NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
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.
The accompanying unaudited interim consolidated financial statements of Golden Matrix Group, Inc. (“GMGI” or the “Company”) 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 (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report for the year ended July 31, 2016 on Form 10-K filed on November 15, 2016.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year ended July 31, 2016 have been omitted.
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. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Revenues
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.
Foreign Currency Translation
The Company’s functional currency is the US dollar as a substantial part of the Company’s operations is based in Arizona. IRC’s and NBI’s functional currency is the Canadian dollar. The functional currency of SB and Vulture is the US dollar as its activities are in the USA. The Company uses the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (“SEC”).
Assets and liabilities denominated in a foreign currency are translated into US dollar reporting currency at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in other comprehensive loss.
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.
Derivative Instruments
We review the terms of the common stock, warrants and convertible debt 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 more than one 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. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any are then allocated to the host instruments themselves, usually resulting in those instruments being recorded as a discount from their face value.
Derivatives are measured at their fair value on the balance sheet. Changes in fair value are recorded in the statement of operation.
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.
Comprehensive Loss
The Company is required to report comprehensive loss, which includes net loss as well as changes in equity from non-owner sources.
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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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.
Stock-Based Compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Stock based compensation for non-employees is accounted for using the Stock Based Compensation Topic of the FASB ASC 505. We use the fair value method for equity instruments granted to non-employees and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
Subsequent Events
The Company evaluated subsequent events through the date these financial statements were issued for disclosure purposes.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation.
Recent Issued Accounting Pronouncements
In May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with an option to adopt the standard one year earlier. The new standard is to be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. 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.
GMGI’s management does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 2 - GOING CONCERN
The accompanying unaudited 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 had a working capital deficit and accumulated deficit of $1,755,188 and $27,064,558 respectively, at April 30, 2017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for GMGI to continue as a going concern. GMGI's management plans on raising cash from public or private debt or equity financing, on an as needed basis, and in the longer term, revenues from the gambling business. GMGI's ability to continue as a going concern is dependent on these additional cash financings, and, ultimately, upon achieving profitable operations through the development of its gambling business.
NOTE 3 - CONVERTIBLE NOTES PAYABLES
Convertible notes payable at April 30, 2017 and July 31, 2016 consisted of the following:
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April 30,
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July 31,
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2017
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2016
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Promissory Note #2
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30,000
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30,000
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Promissory Note #31- in default
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10,320
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23,741
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Promissory Note #39 - in default
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-
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12,969
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Promissory Note #42 - in default
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430
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13,955
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Promissory Note #44 - in default
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13,400
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25,000
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Promissory Note #45 - in default
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28,285
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28,285
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Promissory Note #46 - in default
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33,000
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33,000
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Promissory Note #50 - in default
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-
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313,145
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Promissory Note #52
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-
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|
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211,945
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Promissory Note #59 - in default
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54,460
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219,460
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Promissory Note #68-Related party
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795,712
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1,045,712
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Promissory Note #69
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38,000
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-
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Notes payable, principal
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$
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1,003,607
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$
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1,957,212
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Debt discount
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(24,476
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)
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(277,798
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)
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Notes payable, net of discount
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979,131
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1,679,414
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Accrued interest
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135,741
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259,169
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Total notes payable
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$
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1,114,872
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$
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1,938,583
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Promissory 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.
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.
Promissory Note #31
On March 17, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $26,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 17, 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 $42,329 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
During nine months ended April 30, 2017, the Company issued 4,733,877 common shares upon the conversion of $13,421 in principal and $6,514 in interest. During the nine months ended April 30, 2017, the Company accrued $2,645 (April 30, 2016 $4,774) in interest expense. As of April 30, 2017, principal balance of this note was $10,320. This note is currently in default and has a default interest rate of 24% per annum.
Promissory Note #39
On May 19, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 19, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $32,007 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
During nine months ended April 30, 2017, the Company issued 620,473 common shares upon the conversion of $12,969 in principal and $4,771 in interest, and $15,969 of the derivative liability was re-classified as additional paid in capital upon conversion. During the nine months ended April 30, 2017, the Company accrued $325 (April 30, 2017 $2,811) in interest expense. As of April 30, 2017, principal balance of this note was $0 (April 30, 2016 $22,969).
Promissory Note #42
On June 6, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 6, 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 60% 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 $33,550 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
During the nine months ended April 30, 2017, the Company issued 1,054,799 common shares upon the conversion of $13,525 in principal and $3,466 in interest. During the nine months ended April 30, 2017, the Company accrued $315 (April 30, 2016 $2,759) in interest expense. As of April 30, 2017, principal balance of this note was $430 (April 30, 2016 $21,000). This note is currently in default and has a default interest rate of 16% per annum.
Promissory Note #44
On July 2, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 2, 2015.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $40,725 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
During the nine months ended April 30, 2017, the Company issued 1,531,458 common shares upon the conversion of $11,600 in principal and $2,183 in interest. During the nine months ended April 30, 2017, the Company accrued $1,805 (April 30, 2016 $3,003) in interest expense. As of April 30, 2017, principal balance of this note was $13,400 (April 30, 2016 $25,000). This note is currently in default and has a default interest rate of 16% per annum.
Promissory Note #45
On July 9, 2014, the Company arranged a debt swap for $75,000 which 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.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $202,937 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
As of April 30, 2017, principal balance of this note was $28,285 (April 30, 2016 $29,500). During the nine months ended April 30, 2017, the Company accrued $3,386 (April 30, 2016 $4,250) in interest expense. This note is currently in default and has a default interest rate of 16% per annum.
Promissory 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 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.
As of April 30, 2017, principal balance of this note was $33,000 (April 30, 2016 $33,000). During the nine months ended April 30, 2017, the Company accrued $3,949 (April 30, 2016 $3,964) in interest expense. This note is currently in default and has a default interest rate of 16% per annum.
Promissory Note #50
On December 31, 2014 the Company entered into a Convertible Promissory Note with Direct Capital Group, Inc. in the sum of $360,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2015. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. On April 27, 2016, the Company transferred the note to N600PG, LLC. (“N600PG”).
On September 22, 2016, the Company entered into a Cancellation and Release Agreement with Direct Capital Group, Inc. (“Direct”) and N600PG, LLC. (“N600PG”). As of September 22, 2016, principal balance of $313,145 accrued interest of $96,092 was recorded.
In terms of Cancellation and Release Agreement, Direct and N600PG agreed to cancel the convertible promissory note with the Company. 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.
Promissory Note #52
On April 30, 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 October 30, 2015. Any principal amount not paid by the maturity date bears interest at 22% per annum.
On April 30, 2015, interest expense relating to the beneficial conversion feature of this convertible note of $240,000 was recorded in the financial statements, with a corresponding increase to additional paid in capital. During the life of the promissory note, the debt discount was accreted to the statement of operations.
On January 19, 2016, the note was reassigned to Rockwell Capital Partners. 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 18th April 2016, Rockwell Capital Partners reassigned $165,000 of the original note back to Direct Capital Group, Inc.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $479,999 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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 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 totalling $198,530. 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.
On March 18, 2017, the Company agreed to settle a dispute regarding a claim by Rockwell that GMGI, was liable for damages and penalty interest. In this settlement the Company reached an agreement to pay Rockwell $12,000 in full and final settlement of all interest and any damages claimed. The Company made no admissions regarding the penalties claimed by Rockwell which may have been caused by the change in Transfer Agents.
During the nine months ended April 30, 2017, the Company issued 48,433,334 common shares upon the conversion of $48,866 in principal and $9,824 in interest. As of April 30, 2017, principal balance of this note was $0 (April 30, 2016 $221,493).
Promissory 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. The Conversion Price shall mean par$0.00001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. 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”.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
On July 31, 2015, interest expense relating to the beneficial conversion feature of this convertible note of $0 was recorded in the financial statements, with a corresponding increase to additional paid in capital.
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.
As of April 30, 2017, principal balance of this note was $54,460 (April 30, 2016 $240,000). This note is currently in default.
Promissory
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 $2,330,680 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
During the nine months ended April 30, 2017, the Company issued 34,113,061 common shares upon the conversion of $250,000 in principal, and $50,399 of the derivative liability was re-classified as additional paid in capital upon conversion. During the nine months ended April 30, 2017, the Company accrued $43,099 (April 30, 2016 $23,422) in interest expense. As of April 30, 2017, principal balance of this note was $795,712 (April 30, 2016 $2,374,712). This note is currently in default. The default had no effect on the note’s interest rate.
Promissory Note #69
On January 11, 2017 the Company entered into a convertible promissory note with in the amount of $38,000. The promissory note bears interest at 8% per annum, and matures on October 28, 2017.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $61,883 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. 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.
As of April 30, 2017, principal balance of this note was $38,000 (April 30, 2017 $0). During the nine months ended April 30, 2017, the Company accrued $833 (April 30, 2016 $0) in interest expense.
NOTE 4 - DERIVATIVE LIABILITIES
The Company issued financial instruments in the form of convertible notes with embedded conversion features. Some of the convertible notes payable have conversion rates, which are indexed to the market value of the Company’s stock price.
During the nine months ended April 30, 2017 and 2016, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $61,883 and $5,681,471 respectively. During the nine months ended April 30, 2017 and 2016, $377,199 and $33,823 respectively of convertible notes payable principal and accrued interest was converted into common stock of the Company. For the nine months ended April 30, 2017 and 2016, the Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes of and the carrying amount of the derivative liability related to the conversion feature of $227,132 and $58,771 respectively, was re-classed to additional paid in capital on the date of conversion in the statement of shareholders’ deficit. During the nine months ended April 30, 2017 and 2016, the Company recognized a gain of $1,414,761 and a loss of $20,725,354 respectively, based on the change in fair value (mark-to-market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations.
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.
The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:
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April 30,
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July 31,
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|
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2017
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|
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2016
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|
Balance, beginning of period
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|
$
|
1,939,753
|
|
|
$
|
322,029
|
|
Initial recognition of derivative liability
|
|
|
61,883
|
|
|
|
3,754,182
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|
Conversion of derivative instruments to Common Stock
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|
|
(227,132
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)
|
|
|
(5,095,929
|
)
|
Mark-to-Market adjustment to fair value
|
|
|
(1,414,761
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)
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|
|
2,959,473
|
|
Balance, end of period
|
|
$
|
359,743
|
|
|
$
|
1,939,753
|
|
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, we may be party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not involved currently in legal proceedings other than those detailed below that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
NOTE 6 - 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.
On February 22, 2016, the Company entered into an Asset Purchase Agreement with Luxor Capital, LLC, which is wholly owned by Anthony Goodman. 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 April 1, 2016, the Company entered into a Services Agreement with Articulate Pty Ltd, which is wholly owned by the director of the Company, for consulting services. Pursuant to the agreement Articulated would receive $4,500 per month ending for services rendered plus reimbursement of the Company's expenses. The agreement may be terminated by either party upon 30 days written notice. During nine months ended April, 2017 and 2016, general and administrative expense related to this service was $189,317 and $9,151, respectively. As of April 30, 2017, the Company has a $323,651 payable to Articulate.
On June 1, 2016, the Company entered a distribution usage rights agreement with Globaltech Software Services LLC. (“Globaltech”), a company in which the Chief Executive Officer has an interest, the Company agreed to provide the rights of usage to its Credit Management system, Social Gaming systems and Technology. During nine months ended April 30, 2017 and 2016, revenue from Globaltech was $90,000 and $0, respectively. As of April 30, 2017, the Company had a $42,500 accounts receivable to Globaltech.
NOTE 7 - EQUITY
Preferred Stock
The Company authorized the creation of 20,000,000 shares of it $0.00001 par value preferred stock.
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 those shares of the Series B Voting Preferred Stock regarding any matter or action that is required to be submitted to the shareholders of the Company for approval. The vote of each share of the Series B Voting Preferred Stock is equal to and counted as 4 times the votes of all of the shares of the Company’s (i) common stock, and (ii) other voting preferred stock issued and outstanding on the date of each and every vote or consent of the shareholders of the Company regarding each and every matter submitted to the shareholders of the Company for approval.
On 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 1,000 Series B shares.
As of April 30, 2017, 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, ( 0 shares as of April 30, 2016), 1,000 Series B shares were issued and outstanding, (1,000 preferred shares issued and outstanding as of April 30, 2016).
Common Stock
The Company authorized the creation of 2,480,000,000 shares of its $0.00001 par value common stock.
On October 15, 2015, the Company effectuated a 1 for 2,000 reverse stock split, thereby reducing the issued and outstanding shares of common stock from 3,472,433,130 prior to the reverse split to 1,736,217 following the reverse split. An additional 1,043 shares were issued due to no fractional shares used as a result of the reverse stock split.
On November 6, 2015, the Company purchased all data and rights to the “We Buy Gold” website from Santa Rosa Resources. The Company issued 223 shares of common stock on November 6, 2015 and 223 shares of common stock on December 7, 2015, with a total value equal to $1,800,000.
On March 9, 2016, the Company’s Board of Directors approved 1 for 1,500 reverse split for the Company’s authorized, issued and outstanding shares of common stock. The reverse stock split was effective on April 7, 2016 upon approval of shareholders holding a majority of the voting stock.
On December 5, 2016, the Company’s Board of Directors approved 1 for 150 reverse split for the Company’s authorized, issued and outstanding shares of common stock, reducing the number of authorized shares to 19,866,667. The reverse stock split was effective on January 9, 2017 upon approval of shareholders holding a majority of the voting stock. On January 17, 2017, the authorized number of shares of common stock was increased to 2,480,000,000.
During the nine months ended April 30, 2017, the Company issued 90,591,101 shares of common stock for the conversion of various convertible notes of $348,461 in principal and $28,738 in interest (see Note 4).
As of April 30, 2017, 2,480,000,000 common shares of par value $0.00001 were authorized, of which 93,187,906 shares were issued and outstanding.
NOTE 8 - CONCENTRATION
The Company’s revenues for the nine months ended April 30, 2017 were from one related party. As of April 30, 2017, the aggregate amount due from this related party was $42,500.
All of the Company’s revenues for the nine month ended April 30, 2017 were from Globaltech Software Services LLC. (“Globaltech”), a company in which the Chief Executive Officer has an interest, the Company agreed to provide the rights of usage to its credit management system, social gaming systems and technology.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to April 30, 2017, The Company issued 4,618,767 shares of common stock for conversion of $1,800 note principal and $471 interest.