadway St., Portland, Oregon, to “Damian Marley’s Stony Hill by Tru Cannabis.” As consideration for the license, SBR is obligated to a cash fee to the Company for each retail location in Colorado in which it uses the “Damian Marley’s Stony Hill” name. Additionally, if SBR sells a dispensary, SBR is obligated to pay the Company that amount equal to a percentage of the net profits of the sale.