NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Golden Matrix Group, Inc. (“GMGI” or “Company”) was incorporated in the State of Nevada on June 4, 2008, under the name Ibex Resources Corp. The Company business at the time was mining and exploration of mineral properties. On August 31, 2009, the Company changed its name to Source Gold Corp. in order to reflect the focus of the Company. In April 2016, the Company changed its name to Golden Matrix Group, Inc., reflected the changing direction of the Company business to software technology. GMGI has a global presence with offices in Las Vegas Nevada and Sydney Australia. GMGI’s sophisticated social gaming software supports multiple languages including English and Chinese.
The accompanying consolidated financial statements of GMGI have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission.
NOTE 2 – GOING CONCERN
The accompanying consolidated financial statements of GMGI have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has suffered significant net losses from operations in prior periods and had an accumulated deficit of $26,437,735 as of July 31, 2019. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. During this financial year, the Company has generated net profit of $1,769,908. The revenue growth during this year has produced solid profitability and excellent cash flow. The management plans to expand the customer base globally and to integrate additional operators, launch additional synergistic products and appoint more distributors to keep the growth of revenues. As such, the Company continues to adopt the going concern basis of accounting in preparing the consolidated financial statements.
NOTE 3 – SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Significant items subject to such estimates and assumptions include contingent liability, stock-based compensation, warrant valuation and collectability of accounts receivable. Actual results could differ from those estimates.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of July 31, 2019 and 2018, the allowance for doubtful accounts was $168,557 and $0, respectively. As of July 31 2019, the Company had an accounts receivable of $433,115 for Red Label Technology Pty Ltd. Whilst management is confident that Red Label Technology will settle the debt, it has recorded an allowance for doubtful accounts in the amount of $168,557.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Derivative Instruments
We review the terms of the note we issue to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains embedded derivative instrument, including the conversion option, that is required to be bifurcated. The bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The fair value of the derivative liability was calculated using Black-Sholes Model.
Contingent Liabilities
We record contingent liabilities when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions quarterly and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Debt Discount
Debt discount is amortized over the term of the related debt using the effective interest rate method.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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·
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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·
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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·
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.
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Our financial instruments include cash, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term nature. The derivative liabilities are stated at their fair value as a level 3 measurement. The Company used a Black-Scholes model to determine the fair values of these derivative liabilities.
Share-Based Compensation
The Stock-based compensation expense is recorded as a result of stock options granted in return for services rendered. Previously, the share-based payment arrangements with employees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services are accounted for under ASC 505-50. ASC 505-50 differs significantly from ASC 718. On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company has adopted the new standard and has made some adjustment with regard to the share-based compensation costs. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments is generally fixed on the grant date. And the options are no longer revalued on each reporting date. The expenses related to the share-based compensation are recognized on each reporting date. The amount is calculated as the difference between total expenses incurred and the total expenses already recognized.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements 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.
Earnings (Loss) Per Common Share
Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.
The following is a reconciliation of basic and diluted earnings (loss) per common share for 2019 and 2018:
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For the Years Ended
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July 31,
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2019
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2018
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Basic earnings (loss) per common share
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|
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Numerator:
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|
|
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Net income (loss) available to common shareholders
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|
$
|
1,769,908
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|
|
$
|
(1,318,373
|
)
|
Denominator:
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|
|
|
|
|
|
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Weighted average common shares outstanding
|
|
|
2,814,601,020
|
|
|
|
1,159,457,924
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|
|
|
|
|
|
|
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Basic earnings (loss) per common share
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$
|
0.00
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|
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$
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(0.00
|
)
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Diluted earnings (loss) per common share
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Numerator:
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|
|
|
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Net income (loss) available to common shareholders
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|
$
|
1,769,908
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|
|
$
|
(1,318,373
|
)
|
Denominator:
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|
|
|
|
|
|
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Weighted average common shares outstanding
|
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|
2,814,601,020
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|
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1,159,457,924
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Preferred shares
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1,000
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-
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Warrants/Options
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1,316,132,485
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Convertible Debt
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8,176,667
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-
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Adjusted weighted average common shares outstanding
|
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|
4,138,911,172
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|
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1,159,457,924
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|
|
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|
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Diluted earnings (loss) per common share
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$
|
0.00
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|
|
$
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(0.00
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)
|
For the year ended July 31, 2018 the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Revenues Recognition
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1.
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Step 1: Identify the contract with a customer.
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2.
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Step 2: Identify the separate performance obligations in the contract.
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3.
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Step 3: Determine the transaction price.
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4.
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Step 4: Allocate the transaction price to the separate performance obligations in the contract.
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5.
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Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
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For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 – Revenue Recognition. Under ASC 605, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.
There was no impact on the Company’s financial statements as a result of adopting Topic 606 for year ended July 31, 2019.
Subsequent Events
GMGI evaluated subsequent events through the date these financial statements were issued for disclosure purposes.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . Under the new guidance, lessees will be required to recognize all leases (with the exception of short-term leases) on the balance sheet as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee¹s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.
For public business entities (PBEs), the amendments in ASU 2018-07 are effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted if financial statements have not yet been issued (for PBEs), but no earlier than an entity’s adoption date of ASC 606. If early adoption is elected, all amendments in the ASU that apply must be adopted in the same period. In addition, if early adoption is elected in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The Company has adopted the ASU 2018-07 and has adjusted the share-based compensation costs. The management believes the new standard can best represent the company’s operating results. The company reversed the previously recorded cost of goods sold of $353,351, and recorded the cost of goods sold of $21,998 for the entire fiscal year based on the new standard.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 4 - ACCOUNTS RECEIVABLE –RELATED PARTY
Accounts receivable-related party are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company has accounts receivable from two related parties: Articulate Pty Ltd and Globaltech Software Services LLC. As of July 31, 2019, the Company has $988,558 receivable from Articulate and $20,839 receivable from Globaltech. In total, the Company has account receivable from related party of $1,009,397 and $362,288 in year 2019 and 2018, respectively.
NOTE 5 – NOTES PAYABLE
Convertible notes payable
Convertible notes payable at July 31, 2019 and 2018 consisted of the following:
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July 31,
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July 31,
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2019
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2018
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|
Convertible Note #2
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30,000
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30,000
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Convertible Note #46 - in default
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-
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1,929
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Convertible Note #59 - in default
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10,000
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|
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10,000
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Convertible Note #68- Related party- in default
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-
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495,712
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Notes payable, principal
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$
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40,000
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|
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$
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537,641
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Total notes payable, net of discount
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$
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30,000
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|
|
$
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30,000
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Total notes payable, net of discount - in default
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$
|
10,000
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|
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$
|
507,641
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|
Convertible Note #2
On March 19, 2012, the Company received $30,000 cash from the issuance of a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand. As of July 31, 2019 and 2018, principal of this note was $30,000 and $30,000, respectively.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 3,000,000 common shares of the Company.
The Company determined that this Promissory note should be accounted for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion Features”. The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (per share being $0.08), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. As of July 31, 2019, debt discount balance $0 was recorded.
Convertible Note #46
On July 9, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $33,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 9, 2015. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $130,556 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The Black-Scholes valuation model takes into consideration the share price of the Company, the exercise price of the option, the amount of time before the option expires, and the volatility of share price. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
On August 28, 2018, the Company entered into Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the note holder whereby the parties agreed to release each other from any, and all liabilities relating to the Convertible Promissory Note (Note 46). In this Settlement Agreement, the Company agreed to pay out the remaining balance of the note principal of $1,929, accrued interest of $154, default interest and penalty of $5,927, and also the Company recorded a loss on settlement of $106, totaling $8,118. As of July 31, 2019, the balance of this Note was $0.
Convertible Note #59
On July 31, 2015 the Company entered into a Convertible Promissory Note with Direct Capital Group, Inc. in the sum of $240,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 31, 2016. Any principal amount not paid by the maturity date bears interest at 22% per annum.
On April 26, 2016, $50,000 was reassigned to Blackbridge Capital, LLC (“Blackbridge”). Blackbridge failed to meet terms of the Assignment and Assumption and were therefore in default of their obligations. The Company took legal advice regarding the breach of Blackbridge Capital LLC’s obligations. On the June 2, 2016, the Company’s legal counsel, wrote to Blackbridge Capital advising them of the breach and also that the Company had cancelled the remaining balance on the note. The Company recorded a gain on extinguishment of debt $47,151.
On July 21, 2016, $25,000 was reassigned to Istvan Elek. At any time the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 50% of the market price, where market price is defined as “the lowest closing price on any day with a fifteen day look back”.
On September 22, 2016, the Company entered into a Cancellation and Release Agreement with Direct Capital Group, Inc. (“Direct”). In terms of Cancellation and Release Agreement, Direct agreed to cancel the convertible promissory note with the Company totaling $183,157. In consideration for the cancellation of the convertible promissory notes and in terms of the Asset Purchase Agreement dated February 22, 2016, the Company has agreed to transfer ownership of mining claims held in the Company’s name. It was also agreed by both the Company and Direct that Direct shall release all future claims to subsequent conversions of the Notes and the Company will have no further obligation to Direct under those Convertible Notes and Direct shall be forever barred from seeking further conversions or claiming obligations of the Company under the Convertible Notes. The Company recorded a gain on extinguishment of debt of $165,000 related to the agreement.
As of July 31, 2019, principal balance of this note was $10,000.
Convertible Note #68
On March 1, 2016 the Company entered into a convertible promissory note with Luxor Capital, LLC in the amount of $2,374,712. The promissory note is unsecured, bears interest at 6% per annum, and matures on March 1, 2017.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $1,662,243 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model based on the stock price of $0.2985, exercise price of $0.4264, time to maturity of 1 year and expected volatility of 1557%. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
On September 10, 2018, the Company entered into Settlement Agreement with Luxor Capital LLC (“Luxor”) whereby the parties agreed to release each other from any, and all liabilities relating to the Convertible Promissory Note. Pursuant to the Settlement Agreement, the Company agreed to pay out the remaining balance of the note totaling $649,414 by converting $209,414 into common stock at a conversion price $0.001, by making a payment of $150,000 and by entering into an interest free loan for the balance of $290,000, such loan to be repaid in two equal instalments of $145,000 on the September 10, 2019 and September 10, 2020. And no discount was recorded for the settlement amount. On September 10, 2018, 209,414,000 shares of common stock were issued for the conversion of $209,414.
As of July 31, 2019, principal balance of this note was $0. Settlement payable increased by $145,000 and non-current liability increased by $145,000 due to this Settlement Agreement. As of October 9, 2019, $145,000 settlement payable due on September 10, 2019 was in default.
Settlement Payable on Note#45
On July 9, 2014, the Company arranged a debt swap under which Syndication Capital Note #20 for $75,000 was transferred to LG Capital Funding, LLC. The promissory note is unsecured, bears interest at 8% per annum and matures on July 9, 2015. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
On May 24, 2018, the Company entered into Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with LG Capital Funding LLC (“LG”) whereby the parties agreed to release each other from any, and all liabilities relating to the Convertible Promissory Note. In this Settlement Agreement, the Company agreed to pay out the remaining balance of the note totaling $48,604.
As of July 31, 2018, the principle balance of this note was $0, and the settlement payable on this note was $9,302. As of July 31, 2019, the Company has paid all settlement payable on Note #45 and there is no outstanding balance on this note.
Debt Discount
The table below presents the changes of the debt discount during the years ended July 31, 2019 and 2018:
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2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
July 31,
|
|
$
|
0
|
|
|
$
|
12,034
|
|
Additions
|
|
|
3,300
|
|
|
|
66,227
|
|
Amortization
|
|
|
(3,300
|
)
|
|
|
(78,261
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)
|
July 31,
|
|
$
|
0
|
|
|
$
|
0
|
|
Loans from Shareholders
During the year ended July 31, 2016 and, the Company received a loan of $1,000 from its officer to open a new bank account. As of July 31, 2019, the balance of the loan was $1,000. The loan form the officers are due on demand, unsecured with no interest.
Promissory Note Payable
On February 28, 2018, the company entered into an Asset Purchase Agreement with Luxor Capital, LLC. Pursuant to the agreement the company purchased certain Intellectual Property and Knowhow (the “GM2 Asset”). In exchange for the GM2 asset, the company issued 625,000,000 shares of common stock valued at $187,500 based on closing market price on the date of the agreement as well as an earn-out payment which states that the Company, on or before April 30, 2019, will issue an earn-out note calculated at 50% of the revenues generated by the GM2 Asset system during the 12-month period of March 1, 2018 to February 28, 2019.
During the period ended July 31, 2018, the Company recorded a contingent liability of $1,055,312. By the end of February 28, 2019, a $90,873 fair value loss on contingent liability was recognised due to the adjustment on the estimate of the potential future payments of the earn-out note.
Related to the earn-out note, as of February 28, 2019, the Company recorded a contingent liability of $1,146,185 for the liability due to Luxor. On April 1, 2019, Luxor proposed 10% discount on the payable amount, the Company agreed to issue a Promissory Note of $1,031,567 regarding to the Asset Purchase agreement, $114,618 additional paid in capital was recorded for gain on extinguishment – related party.
Pursuant to the Promissory Note, 20% of the total value shall be paid on signing the agreement, 40% of the total value shall be paid on October 1, 2019, and 40% of the total value including any accrued interest shall be paid on April 1, 2020. The late payment fee would be $500 per month.
The liabilities assumed were comprised of the following:
Contingent liability as of July 31, 2018
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|
$
|
1,055,312
|
|
Fair value loss on contingent liability
|
|
|
90,873
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|
Gain on extinguishment – related party
|
|
|
(114,618
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)
|
Late payment fee
|
|
|
2,000
|
|
Promissory Note as of July 31, 2019
|
|
$
|
1,033,567
|
|
NOTE 6 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE
Due to the conversion features contained in the convertible notes issued, the actual number of shares of common stock that would be required if a conversion of the notes as further described in Note 5 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.
During the year July 31, 2019 and 2018, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of $3,300 and $95,266 respectively. The Company remeasured the fair value of the instruments as of July 31, 2019 and 2018, and recorded an unrealized loss of $5,081 and $165,514 respectively. The Company recorded a gain on settlement of derivative liability of $5,310 and $160,440 as of July 31, 2019 and 2018, respectively. As of July 31, 2019 and 2018, the derivative liability associated with the note conversion features were $15,000 and $11,930, respectively.
These derivative liabilities have been measured in accordance with fair value measurements, as defined by ASC 820. The valuation assumptions are classified within Level 1 and Level 2 inputs. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:
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|
2019
|
|
|
2018
|
|
Fair value at July 31,
|
|
$
|
11,930
|
|
|
$
|
136,177
|
|
Initial recognition of derivative liability
|
|
|
3,300
|
|
|
|
95,266
|
|
Conversion of derivative liability
|
|
|
-
|
|
|
|
(224,587
|
)
|
Market-to-Market adjustment to fair value
|
|
|
5,081
|
|
|
|
165,514
|
|
Gain on settlement agreement
|
|
|
(5,311
|
)
|
|
|
(160,440
|
)
|
Fair value at July 31,
|
|
$
|
15,000
|
|
|
$
|
11,930
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
All related party transactions have been recorded at the exchange value which was the amount of consideration established and agreed to by the related parties.
Luxor Capital, LLC
On February 22, 2016, the Company entered into an Asset Purchase Agreement with Luxor Capital, LLC, which is wholly owned by Anthony Goodman, CEO of the Company. The Company purchased a Certain Gaming IP, along with the “know how” of that Gaming IP from Luxor. Pursuant to the Asset Purchase Agreement, 11,112 shares of common stock have been issued to Luxor Capital, LLC and its designed party.
On March 1 2016, the Company issued a convertible promissory note to Luxor. The Company promised to pay to Luxor the principal amount of $2,874,712 together with any accrued interest at a rate of 6%.
On September 10, 2018, the Company entered into Settlement Agreement and Mutual General Release Agreement (the “Settlement Agreement”) with Luxor to release all liabilities relating to the Convertible Note issued on March 1, 2016 (the “Note”), the Company agreed to pay out the remaining balance totaling $649,414 by converting $209,414 into common stock at a conversion price $0.001, and a payment of $150,000, and by entering into an interest free loan for the remaining balance of $290,000. As of July 31, 2019, the settlement payable of $145,000 and the non-current liability of $145,000 consisted of the interest free loan. Although Luxor did not charge interest on this loan, the imputed interest was still recorded during the year.
On February 28, 2018, the Company entered into an Asset Purchase Agreement with Luxor to acquire certain Intellectual Property and Know-how ( the “GM2 Asset), the aggregate purchase price was 625,000,000 shares of common stock valued at $187,500 on the date of issuance and an Earnout Note Payable calculated at 50% of the revenues generated by GM2 during the 12-month period from March 1, 2018 to February 28, 2019. On April 1, 2019, $1,146,185 contingent liability related to the Earnout Note was recognized. The GM2 Asset is expected to lead to new clients and incremental revenues by allowing the Company to offer unique IP to Social Gaming Clientele.
On April 1, 2019, the Company issued a Promissory Note in terms of the Asset Purchase Agreement with Luxor entered on February 28, 2018. Luxor has proposed a 10% discount to the amount of the Promissory Note. The note bears 6% interest rate.
As of July 31, 2019, the balance of the Promissory Note was $1,031,567; interest accrued was $ 20,518, and a late fee payable was $2,000. The total amount was $1,033,567,
Brian Goodman
On February 22, 2016, the Company entered into a Consulting Service Agreement with its Chief Executive Officer, Anthony Goodman. Pursuant to the Agreement, the consulting fee could be settled in shares. During the year ended July 31, 2018, the Company issued 102,780,659 shares of common stock to settle account payable of $60,000 to Mr. Goodman. As of July 31, 2019, the Company has a $ 125,471 payable to Mr. Goodman.
On January 3, 2018, the Company granted a stock option plan: the 2018 Equity Incentive Plan. In terms of this plan, on January 3, 2018 and September 19, 2019, the Company issued share options to Brian Goodman. More details of the options are covered in Note 9 Equity and Note 14 Subsequent Event.
Weiting Feng
On February 22, 2016, the Company entered into a Consulting Service Agreement with its Financial Executive Officer, Weiting Feng. Pursuant to the Agreement, the consulting fee could be settled in shares. During the year ended July 31, 2018, the Company issued 102,780,659 shares of common stock to settle account payable of $60,000 to Ms. Feng. As of July 31, 2019, the Company has a $ 145,524 payable to Ms. Feng.
On January 3, 2018, the Company granted a stock option plan: the 2018 Equity Incentive Plan. In terms of this plan, on January 3, 2018 and September 16, 2019, the Company issued share options to Weiting Feng. More details of the options are covered in Note 9 Equity and Note 14 Subsequent Event.
Articulate Pty Ltd
On April 1, 2016, the Company entered into a Services Agreement with Articulate Pty Ltd, which is wholly owned by Anthony Goodman CEO of the Company, for consulting services. Pursuant to the agreement Articulated would receive $4,500 per month for services rendered and reimbursement of office expenses from the Company. On January 1, 2018, the Company amended the Back Office Agreement, in which Articulate discontinued to provided services, however the term of the Back Office Agreement will continue for a further 12 months for with regard to further co-operation.
On December 1, 2018, the Company entered into an Amendment to Back Office Agreement with Articulate Pty Ltd. The Company shall increase the contribution from $2,300 per month to $5,500 per month. During the year ended July 31, 2019 and 2018, general and administrative expense related to the back office service was $53,200 and $27,600, respectively. As of July 31, 2019, the Company has a $255,546 payable to Articulate Pty Ltd.
On March 1, 2018, the Company entered into a License Agreement with Articulate, in which Articulate received a license from the Company to use GM2 Asset technology, and would pay the Company a usage fee calculated as a certain percentage of the monthly content and software usage within the GM2 Assent system. From July 1, 2018, the Company provided system for usage in additional currency, a lower usage fee scale was agreed in an Addendum for the additional market.
As of July 31, 2019, revenue from Articulate during this financial year is $2,389,442, the Company has a $988,558 receivable from Articulate.
Globaltech Software Services LLC
On June 1, 2016, the Company entered a distribution usage rights agreement with Globaltech Software Services LLC. (“Globaltech”), a company in which Anthony Goodman the Chief Executive Officer has an interest. The Company agreed to provide certain proprietary technology in the form of a Credit Management system, Social Gaming system and other Marketing and Gaming Technology. This agreement not only brings operating revenue to the Company, but also solidifies the Company’s expertise in the social gaming market.
On December 1, 2018, the Company entered into an Cancellation of Distribution Usage Rights Agreement with Globaltech. The parties have agreed to suspend minimum monthly charge from December 1, 2018 and work together to enter into a Co-operation agreement in coming months.
During the year ended July 31, 2019 and 2018, revenue from Globaltech was $40,000 and $120,000, respectively. As of July 31, 2019, the Company had a $20,839 accounts receivable from Globaltech.
NOTE 8 – EQUITY
Preferred Stock
The Company has authorized to issue 20,000,000 preferred shares with par value of $0.00001 per share.
On August 10, 2015, the Company's Board of Directors authorized the creation of 1,000 shares of Series B Voting Preferred Stock. The holder of the shares of the Series B Voting Preferred Stock has the right to vote 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 August 10, 2015, the Company filed a Certificate of Designation with the Nevada Secretary of State creating the 1,000 shares of Series B Voting Preferred Stock
On August 14, 2015, the Company issued 1,000 shares of Series B Voting Preferred Stock to Santa Rosa Resources, representing 100% of the total issued and outstanding shares of the Company's Series B Voting Preferred Stock.
On April 3, 2016, the Company cancelled 1,000 shares of Series B Voting Preferred Stock to Santa Rosa Resources and a new certificate issued in the name of Luxor Capital LLC in the amount of 1000 Series B shares.
As of July 31, 2019 and 2018, 19,999,000 Series A preferred shares and 1,000 Series B preferred shares of par value $0.00001 were authorized, of which 0 Series A shares were issued and outstanding, 1,000 Series B shares were issued and outstanding.
Common Stock
The Company is authorized to issue 6,000,000,000 shares of its $0.00001 par value common stock.
On September 10, 2018, the Company issued 209,414,000 shares of common stock for the conversion of notes payable held by Luxor of $209,414. No gain or loss was recorded on the conversion due to the conversion being made within the terms of the original note agreement.
On October 1, 2018, the Company issued 3,000,000 shares of common stock to Joshua Ramsdell for services, in regarding to the Consulting Services Agreement entered on June 7, 2018. The shares have been recorded at their market value of $2,100. Total number of shares issued to Joshua Ramsdell per agreement was 6,000,000. 3,000,000 shares have been issued during last year and have been recorded at the market value of $3,000.
On April 1, 2019, the Company issued 10,000,000 shares of common stock to James Caplan for services, in regarding to the 2nd Amendment to Corporate Communications and Investor Relations Program entered on April 1, 2019 . The shares have been recorded at their market value of $28,000.
As of July 31, 2019, 6,000,000,000 common shares of par value $0.00001 were authorized, of which 2,845,318,757 shares were issued and outstanding.
As of July 31, 2018, 6,000,000,000 common shares of par value $0.00001 were authorized, of which 2,622,904,757 shares were issued and outstanding.
Stock Option Plan
On January 3, 2018, the Company granted a stock option plan: the 2018 Equity Incentive Plan. The fair value of stock option was measured using the Black-Scholes option pricing model. The Black-Scholes valuation model takes into consideration the share price of the Company, the exercise price of the option, the amount of time before the option expires, and the volatility of share price. The compensation expense will be charged to operations through the vesting period. The amount of cost will be calculated based on the new accounting standard ASU 2018-07.
(a) External Consultants:
On January 3, 2018, the Company granted stock options to 9 external consultants, each of them was granted to purchase 30,000,000 shares of common stock of the Company at exercise price of $0.0004 with vesting period of three years, vesting 33% each anniversary for three years. The expiration date will be June 30, 2021. The fair value of each consultant’s option was $11,877 on the grant date based on the share price of $0.0004 on the granting date, exercise price of $0.0004, time to maturity of 3.5 years, and stock price volatility of 273%. During the financial year 2018, two of the consultants have resigned, and their options were forfeited. During the financial year 2019, another two of the consultants have resigned, but one third of their options were vested. As of July 31, 2019, 60,000,000 options above were vested. Except for the forfeited options, the fair value of the stock options above was $71,260 in total on the grant date.
On March 15, 2018, the Company granted stock options to an external consultant, James Young. The consultant was granted to purchase 210,000,000 shares of common stock of the Company at exercise price of $0.0004 with vesting period of three years, vesting 33% each anniversary for three years. The expiration date will be June 30, 2021. The fair value of the option was $41,209 on the grant date based on the share price of $0.0002 on the granting date, exercise price $0.0004, time to maturity of 3.5 years, and stock volatility of 263%. As of July 31, 2019, 70,000,000 options were vested.
On May 8, 2018, the Company granted stock options to an external consultant, Siu Kei Ho. The consultant was granted to purchase 75,000,000 shares of common stock of the Company at exercise price of $0.0004 with vesting period of three years. The expiration date will be June 30, 2021. Since the consultant did not perform services as anticipated and specified in the consulting agreement, on May 8, 2019, the Company terminated the consulting agreement and all compensation specified in the agreement with Siu Kei Ho.
On August 3, 2018, the Company granted stock options to an external consultant, Hongfei Zhang. The consultant was granted to purchase 30,000,000 shares of common stock of the Company at exercise price of $0.0008 with vesting period of three years, vesting 33% each anniversary for three years. The expiration date will be June 30, 2021. The fair value of the stock options was $22,056 on the grant date based on the share price of $0.0008 on the grant date, exercise price of $0.0008, time to maturity of 3.5 years, and stock volatility of 345%.
On November 28, 2018, the Company granted stock options to an external consultant, Su He. The consultant was granted to purchase 30,000,000 shares of common stock of the Company at exercise price of $0.0011 with vesting period of three years, vesting 33% each anniversary for three years. The expiration date will be May 29, 2022. The fair value of the stock options was $29,869 on the grant date based on the share price of $0.0011 on the grant date, exercise price of $0.0011, time to maturity of 3.5 years, and stock volatility of 329%.
On April 9, 2019 the Company entered a Consultant Agreement and granted stock options to an external consultant, Marc Mcalister. The consultant was granted to purchase 15,000,000 shares of common stock of the Company at exercise price of $0.0022 with vesting period of half year, vesting 100% on October 9, 2019. The expiration date will be April 9, 2020. The fair value of the stock options was $16,820 on the grant date based on the share price of $0.0022 on the grant date, exercise price of $0.0022, time to maturity of 1 year, and stock volatility of 136%.
On April 9, 2019 the Company entered a Consultant Agreement and granted stock options to an external consultant, Michael Davies. The consultant was granted to purchase 8,000,000 shares of common stock of the Company at exercise price of $0.0022 with vesting period of half year, vesting 100% on October 9, 2019. The expiration date will be April 9, 2020. The fair value of the stock options was $8,971 on the grant date based on the share price of $0.0022 on the grant date, exercise price of $0.0022, time to maturity of 1 year, and stock volatility of 136%.
On June 11, 2019, the Company granted stock options to an external consultant, Zhe Yan. The consultant was granted to purchase 30,000,000 shares of common stock of the Company at exercise price of $0.0032 with vesting period of three years, vesting 33% each anniversary for three years. The expiration date will be December 11, 2022. The fair value of the stock options was $75,312 on the grant date based on the share price of $0.0032 on the grant date, exercise price of $0.0032, time to maturity of 3.5 years, and stock volatility of 244%.
On June 11, 2019, the Company granted stock options to an external consultant, Yukun Qiu. The consultant was granted to purchase 30,000,000 shares of common stock of the Company at exercise price of $0.0032 with vesting period of three years, vesting 33% each anniversary for three years. The expiration date will be December 11, 2022. The fair value of the stock options was $75,312 on the grant date based on the share price of $0.0032 on the grant date, exercise price of $0.0032, time to maturity of 3.5 years, and stock volatility of 244%.
The cost of sales related to the options were $21,998 in total for the financial year 2019.
(b) Directors:
The Company granted stock options to its Chief Financial Officer to purchase 210,000,000 shares of common stock of the Company at exercise price of $0.0004 with vesting period of one and a half years, vesting 33% each half year. The fair value of the stock option was $69,615 on August 1, 2018 based on the share price of $0.0004, exercise price of $0.0004, time to maturity of 1 year, and stock volatility of 273%. As of July 31, the options were fully vested. On September 16, 2019, the Company passed a board resolution to extend the expiration date from December 30, 2019 to June 30, 2020.
The Company granted stock options to its Chief Executive Officer to purchase 810,000,000 shares of common stock of the Company at exercise price of $0.00044 with vesting period of one and a half years, vesting 33% each half year for one and a half years. The fair value of the stock option was $265,821 on August 1, 2018 based on the share price of $0.0004, exercise price of $0.00044, time to maturity of 1 year, and stock volatility of 273%. As of July 31, the options were fully vested. On September 16, 2019, the Company passed a board resolution to extend the expiration date from December 30, 2019 to June 30, 2020.
As of July 31, 2019, 1,020,000,000 stock options granted to directors were vested; $206,842 amortization expense was recorded related to the director’s options.
NOTE 9 – INCOME TAXES
The U.S. corporate income tax rate was reduced to 21% as a result of the Tax Cuts and Jobs Act(TCJA). A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:
|
|
2019
|
|
|
2018
|
|
Operating loss (profit) for the years ended July 31
|
|
$
|
(1,769,908
|
)
|
|
$
|
1,318,373
|
|
Average statutory tax rate
|
|
|
21
|
%
|
|
|
34
|
%
|
Deferred tax asset (liability) attributable to net operating loss carry-forwards
|
|
$
|
(371,681
|
)
|
|
$
|
448,247
|
|
Significant components of the Company’s deferred tax assets and liabilities as at July 31, 2019 and 2018 after applying enacted corporate income tax rates, are as follows:
|
|
2019
|
|
|
2018
|
|
Deferred tax asset (liability) attributable to net operating loss carry-forwards
|
|
$
|
(371,681
|
)
|
|
$
|
448,247
|
|
Less: valuation allowance
|
|
$
|
(1,999,943
|
)
|
|
$
|
(2,789,756
|
)
|
Tax benefit
|
|
$
|
1,628,262
|
|
|
$
|
3,238,003
|
|
Valuation allowance
|
|
$
|
(1,628,262
|
)
|
|
$
|
(3,238,003
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has net operating losses carried forward of approximately $7,753,630 for tax purpose which may be recognized in future periods, not to exceed 20 years.
NOTE 10 – CONCENTRATIONS
At the present time, we are dependent on a small number of direct customers for most of our business, revenue and results of operations. The Company’s major revenues for the year ended July 31, 2019 were from two customers, Articulate Pty Ltd and Red Label Technology Pty Ltd.
As of July 31, 2019, the aggregate amount of revenues from the two customers were $ $2,842,214 and accounted for approximately 99% of total revenues (83% and 16%, respectively);
As of July 31, 2019, the gross amount of accounts receivable from the two customers were $1,421,673 and accounted for approximately 99% of total accounts receivable (69% and 30%, respectively).
As of July 31, 2019, the total cash received from Articulate Pty Ltd was $1,682,673 and accounted for 93% of total cash received from customers.
The Company maintains strong relationship with these two customers and expect to engage with additional customers in the coming year.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
None.
NOTE 12 - CONTINGENT LIABILITY
On February 28, 2018, the Company entered into an Asset Purchase Agreement with Luxor to acquire certain Intellectual Property and Know-how ( the “GM2 Asset), the aggregate purchase price was 625,000,000 shares of common stock valued at $187,500 on the date of issuance and an Earnout Note Payable calculated at 50% of the revenues generated by GM2 during the 12-month period from March 1, 2018 to February 28, 2019.
On July 31, 2018, the potential obligations with this agreement was recorded at $1,055,312 as a contingent liability.
On April 1, 2019, $1,146,185 contingent liability related to this Earnout Note was recognized.
On April 1, 2019, the Company issued a Promissory Note in terms of the Asset Purchase Agreement with Luxor entered on February 28, 2018. Luxor has proposed a 10% discount to the amount of the Promissory Note. The note bears 6% interest rate.
As of July 31, 2019, the balance of the Promissory Note was $1,031,567, interest accrued was $ 20,518.29, and a late fee payable of $2,000.
NOTE 13 – SUBSEQUENT EVENTS
On August 1, 2019, the Company, Pursuant to Chapter 104 - Uniform Commercial Code—Original Articles, NRS 104.3603 - Tender of payment. NV Rev Stat § 104.3603 (2013) and other applicable law, issued a Notice of Tender to Istvan Elek. The Company is tendering payment in full of the currently outstanding balance of the Note, in the amount of $12,424. Such tender of payment by the Company to Istvan Elek is in full discharge of the Company’s obligations under the Note #59.
On August 1, 2019, the Company, Pursuant to Chapter 104 - Uniform Commercial Code—Original Articles, NRS 104.3603 - Tender of payment. NV Rev Stat § 104.3603 (2013) and other applicable law, issued a Notice of Tender to Greenshoe. The Company is tendering payment in full of the currently outstanding balance of the Note, in the amount of $30,000. Such tender of payment by the Company to Greenshoe is in full discharge of the Company’s obligations under the Note #2.
On September 16, 2019, the Company extended the exercise period for options granted to Brian Goodman (CEO) and Weiting Feng (CFO). Originally the expiration date was December 30, 2019; however, due to the delays in filing the S8 by the Company, the Board of Directors passed a board resolution extending the expiration date by six months to June 30th, 2020.
On September 16, 2019, the Company passed the board resolution to issue additional share options, in terms of the 2018 Equity Incentive Plan, to Brian Goodman (CEO) and Weiting Feng(CFO). Brian Goodman was granted to purchase 405,000,000 shares of the Common stock at exercise price of $0.00605 per share with vesting period of one and a half years, vesting 33% each half year. Weiting Feng was granted to purchase 105,000,000 shares of the Common stock at exercise price of $0.0055 per share with the same vesting schedule.
On August 5, 2019, the Company paid $120,000 to Luxor Capital, LLC., and on September 25, 2019, the Company paid $86,313 to Luxor Capital. As of October 9, 2019, the Company has paid 20% of the total promissory note owed to Luxor Capital , LLC., in an amount of $206,313. The 40% of the promissory note due on October 1, 2019 was in default.
On October 15, 2019, the Company filed an S-8 Registration statement under the securities Act of 1933, with respect to the 2018 Equity Incentive Plan adopted by the Board on January 3, 2018.