ITEM 1. FINANCIAL STATEMENTS
NOTES TO THE INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Simlatus Corporation ("SIML" or "Company") was incorporated in the State of Nevada under the name Sunberta Resources Inc. on November 15, 2006, as a mining and exploration of mineral claims business. On November 18, 2009, the Company changed its name to Grid Petroleum Corp. and continued with the mining and exploration of mineral claims operations, exploring mining claims in Alberta, Canada, Vancouver Island, British Columbia, England and the United States.
On March 9, 2016, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with RJM and Associates, LLC, a California limited liability company ("RJM") whereby RJM's owners became the directors of the Company and were to be issued $6,250,000 worth of the Company's stock; $5,000,000 of Restricted Common Stock 90 days from the date of this agreement and $1,250,000 of Preferred Series-A Shares of the Company's Preferred Stock (the "Acquisition"). On the same date, the entire management of RJM became the entire management of the Company.
The Company's transaction with RJM has been treated as a reverse recapitalization of the Company, with the Company (the legal acquirer of RJM) considered the accounting acquiree, and RJM, whose management took control of the Company (the legal acquiree of the Company), considered the accounting acquirer. The historical financial statements include the operations of the accounting acquirer (RJM) for all periods presented.
RJM was incorporated in the State of California on June 11, 2014, for the purpose of operating a broadcast equipment production business.
On March 25, 2016, the Company approved a name change to Simlatus Corporation, stock symbol SIML, which was executed on April 4, 2016. The new name change better describes the Company's new business and new revenues in selling commercial broadcast equipment on a global basis. Simlatus Corporation develops, manufactures, markets and owns proprietary advanced broadcast equipment and software and sells this audio and video broadcast equipment worldwide. These systems have been sold worldwide over the past 15 years including some of the major broadcast companies.
The Company currently sells approximately 55 different audio/video products, and is preparing to market its newest audio/video product referred to as SyncPal™. In addition to the Company's traditional line of audio/video products, it has commenced the research & development of its Immersive Broadcast System, referred to as the Simlatus-IBS™. The Simlatus-IBS™ will include commercial augmented reality and virtual reality applications for studio engineers. These applications, both hardware and software, will allow the customer to control and manage the studio audio/video systems from anywhere in the world. These products are being developed to serve a market segment that is presently being strongly embraced by consumers and is forecasted, by some of the most widely recognized tech companies in the world, as becoming a multi-billion-dollar market in the very near future. The Market Analysis and IP Portfolio will include new patents specifically developed for these products and owned by the Company.
Basis of Presentation
The accompanying financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the three months ended June 30, 2017, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending March 31, 2018 and should be read in conjunction with the Company's Form 10-K for the year ended March 31, 2017, filed with the Securities and Exchange Commission on October 25, 2017.
Cash and Cash Equivalents
Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. As of June 30, 2017 and March 31, 2017 the Company had no cash equivalents.
Revenue Recognition
The Company recognizes revenue on arrangements in accordance with ASC 605, Revenue Recognition. Revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company's revenues to date consist of the sale of audio and video broadcasting products.
Accounts Receivable and Uncollectible Receivables
Accounts Receivable are recorded at the invoiced amount to the customer and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business, but mitigates associated risks by actively pursuing past due accounts. Receivables that are over 180 days past due are deemed uncollectible and are written off to the statement of operations. During the three months ended June 30, 2017 and 2016 no receivables were written off as uncollectible.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior to the end of the fiscal year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services.
Use of Estimates
The preparation of the Company's financial statements in conformity with generally accepted accounting principles of United States of America 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.
Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates.
Loss Per Share
Basic loss per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is equal to the basic per share for the three months ended June 30, 2017 and 2016. Common stock equivalents are not included in the loss per share since they are anti-dilutive.
Inventories
Inventories are stated at the lower of cost, computed using the first-in, first-out method and net realizable value. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of June 30, 2017 and March 31, 2017, the Company's inventories consist only of raw materials and supplies rather than finished goods and are presented net of an allowance for obsolete inventory of $125,329.
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 is expanded. 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 and which is 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 quoted prices for similar instruments in active markets, 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.
Financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
Input
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
|
|
Level
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivative Liability
|
|
|
3
|
|
|
$
|
4,225,378
|
|
|
$
|
5,316,130
|
|
|
Total Financial Liabilities
|
|
|
|
|
|
$
|
4,225,378
|
|
|
$
|
5,316,130
|
|
In management's opinion, the fair value of convertible notes payable and advances payable is approximate to carrying value as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current market. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments. As of June 30, 2017 and March 31, 2017, the balances reported for cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities, approximate the fair value because of their short maturities.
Income Taxes
The Company records deferred taxes in accordance with FASB ASC No. 740,
Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is "more likely-than-not" that a deferred tax asset will not be realized.
As of the date of this filing, he Company is delinquent in filing their tax returns, and there is uncertainty regarding potential penalties and interest. The last return filed by the Company was March 31, 2012, and the Company has not accrued for any potential penalties or interest from that period forward. The Company will need to file returns for the years ending March 31, 2013, 2014, 2015 and 2016, which are still open for examination.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (ASC Topic 606). ASU 2014-09 creates a new topic in the ASC Topic 606 and establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The guidance in ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted. Management is in the process of assessing the impact of ASU 2014-09 on the Company's financial statements.
In February 2016, the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact on its consolidated financial statements.
2. GOING CONCERN
These financial statements have been prepared on a going-concern basis which assumes the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company has experienced substantial losses since its inception, has limited business operations, and has total liabilities in excess of total assets, which raises substantial doubt about the Company's ability to continue as going concern. The ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations. There is no assurance the Company will be successful in achieving these goals.
The Company does not have sufficient cash to fund its desired research and development objectives for its augmented/virtual reality product development for the next 12 months. The Company has arranged financing and intends to utilize the cash received to fund the research and development project. This financing may be insufficient to fund expenditures or other cash requirements required to complete the product design for the augmented/virtual reality markets. There can be no assurance the Company will be successful in completing any new product development. The Company plans to seek additional financing if necessary in private or public equity offering(s) to secure future funding for operations. There can be no assurance the Company will be successful in raising additional funding. If the Company is not able to secure additional funding, the implementation of the Company's business plan will be impaired. There can be no assurance that such additional financing will be available to the Company on acceptable terms or at all.
These financial statements do not give effect to adjustments to the amounts and classification to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The financial statements for the three months ending June 30, 2016, filed with the SEC on August 15, 2016 in Form 10-Q, contained errors and omissions due to the asset acquisition on March 9, 2016 being accounted for incorrectly. The transaction should have been treated as a reverse acquisition and capital transaction in substance, rather than an asset acquisition. In addition to the errors resulting from the incorrect accounting for the acquisition, the June 30, 2016 financial statements were also restated to correct errors in the accounting for (1) the cancellation or forgiveness of debt, (2) the conversions of debt into common stock, (3) derivative liability valuations, and (4) incorrect revenue recognition. Accordingly, the statements of operations and statement of cash flows for the three months ended June 30, 2016 have been restated to correct these errors and omission.
The restated financial statements correct the following errors to the Statement of Operations:
Revenue and Cost of Materials Adjustments:
|
·
|
The Company overstated income by $3,695 and cost of materials by $27,944, which was due to errors in the timing of recognition of revenue and its associated expense.
|
Operating Expense Adjustments:
|
·
|
G&A expenses were overstated by $337,036, and professional fees and salaries and wages were understated by $11,097 and $73,749, respectively. This was a result of the Company incorrectly recording an intangible asset with the reverse acquisition and recognizing amortization during the three months ended March 31, 2016. Additionally, the Company incorrectly brought RJM liabilities on the books by recording expenses and corrected account groupings on their income statement. Lastly, the Company had to correct errors in their salary and wage calculations to correctly reflect employment agreements in place.
|
Other Income and Expense
Adjustments
:
|
·
|
The change in derivative liability valuation was misstated by $1,583,390, interest expense was overstated by $6,689, and debt forgiveness was understated by $1,675,619. These misstatements were due to the following: (1) the Company incorrectly recorded debt and its related interest and derivative amounts that were cancelled, forgiven, or exchanged, (2) the Company incorrectly recorded stock issued for debt transactions.
|
|
·
|
Loss on the sale of mineral property was misstated by $5,340,824.
It was concluded that the exchange of the oil and gas asset for convertible debt was part of the Company's acquisition transaction with RJM & Associates. Therefore, the oil and gas lease and Direct Capital convertible debt were not assets and liabilities that were exchanged in the acquisition, and those assets and liabilities were excluded from the Company's books as of March 9, 2016, as if the exchange occurred in conjunction with the acquisition transaction instead of 2 months after.
|
The net effects of these corrections are noted below by line item for each financial statement that is impacted.
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
As Restated
|
|
|
|
|
Three Months
|
|
|
|
|
|
Three Months
|
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
Statement of Operations
|
|
June 30, 2016
|
|
|
Adjustments
|
|
|
June 30, 2016
|
|
|
Sales
|
|
$
|
5,347
|
|
|
$
|
(3,695
|
)
|
|
$
|
1,652
|
|
|
Cost of materials
|
|
|
(30,948
|
)
|
|
|
27,944
|
|
|
|
(3,004
|
)
|
|
G&A expenses
|
|
|
(367,086
|
)
|
|
|
337,036
|
|
|
|
(30,050
|
)
|
|
Professional fees
|
|
|
(16,138
|
)
|
|
|
(11,097
|
)
|
|
|
(27,235
|
)
|
|
Salaries and wages
|
|
|
(38,751
|
)
|
|
|
(73,749
|
)
|
|
|
(112,500
|
)
|
|
Gain (loss) on derivative liability valuation
|
|
|
73,539
|
|
|
|
(1,583,390
|
)
|
|
|
(1,509,851
|
)
|
|
Gain on settlement of debt
|
|
|
63,400
|
|
|
|
1,675,619
|
|
|
|
1,739,019
|
|
|
Interest expenses
|
|
|
(678,982
|
)
|
|
|
(6,689
|
)
|
|
|
(685,671
|
)
|
|
Loss on sale of mineral property
|
|
|
(5,340,824
|
)
|
|
|
5,340,824
|
|
|
|
-
|
|
|
Net Loss
|
|
$
|
(6,330,444
|
)
|
|
$
|
5,702,804
|
|
|
$
|
(627,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(0.0713
|
)
|
|
|
|
|
|
$
|
(0.1672
|
)
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
As Restated
|
|
|
|
|
Three Months
|
|
|
|
|
|
Three Months
|
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
Statement of Cash Flows
|
|
June 30, 2016
|
|
|
Adjustments
|
|
|
June 30, 2016
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,330,444
|
)
|
|
$
|
5,702,804
|
|
|
$
|
(627,640
|
)
|
|
Amortization of convertible debt discount
|
|
|
82,595
|
|
|
|
77,657
|
|
|
|
160,252
|
|
|
Depreciation and amortization
|
|
|
301,264
|
|
|
|
(301,264
|
)
|
|
|
-
|
|
|
New derivatives recorded as loan fees
|
|
|
-
|
|
|
|
308,198
|
|
|
|
308,198
|
|
|
Loss on derivative liability valuation
|
|
|
72,660
|
|
|
|
1,437,191
|
|
|
|
1,509,851
|
|
|
Gain on settlement of debt
|
|
|
-
|
|
|
|
(1,739,019
|
)
|
|
|
(1,739,019
|
)
|
|
Accounts receivable
|
|
|
-
|
|
|
|
1,695
|
|
|
|
1,695
|
|
|
Inventory
|
|
|
2,807
|
|
|
|
(48,553
|
)
|
|
|
(45,746
|
)
|
|
Accounts payable
|
|
|
26,216
|
|
|
|
(24,506
|
)
|
|
|
1,710
|
|
|
Accrued wages
|
|
|
-
|
|
|
|
133,920
|
|
|
|
133,920
|
|
|
Accrued interest
|
|
|
(252,520
|
)
|
|
|
509,346
|
|
|
|
256,826
|
|
|
Net cash used in operating activities
|
|
|
(6,097,422
|
)
|
|
|
6,057,469
|
|
|
|
(39,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit on intangible asset
|
|
|
7,026,666
|
|
|
|
(7,026,666
|
)
|
|
|
-
|
|
|
Net cash from investing activities
|
|
|
7,026,666
|
|
|
|
(7,026,666
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
19,108
|
|
|
|
31,892
|
|
|
|
51,000
|
|
|
Payments on notes payable
|
|
|
-
|
|
|
|
(2,100
|
)
|
|
|
(2,100
|
)
|
|
Payments on convertible notes payable
|
|
|
(1,476,491
|
)
|
|
|
1,476,491
|
|
|
|
-
|
|
|
Proceeds from (payments to) related parties, net
|
|
|
(10,225
|
)
|
|
|
10,225
|
|
|
|
-
|
|
|
Proceeds from customer deposits
|
|
|
19,729
|
|
|
|
(19,729
|
)
|
|
|
-
|
|
|
Proceeds from stockholders' loans
|
|
|
18,752
|
|
|
|
(18,752
|
)
|
|
|
-
|
|
|
Proceeds from long term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issuance of common stock
|
|
|
510,957
|
|
|
|
(510,957
|
)
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
(918,170
|
)
|
|
|
967,070
|
|
|
|
48,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
11,074
|
|
|
|
(2,127
|
)
|
|
|
8,947
|
|
|
Cash, beginning of year
|
|
|
2,226
|
|
|
|
2,127
|
|
|
|
4,353
|
|
|
Cash, end of year
|
|
$
|
13,300
|
|
|
$
|
-
|
|
|
$
|
13,300
|
|
4. PREPAID EXPENSES
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
|
2017
|
|
|
2017
|
|
|
Prepaid expenses
|
|
$
|
4,000
|
|
|
$
|
10,000
|
|
Prepaid fees represent amounts paid in advance for future contractual benefits to be received. Contracting expenses paid in advance are recorded as a prepaid asset and then amortized to the statements of operations when services are rendered, or over the life of the contract using the straight-line method.
During the three months ended June 30, 2017, the Company amortized prepaid expenses of $6,000 for legal fees billed and paid in advance for April through June 2017, at $2,000 per month.
5. CONVERTIBLE NOTES PAYABLE
As of June 30, 2017, and March 31, 2017, notes payable were comprised of the following:
|
|
|
Original
|
Due
|
Interest
|
Conversion
|
June 30,
|
March 31,
|
|
|
|
Note Date
|
Date
|
Rate
|
Rate
|
2017
|
2017
|
|
ARC Capital Ltd
|
10/1/2015
|
4/2/2015
|
24%
|
Variable
|
$ 2,625
|
$ 11,625
|
|
Asher Enterprises #4
|
9/16/2011
|
6/20/2012
|
22%
|
Variable
|
13,000
|
13,000
|
|
Auctus Fund
|
12/16/2016
|
9/16/2017
|
10%
|
Variable
|
46,750
|
46,750
|
|
Blackbridge Capital #2
|
5/3/2016
|
5/3/2017
|
5%
|
Variable
|
80,400
|
80,400
|
|
Carl Ambrose
|
3/23/2017
|
9/1/2018
|
3%
|
Variable
|
-
|
20,914
|
|
Direct Capital #26
|
4/7/2016
|
10/7/2016
|
8%
|
Variable
|
25,000
|
25,000
|
|
Direct Capital #27
|
5/17/2016
|
11/17/2016
|
8%
|
Variable
|
36,000
|
36,000
|
|
EMA Financial
|
11/9/2016
|
11/9/2017
|
10%
|
Variable
|
22,246
|
35,000
|
|
Frank Trapp
|
3/23/2017
|
12/31/2017
|
5%
|
Variable
|
-
|
14,945
|
|
GHS Investment #3
|
2/7/2017
|
Demand
|
0%
|
Variable
|
-
|
98,800
|
|
GW Holdings
|
10/13/2015
|
4/1/2015
|
24%
|
Variable
|
42,500
|
42,500
|
|
Rockwell Capital #5
|
2/28/2017
|
Demand
|
0%
|
Variable
|
-
|
19,782
|
|
Southridge Partners
|
10/27/2015
|
3/1/2014
|
22%
|
Variable
|
15,655
|
15,655
|
|
Syndication Capital #1
|
12/31/2012
|
10/10/2011
|
22%
|
0.01
|
5,000
|
5,000
|
|
Tide Pool
|
1/1/2015
|
7/1/2015
|
22%
|
Variable
|
348,500
|
348,500
|
|
Tri-Bridge Ventures #1
|
1/19/2017
|
10/19/2017
|
8%
|
Variable
|
9,000
|
25,000
|
|
Tri-Bridge Ventures #2
|
1/19/2017
|
10/19/2017
|
8%
|
Variable
|
150,000
|
150,000
|
|
Tri-Bridge Ventures #3
|
4/21/2017
|
1/21/2018
|
8%
|
Variable
|
20,000
|
-
|
|
Tri-Bridge Ventures #4
|
4/20/2017
|
4/20/2018
|
8%
|
0.00002
|
35,817
|
-
|
|
V2IP #2
|
5/13/2016
|
Demand
|
6%
|
Variable
|
10,000
|
10,000
|
|
|
|
|
|
|
|
862,493
|
998,871
|
|
|
Debt discount
|
|
|
|
|
(112,349)
|
(222,094)
|
|
|
Notes payable, net of discount
|
|
|
|
$ 750,144
|
$ 776,777
|
During the three months ended June 30, 2017, the Company received proceeds from new convertible notes of $20,000, reclassified $872 of accrued interest into convertible notes payable, and reclassified convertible promissory notes of $35,817 into a new convertible note payable. The Company recorded no payments on their convertible notes and conversions of $157,249 of convertible note principal. All but one of the Company's convertible notes have a conversion rate that is variable or a conversion rate with a reset provision. Therefore, for those notes the Company has accounted for their conversion features as derivative instruments (see Note 6). As a result of recording derivative liabilities at note inception, the Company increased the debt discount recorded on their convertible notes by $20,000 during the three months ended June 30, 2017. For the one note with a fixed conversion rate the Company recorded a beneficial conversion feature of $35,817, which increased the debt discount on their convertible notes. The Company also recorded amortization of $165,561 on their convertible note debt discounts.
As of June 30, 2017, the convertible notes payable are convertible into 48,248,383,395 shares of the Company's common stock.
During the three months ended June 30, 2016, the Company received proceeds from new convertible notes of $51,000, made no payments on their convertible notes, and recorded conversions of note payable principal of $127,992 and a total gain on settlement of $21,491 representing the write-off of convertible note principal. Each of the Company's convertible notes have a conversion rate that is variable or a conversion rate with a reset provision. Therefore, the Company has accounted for such conversion features as derivative instruments. As a result of recording derivative liabilities at note inception, the Company increased the debt discount recorded on their convertible notes by $191,000 during the three months ended June 30,2016. The Company also recorded amortization of $160,252 on their convertible note debt discounts.
During the three months ended June 30, 2017 and 2016, the Company recorded accrued interest expense of $419,165 and $256,826, respectively, on its convertible notes payable. As of June 30, 2017, the accrued interest balance was $1,633,812.
6. DERIVATIVE LIABILITIES
The following table represents the Company's derivative liability activity for the embedded conversion features for the three months ended June 30, 2017:
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
5,316,130
|
|
|
Initial recognition of derivative liability
|
|
|
77,487
|
|
|
Conversion of derivative instruments to Common Stock
|
|
|
(225,966
|
)
|
|
Mark-to-Market adjustment to fair value
|
|
|
(942,273
|
)
|
|
Balance, end of period
|
|
$
|
4,225,378
|
|
During the three months ended June 30, 2017 the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of $77,487, reduced derivative liabilities by $225,966 for convertible notes and accrued interest converted into common stock, and performed a final mark-to-market adjustment for the derivative liability related to the convertible notes and the carrying amount of the derivative liability related to the conversion feature and recognized a gain on the derivative liability valuation of $942,273.
The Company uses the Black-Scholes option pricing model to estimate fair value for those instruments convertible into common shares at inception, at conversion or extinguishment date, and at each reporting date. During the three months ended June 30, 2017, the company used the following assumptions in their Black-Scholes model: (1) risk free interest rate 0.92% - 1.14%, (2) term of 0.21 years – 1.37 years, (3) expected stock volatility of 327% - 501%, (4) expected dividend rate of 0%, (5) common stock price of $0.0001 - $0.0004, and (6) exercise price of $0.00005 - $0.00024.
These instruments were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The instruments do not qualify for hedge accounting, and as such, all future changes in the fair value will be recognized in earnings until such time as the instruments are exercised, converted or expire.
7. RELATED PARTY TRANSACTIONS
In conjunction with the reverse recapitalization transaction on March 9, 2016, the Company recorded amounts due to related parties of $6,250,000, which represented shares that were owed to members of management. During the year ended March 31, 2017 the Company issued 698,324 Series A Preferred shares and 398,863,636 common shares to reduce the liability by $3,458,750, resulting in a remaining liability of $2,791,250 as of March 31, 2017. During the three months ended June 30, 2017 the Company issued 536,351 Series A Preferred shares to Gary Tilden, a former officer and director, which reduced liabilities owed to him of $960,069, of which $778,750 was related to the liability recorded for the recapitalization transaction, resulting in a remaining liability of $2,012,500.
The Company is periodically advanced noninterest bearing operating funds from related parties. The advances are due on demand and unsecured. As of June 30, 2017, the Company owed related parties $65,485.
8. PREFERRED STOCK
On January 25, 2011, the Company filed an amendment to its Nevada Certificate of Designation to create two classes of Preferred Stock, Series A and Series B, with a par value of $0.001. Each class has 10,000,000 shares authorized.
On July 1, 2015, the Company's Board of Directors authorized the creation of shares of Series B Voting Preferred Stock and on July 27, 2015 a Certificate of Designation was filed with the Nevada Secretary of State. The holder of the shares of the Series B Voting Preferred Stock has the right to vote those shares of the Series B Voting Preferred Stock regarding any matter or action that is required to be submitted to the shareholders of the Company for approval. The vote of each share of the Series B Voting Preferred Stock is equal to and counted as 4 times the votes of all of the shares of the Company's (i) common stock, and (ii) other voting preferred stock issued and outstanding on the date of each and every vote or consent of the shareholders of the Company regarding each and every matter submitted to the shareholders of the Company for approval.
On January 3, 2017, the Company filed an Amendment to Certificate of Designation with the Nevada Secretary of State defining the rights and preferences of the Series A Preferred Shares. Series A Preferred Stock shall be convertible into common shares at the rate of the closing market price on the day of the conversion notice equal to the dollar amount of the value of the Series A Share, and holders shall have no voting rights on corporate matters, unless and until they convert their Series A Shares into Common Shares, at which time they will have the same voting rights as all Common Shareholders have; their consent shall not be required for taking any corporate action.
During the three months ended March 31, 2017, Gary Tilden, a former officer and director, agreed to convert all of his outstanding salary and interest in the amount of $161,415, unpaid expenses of $19,902 and $778,750 owed in common stock pursuant to the APA agreement, to Preferred Series A Stock. The Company issued 536,351 shares of Preferred Series A stock to satisfy $960,069 of debt owed to Mr. Tilden. Also during the three months ended March 31, 2017 the Company converted 12,788 Series A preferred shares into 191,832,324 common shares.
As of June 30, 2017, 10,000,000 Series A preferred shares and 10,000,000 Series B preferred shares were authorized, of which 2,736,717 Series A shares were issued and outstanding, (2,213,154 shares as of March 31, 2017) and 1,000 Series B shares were issued and outstanding (1,000 shares as of March 31, 2017).
9. COMMON STOCK
During the three months ended June 30, 2017, the Company issued 80,000,000 shares of common stock for services valued $16,000, based on the market price of the Company's common stock on the date of issuance.
During the three months ended June 30, 2017, the holders of convertible notes converted a total of $157,249 of principal into 3,013,670,147 shares of common stock. The common stock was valued at $450,135 based on the market price of the Company's stock on the date of conversion. The issuance extinguished $225,966 worth of derivative liabilities and $62,421 was recorded as a gain on settlement of debt.
During the three months ended June 30, 2017, 191,832,324 common shares were issued in exchange for 12,788 shares of Series A preferred shares.
During the three months ended June 30, 2016, the holders of convertible notes converted a total of $127,992 of principal and $4,440 of accrued interest into 38,062,825 shares of common stock. The common stock was valued at $524,090 based on the market price of the Company's stock on the date of conversion. The issuance extinguished $334,685 worth of derivative liabilities and $56,973 was recorded as a gain on settlement of debt.
As of June 30, 2017, 7,000,000,000 common shares, par value $0.00001, were authorized, of which 4,385,090,760 shares were issued and outstanding (1,099,588,289 shares as of March 31, 2017).
10. COMMITMENTS AND CONTINGENCIES
On June 27, 2016, the Company entered into a Consulting Agreement with Channel Sales & Consulting, LLC ("Channel"). The Company has agreed to pay Channel $3,000 per month for the first two months, and $4,000 per month thereafter. Channel will also be paid a 10% commission on all gross sales generated through a licensed dealer and 30% commission on non-licensed dealers. If within the first twelve months of the Agreement, Channel generates gross sales above $2,000,000, the Company will pay an additional 5% commission on gross sales, either in cash or restricted common stock.
On February 1, 2017, the Company entered into a standard office lease for approximately 1,700 square feet of office space at 175 Joerschke Drive, Suite A, Grass Valley, CA 95945. The lease has a term of 1 year, from February 1, 2017 through January 31, 2018 with a monthly rent of $1,400. The Company intends to renew this lease. Rental expenses incurred for this operating lease during the three months ended June 30, 2017 and 2016 were $6,200 and $5,600, respectively.
On March 6, 2017, the Company entered into a Consulting Agreement with TEN Associates LLC. The Company has agreed to pay TEN Associates LLC $3,000 per month for a period of six (6) months
.
On March 27, 2017, the Company entered into an Investor Relations Consulting Agreement with StockVest that covered the period from April 1, 2017 through July 1, 2017. The Company issued 200,000,000 shares of restricted common stock as compensation pursuant to the Agreement. The parties to the arrangement agreed that the shares originally issued were not sufficient therefore on April 27, 2017 the Company amended their arrangement with StockVest and issued an additional 80,000,000 shares of restricted common stock and extended the contract term through August 1, 2017.
On April 1, 2017, the Company entered into a Consulting Agreement with Hanson & Associates. The Company has agreed to pay Hanson & Associates a retainer of $15,000 for services performed for a period of three (3) months, and a fee of $5,000 per month thereafter. In addition, the Company shall issue $25,000 in SIML common shares. The stock is to be issued upon signing of the agreement and will be restricted for six (6) months, however, as of the date of this filing the shares have not yet been issued.
On April 7, 2017, the Company entered into a Consulting Agreement with Greg Rogers. The Company has agreed to pay Mr. Rogers a retainer of $10,500 and a monthly fee of $3,500. In addition, the Company shall issue $25,000 in SIML common shares, which, as of the date of this filing, have not yet been issued. The stock is to be issued upon signing of the agreement and will be restricted for six (6) months. As of the date of this filing, the Company has terminated the Consulting Agreement, and has agreed to issue $25,000 in shares as stipulated in the Agreement.
On June 1, 2017, the Company entered into a Consulting Agreement with former President Gary Tilden. The term of this agreement is for a period of one year and is renewable with mutual consent. The Company has agreed to compensate Mr. Tilden $2,500 per month and any unpaid fees will accrue interest at 6% per year.
11. SUBSEQUENT EVENTS
On August 7, 2017, the Company terminated the Consulting Agreement with Greg Rogers and
has agreed to pay the outstanding balance of $1,300 and to issue $25,000 in shares as stipulated in the Agreement. As of the date of this filing, the outstanding fees have not been paid and the shares have not been issued.
On August 21, 2017, the Company retired 250 Series B Voting Preferred shares issued and 121,590,909 common shares issued to Gary Tilden, a former officer and director, in accordance with his resignation arrangement. Additionally, the Company issued Mr. Tilden 747,208 Series A Preferred shares.
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.