Notes to Consolidated Financial Statements
1.
Nature of Business
Sugarmade, Inc. (hereinafter referred to as
“we”, “us” or “the/our Company’’) is a publicly traded company incorporated in the state
of Delaware. Our previous legal name was Diversified Opportunities, Inc. Our Company, Sugarmade, Inc. operates much of its business
activities through our subsidiary, SWC Group, Inc., a California corporation (“SWC’’).
Sugarmade, Inc. was founded in 2010. In 2014,
CarryOutSupplies.com was acquired by Sugarmade, Inc., creating the Company as it is today. As of June 30, 2020, we were involved
in two businesses including the supply of products to the quick service restaurant sub-sector of the restaurant industry and as
an importer, distributor and marketer of hydroponic supplies to various agricultural sectors. We had previously been a marketer
of culinary seasoning products Seasoning Stix and Sriracha Seasoning Stix and a marketer of tree-free paper products. These products
were discontinued during 2018 in order to focus the majority of our corporate resources on the marketing of hydroponic supplies.
The marketplace in which we plan to be mainly
engaged is generally referred to as hydroponic agricultural supplies. While some of our customers are engaged in the legal cultivation,
processing and/or distribution of cannabis or cannabis containing products, our Company neither sells any products containing cannabis
nor do we handle, process, or distribute any products containing cannabis.
Our legacy business operation, CarryOutSupplies.com,
is a producer and wholesaler of custom printed and generic supplies servicing more than 2,000 quick service restaurants. Our products
include double poly paper cups for cold beverage; disposable, clear, plastic cold cups, paper coffee cups, yogurt cups, ice cream
cups, cup lids, cup sleeves, food containers, soup containers, plastic spoons and many other similar products for this market sector.
CarryOutSupplies.com was founded in 2009 when the founders gained first-hand experience within the restaurant industry of the difficulty
for restaurant owners to acquire custom printed supplies at a reasonable cost. Many quick service restaurants wish to acquire custom
printed products, such as those embossed with logos, but the minimum order size for such customization had been cost prohibitive.
With that in mind, carry out supplies was founded to provide products to this underserved section of the market. Since that time,
the company has become a key supplier to many popular U.S. franchises, particularly in the frozen dessert segments.
In December 2017, the Company entered into
a master marketing agreement with BizRight, LLC (“BizRight”), a leading marketer and manufacturer of hydroponic growth
supplies, which offers a range of hydroponics-related products including: HPS grow lights, electronic ballasts, HPS Bulbs,
nutrient mixes, environmental control products, pH measurement and calibration solutions and other grow and storage products. BizRight
operates the ZenHydro.com website and other e-commerce properties, and sells various products to distributors and retailers. On
April 11, 2018, the same rights under the master marketing agreement were assigned to BZRTH. On February 5, 2019, the Company exercised
its option to acquire BZRTH and the transaction closed on October 30, 2019. On January 15, 2020, the Company entered into a Rescission
and Mutual Release Agreement (“Agreement”) with each of the parties agreeing to rescind the transaction and return
all consideration exchanged pursuant to the Stock Exchange Agreement.
On February 7, 2020, the Company entered into
a share sale and purchase agreement with Indigo Dye Group Corp. ("Indigo"). Indigo carries on business as a cannabis
delivery business under the name BudCars and the Company has an interest in making an investment in Indigo in order to further
its corporate growth goals. Pursuant to the terms of the share sale and purchase agreement:
Sugarmade agreed to invest $700,000 (the “Investment”)
into Indigo for inventory, equipment, and marketing expenses. The Investment shall be made in twelve monthly equal installments
of $58,333 with the acceleration of the payment schedule possible depending on business growth, cash flow needs and capital availability.
Sugarmade receive a 40% of Indigo’s issued
shares. The value used for this transaction is $1,750,000. In the event that the Company is not able to make a payment of $58,333
in any month, it will have 90 days to cure the default. On the 91st day the investment plan will cease and the amount of invested
capital will be calculated based on an enterprise value of $1,750,000 or $17,500 per 1% of owned equity.
In addition, subject to the terms and
conditions of the share purchase agreement (option provisions), the Company may acquire an additional 30% interest in Indigo. Upon
exercise of the option, the Company will obtain control over Indigo.
Since late May 2020, the Company has been actively
involved in development of Indigo’s operations with power to direct the activities and significantly impact Indigo’s
economic performance. The Company also has obligations to absorb losses and right to receive benefits from Indigo. As such, in
accordance with ASC 810-10-25-38A through 25-38J, Indigo is considered an VIE of the Company.
2.
Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of consolidation
The consolidated financial statements
include the accounts of our Company, its wholly-owned subsidiary, SWC Group Inc., and Indigo Dye Group Corp., a variable interest
entity (“VIE”). All significant intercompany transactions and balances have been eliminated in consolidation.
Going concern
The Company’s continuation as a going
concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has
not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
Our consolidated financial statements have
been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result should the Company be unable to continue as a going concern.
Management is endeavoring to increase revenue-generating
operations. While priority is on generating cash from operations through the sale of the Company’s products, management is
also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity
and/or debt securities, which may not be available on commercially reasonable terms to our Company, or which may not be available
at all. If such financing is not available on satisfactory terms, we may be unable to continue our business as desired and our
operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us
and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating
results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds,
the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences
or privileges senior to those of the current holders of our common stock.
Use of estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires our management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ significantly from those estimates.
Revenue recognition
We recognize revenue in accordance with Financial
Accounting Standards Board Accounting Standards Codification (“FASB ASC’’) No. 606, Revenue Recognition. Sugarmade
applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with
a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating
the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation
is satisfied.
Substantially
all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
Leases
In February 2016, the FASB established Topic
842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize the rights and obligations created by leases
on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-11, Targeted
Improvements, ASU No. 2018-10, Codification Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient
for Transition to Topic 842. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance
or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
The new standard became effective April 1,
2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of
initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition
requirements for existing leases also apply to leases entered into between the date of initial application and the effective date.
The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard
for the comparative periods. The Company adopted the new standard on July 1, 2019 using the modified retrospective transition approach
as of the effective date of the initial application. The new standard provides a number of optional practical expedients in transition.
The Company elected the “package of practical expedients”, which permits entities not to reassess under the new lease
standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect
to elect the use-of-hindsight or the practical expedient pertaining to land easements.
The most significant effects of the adoption
of the new standard relate to the recognition of new ROU assets and lease labilities on our balance sheet for office operating
leases and providing significant new disclosures about our leasing activities.
The new standard also provides practical expedients
for an entity’s ongoing accounting. The Company has also elected the short-term leases recognition exemption for all leases
that qualify. This means that the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing
ROU assets and lease liabilities, for existing short-term leases of those assets in transition. The Company also currently expects
to elect the practical expedient to not separate lease and non-lease components for its leases. All existing leases are reported
under this rule.
Under ASC 840, leases were classified as either
capital or operating, and the classification significantly impacted the effect the contract had on the company's financial statements.
Capital lease classification resulted in a liability that was recorded on a company's balance sheet, whereas operating leases did
not impact the balance sheet. Since the Company elected not to recast the prior year financial statements, $455,590 of operating
lease right-of-use asset and $465,826 of operating lease liabilities were not retroactively reflected to June 30, 2019 financial
statements after the new adoption, and $1,105,755 of operating lease right-of-use asset and $1,140,041 of operating lease liabilities
were reflected to June 30, 2020 financial statements due to the Company entered into new lease contracts during the year ended
June 30, 2020.
Impairment of Long-Lived Assets
Long-lived assets, which include property,
plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held
and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is
generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based
on its review, the Company believes that, as of June 30, 2020, there was 2,066,958 impairment loss of its long-lived assets.
Income taxes
We account for income taxes under the asset
and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
As a result of the implementation of certain
provisions of ASC 740, Income Taxes (“ASC 740’’), which clarifies the accounting and disclosure for uncertainty
in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspect of the recognition
and measurement related to accounting for income taxes.
We adopted the provisions of ASC 740 as of
October 2, 2008 and have analyzed filing positions in each of the federal and state jurisdictions where we are required to file
income tax returns, as well as open tax years in these jurisdictions. We have identified the U.S. federal and California as our
‘major’ tax jurisdictions and generally, we remain subject to Internal Revenue Service examination after our 2013 U.S.
federal income tax returns. However, we have certain tax attribute carryforwards, which will remain subject to review and adjustment
by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.
We believe that our income tax filing positions
and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial
position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In addition, we did
not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest and penalties associated
with income-based tax audits is to record such items as a component of income taxes. We have not taken any uncertain positions
that would necessitate recording of tax related liability as of June 30, 2020 and 2019.
Stock based compensation
Stock based compensation cost to employees
is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense
over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee
stock options granted using the Binomial Option Pricing Model. Key assumptions used to estimate the fair value of stock options
will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term,
the risk-free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common
stock. We use our company’s own data among other information to estimate the expected price volatility and the expected forfeiture
rate. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Loss per share
We calculate basic earnings per share (“EPS”)
by dividing our net loss by the weighted average number of common shares outstanding for the period, without considering common
stock equivalents. Diluted BPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding
for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and
warrants are only included in the calculation of diluted EPS when their effect is dilutive.
Fair value of financial instruments
ASC Topic 820 defines fair value, establishes
a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and
enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1- observable inputs that reflect quoted
prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - include other inputs that are directly
or indirectly observable in the marketplace.
Level 3 - unobservable inputs which are supported
by little or no market activity.
The Company used Level 2 inputs for its valuation
methodology for the derivative liabilities for conversion feature of the convertible notes and warrants in determining the fair
value using Lattice Binomial model with the following assumption inputs:
Derivative instruments
The fair value of derivative instruments is
recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated
statement of operations under non-operating income (expense).
Our Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.
For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes- Merton option-pricing model
to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Segment Reporting
FASB ASC Topic 280, “Segment Reporting’’,
requires use of the “management approach” model for segment reporting. The management approach model is based on the
way a company’s management organizes segments within the Company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner
in which management disaggregates a company.
The Company’s financial statements as
substantially all of its operations are conducted in three industry segments – (1) paper and paper-based products such as
paper cups, cup lids, food containers, etc., which accounts approx. 42% of the Company’s revenues; (2) Non-medical supplies
such as non-medical fascial mask, which accounts approx. 25% of the Company’s total revenues; (3) Cannabis products delivery
service and sales, which accounts approx. 33% of the Company’s total revenues.
New accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU
asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as
either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new
standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company have adopted this ASU on the consolidated financial statements in the quarter ended September 30, 2019.
In December 2019, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, “Simplifying the Accounting for Income Taxes”.
The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic
740, “Income Taxes”. The pronouncement also improves consistent application of and simplifies GAAP for other areas
of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for us beginning in the first quarter
of fiscal 2021, with early adoption permitted. We are still evaluating the impact this guidance will have on our consolidated financial
statements.
Prior period reclassification
Certain prior period balance sheet accounts
have been reclassified in conformity with current period presentation including reclassification of $4,000 from derivative liability
to warrant liability. The reclassification had no effect to the company’s consolidated statement of operations, statement
of cash flow or statement of shareholder’s equity.
3.
Concentration
Customer
For the year ended June 30, 2020, our Company
earned net revenues of $4,362,585. The company does not have any concentration of revenue with any customer that represent over
10% of overall revenue. The highest revenue from (2) customers accounted for 5.90% and 5.1% respectively, as percentage of overall
revenue for the year ended June 30, 2020.
For the year ended June 30, 2019, our Company
earned net revenues of $4,347,644. The company does not have any concentration of revenue with any customer that represent over
10% of overall revenue. The highest revenue from (2) customers accounted for 7.90% and 7.69% respectively, as percentage of overall
revenue for the year ended June 30, 2019.
Suppliers
For the year ended June 30, 2020, we purchased
products for sale by the company’s subsidiaries from several contract manufacturers located in Asia and the U.S. A substantial
portion of the Company’s inventory is purchased from two (2) suppliers. The two (2) suppliers accounted as follows: Two suppliers
accounted for 25.5% and 16.20% of the Company’s total inventory purchase for the year ended June 30, 2020, respectively.
For the year ended June 30, 2019, we purchased
products for sale by the company’s subsidiaries from several contract manufacturers located in Asia and the U.S. A substantial
portion of the Company’s inventory is purchased from two (2) suppliers. The two (2) suppliers accounted as follows: Two suppliers
accounted for 31.21% and 17.80% of the Company’s total inventory purchase for the year ended June 30, 2019, respectively.
Concentration of risk
The Company sells non-medical facial mask during the year ended June 30, 2020,
which accounts approx. 25% of the total revenue of the Company for the year ended June 30, 2020. Because of the demanding of non-medical
facial mask is declining, the masks are not selling at a profitable price, and the sales of the non-medical facial mask may decrease
in the future.
4.
Equity Transaction – Exclusive License Rights
During December 2017, the Company entered into
a master marketing agreement with BizRight, LLC, a leading marketer and manufacturer of hydroponic growth supplies, which offers
a range of hydroponics-related products including: HPS grow lights, electronic ballasts, HPS Bulbs, nutrient mixes, environmental
control products, pH measurement and calibration solutions and other grow and storage products. BizRight operates the ZenHydro.com
website and other e-commerce properties, and sells various products to distributors and retailers. On April 11, 2018, the same
rights under the master marketing agreement were assigned to BZRTH Inc. On February 5, 2019, the Company exercised its option to
acquire BZRTH and the transaction closed on October 30, 2019. On January 15, 2020, the Company entered into a Rescission and Mutual
Release Agreement (“Agreement”) with each of the parties agreeing to rescind the transaction and return all consideration
exchanged pursuant to the Stock Exchange Agreement.
5. VIE
On February 7, 2020, the Company entered into
a share sale and purchase agreement with Indigo Dye Group Corp. ("Indigo"), a corporation located in Sacramento, California.
Indigo carries on business as a cannabis seller and delivery business under the name BudCars. The major Cannabis Products include
Flower, Edibles, Vape Cartridges, Pre-Rolls, & Concentrates, etc. All the prodicuts are finished goods. In addition, Indigo
is operating a non-store front retail delivery business (Type-9 License# C9-0000286) in California.
The Company has an interest in making an investment
in Indigo in order to further its corporate growth goals. All the parties agree as follows:
The Company will invest Seven Hundred Thousand
Dollars ($700,000) (the “Investment”) into Indigo for inventory, equipment, and marketing expenses. The Investment
shall be made in twelve monthly equal installments of $58,333 with the acceleration of the payment schedule possible depending
on business growth, cash flow needs and capital availability.
The Company will receive a Forty Percent (40%)
of the issued shares in Indigo Dye. upon execution of the final agreement. The value used for this transaction is $1,750,000 and
each percentage (1%) of the company is worth $17,500. In the event that the Company is not able to make a payment of $58,333 in
any month, it will have 90 days to cure the default. on the 91st day the investment plan will cease and the amount of invested
capital will be calculated based on an enterprise value of $1,750,000 or $17,500 per 1% of owned equity.
In addition, subject to the terms and
conditions of the share purchase agreement (three years option provisions), the Company will take considerations to acquire an
additional 30% interest in Indigo. Upon exercise of the option, the Company will obtain control over Indigo.
Since late May 2020, the Company has been actively
involved in development of Indigo’s operations with power to direct the activities and significantly impact Indigo’s
economic performance. The Company also has obligations to absorb losses and right to receive benefits from Indigo. As such, in
accordance with ASC 810-10-25-38A through 25-38J, Indigo is consolidated as an VIE of the Company.
Presented
below are condensed financial position data and operating results of the Indigo’s business
segments for the four months ended June 30, 2020.
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As of June 30, 2020
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Current Assets
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647,554
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Non-Current Assets
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94,017
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Total Assets
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741,571
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Total Liabilities
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389,349
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Total Equity
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352,222
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Total Liabilities & Equity
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741,571
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Gross Profit
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656,933
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Expense
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923,139
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Net Loss
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280,604
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6.
Litigation
From time to time and in the course of business,
we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability,
if any, from such claims cannot be determined. As of June 30, 2019, there were no legal claims pending or threatened against the
Company; the opinion of our management would be likely to have a material adverse effect on our financial position, results of
operations or cash flows. However, as of the date of this filing, we were involved in the following legal proceedings.
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Outstanding Litigation On December 11, 2013, the Company was served with a complaint from two convertible note holders and investors in the Company. On February 21, 2017, the Company signed a settlement agreement with the plaintiffs in the matter of Hannan vs. Sugarmade. Under the terms of the settlement agreement, the company agreed to pay the plaintiffs $227,000 to settle all claims against the Company, which included the payoff of two notes outstanding. The parties had estimated the value of the notes at approximately $80,000. As of June 30, 2020, third parties had purchased two (2) notes of approximately $80,000. As of the date of this filing, there remains a balance, plus accrued interest on the $227,000 and on the $80,000 due under the notes.
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On August 13, 2019, a lawsuit was filed against the Company for unpaid legal fees of $50,000 which originated from the Company’s former chairman and CEO. The Company was served in or around September 2019. The Company entered into a sentiment and owes a remaining total of $30,000, payable at the rate of $10,000 per month under this agreement.
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There can be no assurances the ultimate liability
relative to these lawsuits will not exceed what is outlined above.
7. Cash
Cash and cash equivalents consist of amounts
held as bank deposits and highly liquid debt instruments purchased with an original maturity of three months or less.
From time to time, we may maintain bank balances
in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit Insurance Corporation for interest
bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts). We have not experienced
any losses with respect to cash. Management believes our Company is not exposed to any significant credit risk with respect to
its cash.
8. Accounts receivable
Accounts receivable are carried at their estimated
collectible amounts, net of any estimated allowances for doubtful accounts. We grant unsecured credit to our customer’s deemed
credit worthy. Ongoing credit evaluations are performed and potential credit losses estimated by management are charged to operations
on a regular basis. At the time, any particular account receivable is deemed uncollectible, the balance is charged to the allowance
for doubtful accounts. The Company had accounts receivable, net of allowance, of $134,517 and $218,145 as of June 30, 2020 and
2019, respectively; and allowance for doubtful accounts of $447,498 and 412,666 as of June 30, 2020 and 2019, respectively.
9. Loan Receivable
Loan receivables amounted $1,365 and $85,533 as of June 30, 2020 and 2019, respectively.
Loan receivables are mainly advanced payments to the other companies.
10. Loan Receivable – Related Parties
Loan receivables – related parties amounted $122,535 and $0 as of June 30, 2020 and 2019, respectively.
Loan receivables – related parties are mainly advanced payments to the related party companies for business expense.
11. Inventory
Inventory consists of finished goods paper
and paper-based products such as paper cups and food containers ready for sale and is stated at the lower of cost or market. We
value our inventory using the weighted average costing method. Our Company’s policy is to include as a part of inventory
any freight incurred to ship the product from our contract manufacturers to our warehouses. Outbound freights costs related to
shipping costs to our customers are considered period costs and reflected in selling, general and administrative expenses. We
regularly review inventory and consider forecasts of future demand, market conditions and product obsolescence. The total inbound
freight costs are $274,475 & $247,263 as of June 30, 2020 and 2019, respectively.
If the estimated realizable value of our inventory
is less than cost, we make provisions in order to reduce its carrying value to its estimated market value. On a consolidated basis,
as of June 30, 2020 and 2019, the balance for the inventory totaled $679,471 and $356,285, respectively. $15,445 were reserved
for obsolescent inventory for the year ended June 30, 2020, and $14,548 were reserved for obsolescent inventory for the year ended
June 30, 2019.
12. Other Current Assets
As of June 30, 2020 and 2019, other current assets consisted of
the following:
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For the years ended June 30,
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2020
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2019
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Prepaid Deposit
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$
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48,483
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$
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2,145,000
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Prepaid Inventory
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65,449
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172,045
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Employees Advance
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324
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16,052
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Prepaid Expenses
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35,157
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358,702
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Others
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113,991
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28,075
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Total
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$
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263,404
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$
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2,719,875
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13. Intangible Asset
On April 1, 2017, the Company entered into
a distribution and intellectual property assignment agreement with Wagner Bartosch, Inc. (“Wagner’’) for use
of their Divider’™ used in frozen desserts and other related uses. In lieu of cash payment under the agreement, the
Company was obliged to issue common shares of the Company valued at $75,000 for acquiring the use right of the distribution and
intellectual property. The Company amortized this use right as intangible asset over ten years, and recorded $1,400 and $1,400
amortization expense for the years ended June 30, 2020 and 2019, respectively.
14. Property, Plant and Equipment
As of June 30, 2020 and 2019, property, plant
and equipment consisted of the following:
|
|
June 30, 2020
|
|
June 30, 2019
|
Office and equipment
|
|
$
|
739,447
|
|
|
$
|
709,745
|
|
Motor vehicles
|
|
|
164,244
|
|
|
|
96,265
|
|
Leasehold Improvement
|
|
|
24,742
|
|
|
|
21,970
|
|
Total
|
|
|
928,163
|
|
|
|
827,980
|
|
Less: accumulated depreciation
|
|
|
(429,116
|
)
|
|
|
(351,395
|
)
|
Plant and Equipment, net
|
|
$
|
499,047
|
|
|
$
|
476,585
|
|
For the years ended June 30, 2020 and 2019,
depreciation expenses amounted to $110,032 and $71,390, respectively.
The Company reviews the carrying value of property
and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable
from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected
future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and
other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment was recorded in operating
expenses during the years ended June 30, 2020 and 2019.
15. Advanced to Investment
During December 2017, the Company entered into
a master marketing agreement with BizRight, LLC, a leading marketer and manufacturer of hydroponic growth supplies, which offers
a range of hydroponics-related products including: HPS grow lights, electronic ballasts, HPS Bulbs, nutrient mixes, environmental
control products, pH measurement and calibration solutions and other grow and storage products. BizRight operates the ZenHydro.com
website and other e-commerce properties, and sells various products to distributors and retailers. On April 11, 2018, the same
rights under the master marketing agreement were assigned to BZRTH Inc. On February 5, 2019, the Company exercised its option to
acquire BZRTH and the transaction had been closed on October 30, 2019 in total fair value of $18,000,000. On January 15, 2020,
the Company entered into a Rescission and Mutual Release Agreement (“Agreement”) with each of the parties agreeing
to rescind the transaction and return all consideration exchanged pursuant to the Stock Exchange Agreement.
As of June 30, 2020 and June 30, 2019, the
advanced to investments were $0 and $18,000,000.
16. Unearned Revenue
Unearned revenue amounted $53,248 and $61,672 as of June 30, 2020 and 2019, respectively.
Unearned revenues are mainly due to contracts with extended payment terms, acceptance provisions and future delivery obligation.
17. Other Payable
Other payable amounted $691,801 and
$420,450 as of June 30, 2020 and 2019, respectively. Other payables are mainly credit card payables and taxes payables.
As of June 30, 2020, the Company had 8 credit cards, one American Express is a charge card with no limit and zero interest. The
remaining 7 cards had total credit limit of $85,000, and APR from 11.24% to 29.99%.
18. Convertible Notes
As of June 30, 2020 and June 30, 2019, the
balance owing on convertible notes, net of debt discount, with terms as described below was $1,740,122 and $1,046,909, respectively.
Convertible notes issued prior to the year
ended June 30, 2019 were as follows:
Convertible note 1: On August 24, 2012, the
Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months
with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion
date. As of June 30, 2020, the note is in default.
Convertible note 2: On September 18, 2012,
the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6)
months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the
conversion date. As of June 30, 2020, the note is in default.
Convertible note 3: On December 21, 2012, the
Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of six (6) months
with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion
date. As of June 30, 2020, the note is in default.
Convertible note 4: On March 1, 2017, the Company
entered into a convertible promissory note with an accredited investor for $100,000. The note has been purchased by other investor
in total amount of $156,067 with a term of nine (9) months with an interest rate of 10% and is convertible to common shares at
a 45% discount to the then current market price of our shares. As of June 30, 2020, the note has been fully converted.
Convertible note 5: On May 17, 2017, the Company
entered a convertible promissory note with an investor for a total amount of $1,375,000 (after $10,000 legal and due diligence
fee) with an OID of $125,000, the note will be fulfilled through a series of funding. The note is due 12 months after each funding
date and bears an interest rate of 10%. The conversion price for the note is 55% of the lowest closing bid for the 20 consecutive
trading days prior to the conversion date. In connection with the note, the investor will also receive warrants and is calculated
based on 15% of the maturity amount. The warrants have a life of four years with exercise price of $0.15 per share and have cashless
exercise option. During the three months ended September 30, 2019, the holder exercised 1,766,544 cashless warrant shares into
28,381,818 shares of the Company’s common stock. On September 23, 2019, the remaining warrant shares were settled by exchange
$200,000 convertible note with interest of 10% per annum, due on September 23, 2020, with conversion price of 55% of the lowest
closing bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the original principal balance
has been fully converted, the remaining default charge balance of $250,000 has been forgave.
Convertible note 6: On September 20, 2018,
the Company entered a convertible promissory note with an accredited investor for a total amount of $267,500 (includes $5,000 legal
fee and an OID of $12,500). The note is due 360 days and bears an interest rate of 8%. The conversion price for the note is 55%
of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the principal
balance of 245,000 has been fully converted into the Company’s common stock.
Convertible note 7: On November 1, 2018, the
Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of June 30, 2020, the note
is in default.
Convertible note 8: On November 16, 2018, the
Company entered into a convertible promissory note with an accredited investor for $80,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of June 30, 2020, the note
is in default.
Convertible note 9: On November 16, 2018, the
Company entered into a convertible promissory note with an accredited investor for $40,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of June 30, 2020, the note
is in default.
Convertible note 10: On December 3, 2018, the
Company entered into a convertible promissory note with an accredited investor for $35,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of June 30, 2020, the note
is in default.
Convertible note 11: On December 26, 2018,
the Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $5,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 45% of average three lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 12: On January 8, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $105,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is 35% of average two lowest closing bid for the 20 consecutive
trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 13: On January 22, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is 42% of average three lowest closing bid for the 20 consecutive
trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 14: On January 24, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $53,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is 35% of average two lowest closing bid for the 20 consecutive
trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 15: On February 26, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360
days and bear an interest rate of 8%. The conversion price for the note is 42% of average three lowest closing bid for the 20 consecutive
trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 16: On March 4, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $7,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 17: On April 2, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $2,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing
bid for the 10 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully repaid by cash.
Convertible note 18: On April 4, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $2,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 19: On May 2, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note
is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for
the 10 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully repaid by cash.
Convertible note 20: On May 7, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,500 OID). The note
is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing bid for
the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully repaid by cash.
Convertible note 21: On May 29, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note
is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for
the 10 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully repaid by cash.
Convertible note 22: On June 12, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,500 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully repaid by cash.
Convertible notes issued during the year
ended June 30, 2020 were as follows:
Convertible note 23: On July 3, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note
is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% discount of average three lowest closing
bid for the 10 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully repaid by cash.
Convertible note 24: On July 30, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $162,000 (includes $7,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% discount of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 25: On August 14, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $153,000 (includes $3,000 OID).
The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 65% of the average of lowest two
closing bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 26: On August 29, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $275,000 (includes $37,500 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for
the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 27: On August 29, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $275,000 (includes $25,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for
the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 28: On September 23, 2019,
the Company entered a warrant settlement agreement to exchange convertible promissory note for a total amount of $200,000. The
note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 55% of the lowest closing bid for the
20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully settled by $127,321 of cash
and 18,181,818 shares of common stock.
Convertible note 29: On September 27, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $165,000 (includes $16,250
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 30: On September 27, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $165,000 (includes $16,250
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 55% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date. During the year ended June 30, 2020, the note holder converted
$50,000 principal with $2,992 interest expense into 56,007,062 shares of the Company’s common stock. As of June 30, 2020,
the remaining note balance was $115,000.
Convertible note 31: On October 28, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $225,500 (includes $23,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for
the 20 consecutive trading days prior to the conversion date.
Convertible note 32: On October 28, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $225,500 (includes $23,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for
the 20 consecutive trading days prior to the conversion date.
Convertible note 33: On November 14, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $3,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the average three lowest
closing bid for the 10 consecutive trading days prior to the conversion date. As of June 30, 2020, the note has been fully converted.
Convertible note 34: On November 29, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $106,150 (includes $11,150
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 35: On November 29, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $106,150 (includes $11,150
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 36: On December 10, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $106,700 (includes $11,700
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 37: On December 10, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $106,700 (includes $11,700
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 38: On December 27, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $112,200 (includes $12,200
OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 39: On October 31, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $139,301. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is $0.008 per share.
Convertible note 40: On November 1, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is $0.008 per share.
Convertible note 41: On January 3, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $112,200 (includes $12,200 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for
the 20 consecutive trading days prior to the conversion date.
Convertible note 42: On January 14, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $150,000 (includes $3,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three
lowest closing prices for the 10 consecutive trading days prior to the conversion date.
Convertible note 43: On January 22, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $128,000 (includes $3,000 OID).
The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 35% discount to average of two
lowest closing prices for the 20 consecutive trading days prior to the conversion date.
Convertible note 44: On February 4, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $110,000 (includes $10,000 OID).
The note is due 360 days and bear an interest rate of 12%. The conversion price for the note is $0.001 per share.
Convertible note 45: On February 18, 2020,
the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $10,000
OID). The note is due 360 days and bear an interest rate of 12%. The conversion price for the note is $0.001 per share.
Convertible note 46: On March 5, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $3,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three
lowest closing prices for the 10 consecutive trading days prior to the conversion date.
Convertible note 47: On April 24, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $75,000 (includes $2,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three
lowest closing prices for the 10 consecutive trading days prior to the conversion date.
Convertible note 48: On June 10, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $36,300 (includes $3,300 OID and
$3,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the
lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 49: On June 18, 2020, the
Company entered a convertible promissory note with an accredited investor for a total amount of $36,300 (includes $3,300 OID and
$3,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the
lowest closing bid for the 20 consecutive trading days prior to the conversion date.
In connection with the convertible debt, debt
discount balance as of June 30, 2020 and June 30, 2019 were $880,879 and $1,189,341, respectively, and were being amortized and
recorded as interest expenses over the term of the convertible debt.
As of the year ended June 30, 2020, the Company’s
convertible notes consisted of following:
Start Date
|
|
End Date
|
|
Debt Discount
As of 6/30/2019
|
|
Addition
|
|
Amortization
|
|
Debt Discount
As of 6/30/2020
|
9/27/2019
|
|
9/25/2019
|
|
$
|
—
|
|
|
$
|
148,750
|
|
|
$
|
(113,197
|
)
|
|
$
|
35,553
|
|
9/27/2019
|
|
9/25/2019
|
|
$
|
—
|
|
|
$
|
16,250
|
|
|
$
|
(12,366
|
)
|
|
$
|
3,884
|
|
10/28/2019
|
|
10/27/2020
|
|
$
|
—
|
|
|
$
|
202,500
|
|
|
$
|
(137,431
|
)
|
|
$
|
65,069
|
|
10/28/2019
|
|
10/27/2020
|
|
$
|
—
|
|
|
$
|
23,000
|
|
|
$
|
(15,503
|
)
|
|
$
|
7,497
|
|
10/28/2019
|
|
10/27/2020
|
|
$
|
—
|
|
|
$
|
202,500
|
|
|
$
|
(137,431
|
)
|
|
$
|
65,069
|
|
10/28/2019
|
|
10/27/2020
|
|
$
|
—
|
|
|
$
|
23,000
|
|
|
$
|
(15,501
|
)
|
|
$
|
7,499
|
|
11/29/2020
|
|
11/30/2020
|
|
$
|
—
|
|
|
$
|
95,000
|
|
|
$
|
(55,395
|
)
|
|
$
|
39,605
|
|
11/29/2020
|
|
11/30/2020
|
|
$
|
—
|
|
|
$
|
11,150
|
|
|
$
|
(6,502
|
)
|
|
$
|
4,648
|
|
11/29/2020
|
|
11/30/2020
|
|
$
|
—
|
|
|
$
|
95,000
|
|
|
$
|
(55,395
|
)
|
|
$
|
39,605
|
|
11/29/2020
|
|
11/30/2020
|
|
$
|
—
|
|
|
$
|
11,150
|
|
|
$
|
(6,502
|
)
|
|
$
|
4,648
|
|
12/10/2019
|
|
12/10/2020
|
|
$
|
—
|
|
|
$
|
95,000
|
|
|
$
|
(52,691
|
)
|
|
$
|
42,309
|
|
12/10/2019
|
|
12/10/2020
|
|
$
|
—
|
|
|
$
|
11,700
|
|
|
$
|
(6,489
|
)
|
|
$
|
5,211
|
|
12/10/2019
|
|
12/10/2020
|
|
$
|
—
|
|
|
$
|
95,000
|
|
|
$
|
(52,691
|
)
|
|
$
|
42,309
|
|
12/10/2019
|
|
12/10/2020
|
|
$
|
—
|
|
|
$
|
11,700
|
|
|
$
|
(6,489
|
)
|
|
$
|
5,211
|
|
12/27/2019
|
|
12/27/2020
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
$
|
(50,820
|
)
|
|
$
|
49,180
|
|
12/27/2019
|
|
12/27/2020
|
|
$
|
—
|
|
|
$
|
12,200
|
|
|
$
|
(6,200
|
)
|
|
$
|
6,000
|
|
1/3/2020
|
|
12/27/2020
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
$
|
(49,861
|
)
|
|
$
|
50,139
|
|
1/3/2020
|
|
12/27/2020
|
|
$
|
—
|
|
|
$
|
12,200
|
|
|
$
|
(6,083
|
)
|
|
$
|
6,117
|
|
1/14/2020
|
|
1/14/2021
|
|
$
|
—
|
|
|
$
|
147,000
|
|
|
$
|
(67,475
|
)
|
|
$
|
79,525
|
|
1/14/2020
|
|
1/14/2021
|
|
$
|
—
|
|
|
$
|
3,000
|
|
|
$
|
(1,377
|
)
|
|
$
|
1,623
|
|
1/22/2020
|
|
1/22/2021
|
|
$
|
—
|
|
|
$
|
94,746
|
|
|
$
|
(41,419
|
)
|
|
$
|
53,327
|
|
1/22/2020
|
|
1/22/2021
|
|
$
|
—
|
|
|
$
|
3,000
|
|
|
$
|
(1,311
|
)
|
|
$
|
1,689
|
|
2/4/2020
|
|
8/4/2020
|
|
$
|
—
|
|
|
$
|
110,000
|
|
|
$
|
(88,846
|
)
|
|
$
|
21,154
|
|
2/18/2020
|
|
8/18/2020
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
$
|
(73,077
|
)
|
|
$
|
26,923
|
|
3/5/2020
|
|
3/5/2021
|
|
$
|
—
|
|
|
$
|
122,000
|
|
|
$
|
(39,107
|
)
|
|
$
|
82,893
|
|
3/5/2020
|
|
3/5/2021
|
|
$
|
—
|
|
|
$
|
3,000
|
|
|
$
|
(962
|
)
|
|
$
|
2,038
|
|
4/24/2020
|
|
4/24/2021
|
|
$
|
—
|
|
|
$
|
73,000
|
|
|
$
|
(13,400
|
)
|
|
$
|
59,600
|
|
4/24/2020
|
|
4/24/2021
|
|
$
|
—
|
|
|
$
|
2,000
|
|
|
$
|
(367
|
)
|
|
$
|
1,633
|
|
6/10/2020
|
|
6/10/2021
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
(1,644
|
)
|
|
$
|
28,356
|
|
6/10/2020
|
|
6/10/2021
|
|
$
|
—
|
|
|
$
|
6,300
|
|
|
$
|
(476
|
)
|
|
$
|
6,776
|
|
6/18/2020
|
|
6/18/2021
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
(986
|
)
|
|
$
|
29,014
|
|
6/18/2020
|
|
6/18/2021
|
|
$
|
—
|
|
|
$
|
6,300
|
|
|
$
|
(476
|
)
|
|
$
|
6,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
$
|
880,879
|
|
19.
Derivative Liabilities
The derivative liability is derived from the conversion features in note 8 and stock warrant
in note 10. All were valued using the weighted-average Binomial option pricing model using the assumptions detailed below. As of
June 30, 2020 and 2019, the derivative liability was $5,597,095 and $2,991,953, respectively. The Company recorded $1,442,295 and
$4,191,727 loss from changes in derivative liability during the year ended June 30, 2020 and 2019, respectively. The Binomial model
with the following assumption inputs:
|
|
June 30, 2019
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
0.50-1.00
|
|
Risk-Free Interest Rate
|
|
|
1.92-2.64
|
%
|
Expected Volatility
|
|
|
87-150
|
%
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
0.50-1.00
|
|
Risk-Free Interest Rate
|
|
|
0.16-2.10
|
%
|
Expected Volatility
|
|
|
113-175
|
%
|
Fair value of the derivative is summarized
as below:
Beginning Balance, June 30, 2019
|
|
$
|
2,991,953
|
|
Additions
|
|
$
|
4,522,428
|
|
Mark to Market
|
|
$
|
1,442,295
|
|
Cancellation of Derivative Liabilities Due to Cash Repayment
|
|
$
|
(345,582
|
)
|
Reclassification to APIC Due to Conversions
|
|
$
|
(3,013,999
|
)
|
Ending Balance, June 30, 2020
|
|
|
5,597,095
|
|
20.
Stock Warrants
On September 7, 2018, the Company entered a
settlement agreement with several investors to settle all disputes by issues additional unrestricted shares. In connection with
the note each individual investor will also receive warrants equal to the number of the shares the investors own as of the effective
date of the settlement agreement. The warrants have a life of five years with an exercise price as of the date of exchange. The
fair value of the warrants at the grant date was $56,730. As of June 30, 2020 and June 30, 2019, the fair value of the warrant
liability was $1,910 and $19,103, respectively.
On February 4, 2020, the Company entered a
warrant agreement with an accredited investor up to 10,000,000 shares of common stock of the Company at exercise price of $0.008
per share, subject to adjustment. The warrants have a life of five years with an exercise price as of the date of exchange. The
fair value of the warrants at the grant date was $80,000. As of June 30, 2020, the fair value of the warrant liability was $78,000.
As of June 30, 2020 and June 30, 2019, the
total fair value of the warrant liability was $79,910 and $24,658, respectively.
The Binomial model with the following assumption
inputs:
Warrants liability:
|
|
|
June 30, 2019
|
|
Annual dividend yield
|
|
|
—
|
|
Expected life (years)
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.76
|
%
|
Expected volatility
|
|
|
351
|
%
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in May 2017:
|
|
|
June 30, 2020
|
|
Annual dividend yield
|
|
|
—
|
|
Expected life (years)
|
|
|
3.0-5.0
|
|
Risk-free interest rate
|
|
|
0.18-1.69
|
%
|
Expected volatility
|
|
|
137-318
|
%
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining contractual life
|
|
Outstanding at June 30, 2016
|
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
|
|
|
Expired
|
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
|
|
|
Granted
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
4
|
|
|
Outstanding at June 30, 2017
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
3.86
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
0.5
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
578,880
|
|
|
|
0.034
|
|
|
|
5
|
|
|
Outstanding at June 30, 2019
|
|
|
|
1,083,880
|
|
|
$
|
0.034
|
|
|
|
5
|
|
|
Expired
|
|
|
|
(505,000
|
)
|
|
|
0.15
|
|
|
|
|
|
|
Granted
|
|
|
|
1,000,000
|
|
|
|
0.008
|
|
|
|
5
|
|
|
Outstanding at June 30, 2020
|
|
|
|
1,578,880
|
|
|
$
|
0.021
|
|
|
|
5
|
|
21.
Note Payable
Note payable due to bank
During October 2011, we entered into a revolving
demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing limit of $150,000. The line of credit bears
a variable interest rate of one quarter percent (0.25%) above the prime rate (3.25% as of September 30, 2013). In the event the
deposit account is not established or minimum balance maintained, HSBC can charge a higher rate of interest of up to 4.0% above
prime rate. As of June 30, 2020 and 2019, the loan principal balance was $25,982.
Notes payable due to non-related parties
On June 15, 2018, the Company entered into
a promissory note with one of the accredited investors. The original principal amount was $20,000 and the note bears 8% interest
per annum. The note was payable upon demand. As of June 30, 2020 and 2019, this note had a balance of $20,000 and $20,000, respectively.
Notes payable due to related parties
On January 23, 2013, the Company entered into
a promissory note with its former employee of the Company who owns less than 5% of the Company’s stock. The original principal
amount was $40,000 and the note bears no interest. The note was payable upon demand. As of June 30, 2020 and 2019, this note had
a balance of $15,427 and $18,000, respectively.
22.
Related Party Transactions
As of June 30, 2020 and 2019, the Company had outstanding balance of $71,369 and $78,000
owed to various related parties, respectively. See note 11 and 15 for the details.
23.
Loans Payable
On October 1, 2017, SGMD entered a straight
promissory note with Greater Asia Technology Limited (Greater Asia) for borrowing $100,000 with maturity date on June 30, 2018;
the note bears an interest rate of 33.33%. As of June 30, 2020 and 2019, the note was in default and the outstanding balance under
this note was $96,401 and $63,924, respectively.
During the year ended June 30, 2019, the Company
entered a series of short-term loan agreements with Greater Asia Technology Limited (Greater Asia) for borrowing $375,000, with
interest rate at 40% - 50% of the principal balance. As of June 30, 2020 and 2019, the outstanding balance with Greater Asia loans
were $100,000 and $100,000, respectively.
On January 6, 2015, the Company entered into
repayment agreement with its former employee for a loan of $9,500 at no interest. As of June 30, 2020 and 2019, the Company has
an outstanding balance of $3,584 and $3,584.
On December 17, 2018, the Company entered into
a repayment agreement with an individual for $100,000 at no interest. As of June 30, 2020 and 2019, the Company has an outstanding
balance of $0 and $17,834, respectively.
On July 1, 2012, CarryOutSupplies entered an
equipment loan agreement with a bank with maturity on June 21, 2024. The monthly payment is $648. As of June 30, 2020 and 2019,
the outstanding balance under this loan were $24,524 and $29,243, respectively.
On March 18, 2020, the Company entered into
a loan agreement for $150,000 with Celtic Bank with maturity date on March 18, 2020. As of June 30, 2020, the outstanding balance
under this loan were $117,635.
On June 26, 2020, the Company entered into
a government loan agreement for $8,000 with maturity date on December 26, 2020. As of June 30, 2020, the outstanding balance under
this loan were $8,000.
On April 27, 2020, we entered into a loan borrowed
$110,000 from Bank of America (“Lender”), pursuant to a Promissory Note issued by Company to Lender (the “PPP
Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”). The PPP Note bears interest at 1.00% per annum, and may be repaid at any
time without penalty. The PPP Note contains customary events of default relating to, among other things, payment defaults, breach
of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a
claim for the immediate repayment of all amounts outstanding under the PPP Note.
The Company accounting for the PPP loan under
Topic 470: (a). Initially record the cash inflow from the PPP loan as a financial liability and would accrue interest in accordance
with the interest method under ASC Subtopic 835-30; (b). Not impute additional interest at a market rate; (c). Continue to record
the proceeds from the loan as a liability until either (1) the loan is partly or wholly forgiven and the debtor has been legally
released or (2) the debtor pays off the loan; (d). Would reduce the liability by the amount forgiven and record a gain on extinguishment
once the loan is partly or wholly forgiven and legal release is received.
As of June 30, 2020 and 2019, the Company had
an outstanding loan balance of $517,260 and $214,585, respectively.
24.
Loans Payable – Related Parties
On June 26, 2017, SGMD entered
a straight promissory note with a company (whose major shareholder is the former director of the Company) for borrowing $180,820
with maturity date on March 31, 2018; the note bears an interest rate of 12%, commencing on October 31, 2017, and on the last day
of each moth thereafter until the notes is paid in full, the Company shall make an interest payment. During the year ended June
30, 2019, all the principles have been converted into the Company’s common stocks. As of June 30, 2020 and 2019, the outstanding
balance under this note was $0 and $0, respectively.
On July 7, 2016, SWC received a loan from an
employee. The amount of the loan bore no interest and amortized on a monthly basis over the life of the loan. As of June 30, 2020
and 2019, the balance of the loan were $30,000 and $30,000, respectively.
25.
Shares to Be Issued
During the year ended June 30, 2020, the Company
had entered into one consulting service agreement and one employment agreement ,
which had potential shares to be issued in total amount of $101,577.
As of June 30, 2020 and 2019, the Company had
balance of $101,577 and $100,000 share to be issued.
26.
Equity transactions
The Company is authorized
to issue 10,000,000,000 shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred stock. On April
22, 2020, the Company filed an amendment to increased the total authorized shares to 10,010,000,000 – 10,000,000,000 shall
be designated common stock, par $0.001 per share and 10,000,000 shares shall be designated as preferred stock, par value $0.001
per share.
During the year ended June 30, 2018, the Company
issued 1,171,429 shares of common stock for cash in total amount of $82,000.
During the year ended June 30, 2018, the Company
issued 4,736,842 shares of common stock for services in total amount of $180,000.
During the year ended June 30, 2018, the Company
issued 13,492,560 shares of common stock to settle the old debt in total amount of $306,810.
During the year ended June 30, 2019, the Company
issued 8,658,685 shares of common stock to settle the old debt in total amount of $665,918.
During the year ended June 30, 2019, the Company
issued 121,332,262 shares of common stock to convert the convertible notes in total amount of $2,783,237.
During the year ended June 30, 2019, the Company
issued 14,842,857 shares of common stock for cash in total amount of $390,000.
During the year ended June 30, 2019, the Company
issued 96,639,563 shares of common stock for services in total amount of $6,660,643.
During the year ended June 30, 2019, the Company
(buyer) signed a letter of intent (LOI) regarding a potential acquisition of all the outstanding capital stock, assets and assumption
of liabilities of a company (seller). The Company issued 10,000,000 shares of common stock as the stock compensations upon the
signing of the LOI in total amount of $1,175,000. The share is non-refundable and vested immediately, but was issued on a restricted
basis with a restrictive legend and will be subject to normal restrictions imposed by the financial industry and governmental agencies.
During the year ended June 30, 2019, the Company
issued 200,000,000 shares of common stock as deposit for acquisition of BZRTH with a total value of $18,000,000. See Note 4 for
details.
During the year ended June
30, 2019, the Company issued 2,000,000 shares of Series A preferred stock to multiple investors for EB-5 project to be issued
in prior years.
As of June 30, 2019, the Company had 697,608,570
shares of its common stock issued and outstanding and 2,000,000 shares of its Series A preferred stock issued and outstanding.
During the year ended June 30, 2020, the Company
issued 138,461,538 shares of common stock for cash in total amount of $690,287.
During the year ended June 30, 2020, the Company
issued 1,077,643,486 shares of common stock to convert the convertible notes in total amount of $1,959,527.
During the year ended June 30, 2020, the Company
issued 28,381,818 shares of common stock for warrant exercise in total fair value of $690,287.
During the year ended June 30, 2020, the Company
issued 1,500,000 shares of common stock for service in total fair value of $81,200.
During the year ended June 30, 2020, the Company
issued 19,181,818 shares of common stock to settle the old debt in total fair value of $290,455.
During the year ended June 30, 2020, the Company
issued 249,373,817 shares of common stock for acquisition of BZRTH in total fair value of $3,566,046. The shares were cancelled
pursuant to the rescission on January 15, 2020.
During the year ended June 30, 2020, the Company
issued 750,001 shares of preferred stock for acquisition of BZRTH in total fair value of $10,725,014. The shares of preferred stock
were cancelled pursuant to the rescission on January 15, 2020.
During the year ended June 30, 2020, the Company
issued 415,000 shares of series B preferred stock for award to employee bonus in total fair value of $5,934,500.
During the year ended June 30, 2020, the Company
issued 1,126,500 shares of series B preferred stock for award to officer’s compensation in total fair value of $2,928,900.
On April 17, 2020, the Company entered into
a Series B Waiver Agreement (the “Waiver Agreement”) with its chief executive officer and corporate chairman of its
board of directors, Jimmy Chan (“Chan”) relating to Chan’s ownership of One Million Five Hundred Thousand (1,500,000)
of Series B Convertible Preferred Stock. Under the terms of the Waiver Agreement, Chan waives his rights (a) to the conversion
rights granted to him in the Series B Convertible Preferred Stock and (b) the rights to proceeds in the event of any liquidation,
dissolution or winding up as may be provided in the Certificate of Incorporation pertaining to said Series B Preferred Stock, if
any. In the event that there is a merger or consolidation (other than one in which stockholder of the Company own a majority by
voting power of the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license
or other disposition of all or substantially all of the assets of the Company, this event will be treated as a liquidation event.
The Series B Convertible Preferred Stock continues to vote or have the right to vote, together with the Common Stock as if it were
on an as-converted basis, and not as a separate class, subject to any adjustments for stock dividends, splits, combinations and
similar events.
As of June 30, 2020, the Company had 1,763,277,230
shares of its common stock issued and outstanding.
As of June 30, 2020, the Company had 3,541,500
shares of its Series B preferred stock issued and outstanding.
27.
Commitments and Contingencies
On February 23, 2018 the Company entered into
lease agreement for a new office space as part of the plan to expand operation, the lease is set to commence Commencing March 1,
2018. The term of the lease is for a (5) Five Years with 1 month free on the 1st year of the term. The monthly rent on the
1st year will be $11,770 with a 3% increase for each subsequent year. Total commitment for the full term of the lease will
be $737,367. As of the date of this filing, this property became the headquarter of the company.
Our warehouse along with some office space
is located at 20529 East Walnut Drive North, Diamond Bar, California, where we lease approximately 11,627 square feet of combined
space. The lease term is for five years and two months ending on April 30, 2025. The current monthly rental payment for the facility
is $13,022.
For The Year Ended
|
|
|
June 30, 2020
|
|
|
Lease Cost
|
|
|
|
|
Operating lease cost (included in general and administration in the Company’s unaudited condensed statement of operations)
|
|
$
|
149,976
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the year ended June 30, 2020
|
|
$
|
108,073
|
|
Remaining lease term – operating leases (in years)
|
|
|
2.67
|
|
Average discount rate – operating leases
|
|
|
10
|
%
|
The supplemental balance sheet information related to leases for the periods are as follows:
|
|
|
|
|
Operating leases
|
|
|
|
|
Right-of-use assets
|
|
$
|
1,105,755
|
|
Total operating lease assets
|
|
$
|
1,105,755
|
|
|
|
|
|
|
Short-term operating lease liabilities
|
|
$
|
120,645
|
|
Long-term operating lease liabilities
|
|
$
|
1,019,369
|
|
Total operating lease liabilities
|
|
$
|
1,140,014
|
|
|
|
|
|
|
Maturities of the Company’s lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
Period ending June 30,
|
|
|
Operating
|
|
|
|
|
Lease
|
|
2021
|
|
|
370,971
|
|
2022
|
|
|
375,515
|
|
2023
|
|
|
315,051
|
|
2024
|
|
|
156,267
|
|
2025
|
|
|
130,222
|
|
Total lease payments
|
|
|
1,348,026
|
|
|
|
|
|
|
Less: Imputed interest/present value discount
|
|
|
(208,012
|
)
|
Present value of lease liabilities
|
|
$
|
1,140,014
|
|
28.
Income Tax
The deferred tax asset as of June 30, 2020
and 2019 consisted of the following:
|
|
2020
|
|
2019
|
Net Operating Loss Carryforwards
|
|
$
|
12,028,883
|
|
|
$
|
11,909,744
|
|
Less Valuation Allowance
|
|
|
(12,028,883
|
)
|
|
|
(11,909,744
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Management provided a deferred tax asset valuation
allowance equal to the potential benefit due to the Company’s loss. When the Company demonstrates the ability to generate
taxable income, management will re-evaluate the allowance.
As of June 30, 2020, the Company has net operating
loss carryforward of $56,139,045 which is available to offset future taxable income that expires by year 2036.
TCJA modified net operating loss (NOL) rules.
For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. Exceptions apply to certain farming
losses and NOLs of insurance companies other than a life insurance company.
For losses arising in taxable years beginning
after Dec. 31, 2017, the new law limits the NOL deduction to 80% of taxable income.
Reconciliation between the provision for income
taxes and the expected tax benefit using the federal statutory rate of 21% for 2020 and 2018 is as follows:
|
|
2020
|
|
2019
|
US federal statutory income tax rate
|
|
|
(21
|
)%
|
|
|
(21
|
)%
|
State tax – net of benefit
|
|
|
(7
|
)%
|
|
|
(7
|
)%
|
Non-deductible expenses, net of federal benefit
|
|
|
7
|
%
|
|
|
7
|
%
|
Increase in valuation allowance
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
29.
Subsequent Events
Convertible Notes
On July 16, 2020, the Company entered a convertible
promissory note with an accredited investor for a total amount of $260,700. The note is due 365 days and bear an interest rate
of 8%. The conversion price for the note is 60% of the lowest price of the common stock traded in the 20 trading days prior to
the conversion date.
On July 21, 2020, the Company entered a convertible
promissory note with an accredited investor for a total amount of $200,200. The note is due 365 days and bear an interest rate
of 8%. The conversion price for the note is 60% of the lowest price of the common stock traded in the 20 trading days prior to
the conversion date.
On September 9, 2020, the Company entered a
convertible promissory note with an accredited investor for a total amount of $110,000. The note is due on March 10, 2021 and bear
an interest rate of 12%. The conversion price for the note is a fixed price of $0.01 per share. After the 6 month anniversary of
this Note, the Conversion Price shall be equal to the lower of the Fixed Price or 65% of the lowest trading price of the Common
Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any
exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including
the day upon which a Notice of Conversion is received by the Company or its transfer agent.
On September 10, 2020, the Company entered
a convertible promissory note with an accredited investor for a total amount of $227,700. The note is due 365 days and bear an
interest rate of 8%. The conversion price for the note is 60% of the lowest price of the common stock traded in the 20 trading
days prior to the conversion date.
On September 24, 2020, the Company entered
a convertible promissory note with an accredited investor for a total amount of $212,300. The note is due on March 25, 2021 and
bear an interest rate of 12%. The conversion price for the note is a fixed price of $0.01 per share. After the 6 month anniversary
of this Note, the Conversion Price shall be equal to the lower of the Fixed Price or 65% of the lowest trading price of the Common
Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any
exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including
the day upon which a Notice of Conversion is received by the Company or its transfer agent.
On October 8, 2020, the Company entered a convertible
promissory note with an accredited investor for a total amount of $231,000. The note is due on April 9, 2021 and bear an interest
rate of 12%. The conversion price for the note is a fixed price of $0.01 per share. After the 6 month anniversary of this Note,
the Conversion Price shall be equal to the lower of the Fixed Price or 65% of the lowest trading price of the Common Stock as reported
on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are traded or any exchange upon which
the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which
a Notice of Conversion is received by the Company or its transfer agent.
Convertible note conversions
Subsequent to October 11, 2020, there were
multiple accredited investors converted approx. $1,301,700 of the convertible notes with $64,532 accrued interest into 1,081,411,606
shares of the Company’s common stocks.
Lease
On September 28, 2020, the Company and LMK
Capital LLC (“LMK”) entered into a Residential Lease (the “Lease”) pursuant to which LMK agreed to lease
to the Company five acres located in Northern California and owned by LMK (the “Property”). Jimmy Chan, Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and majority stockholder of the Company, is majority owner of LMK.
The term of the Lease begins on October 1, 2020 and ends on September 30, 2023; provided, however, that at the end of the term,
the Lease will continue on a month-to-month basis. in the Pursuant to the terms of the Lease, the Company will pay rent in the
amount of $20,000 per month. The Lease also provides that the Company will pay a $250,000 security deposit to LMK. Pursuant to
the terms of the Lease, the monthly rent will increase to $0.50 per sq. ft. on cultivation area upon approval of certificate of
occupancy with a 3% increase each subsequent year.