NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Grasshopper Staffing Inc (the Company), formally Tomichi Creek Outfitters, was formed in the state of Nevada on June 25, 2013 and its year-end is July 31.
On March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which it acquired the business and assets of Grasshopper Staffing Inc (Grasshopper Colorado), formed in the state of Colorado on January 13, 2015. The exchange for $10,651 was represented by 250,000 shares of the Companys common stock in exchange for all of the outstanding shares of Grasshopper Colorado. The assets purchased include the logo and website, office supplies and office furniture. Grasshopper Colorado is operating as a wholly-owned subsidiary of the Company and is now the primary operation of its business.
Grasshopper Colorado was founded as a solution to the staffing needs presented in the blossoming cannabis industry in Colorado.
NOTE 2 - SEASONAL NATURE OF OPERATIONS
The cannabis industry in general historically experiences seasonal fluctuations in revenue and net income. The Companys revenues reflect two cutting periods resulting in higher revenues in the months of May through July and October through December. Therefore, the results of operations presented for the six months ended January 31, 2017, are not necessarily representative of the results of operations for the full year.
NOTE 3 - GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern. The Company has a history of losses, an accumulated deficit, has minimal working capital and has not generated cash from its operations to support meaningful ongoing operations. In view of these matters, the Companys ability to continue as a going concern is dependent upon advancement of operations and to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of the Companys management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and six months ended January 31, 2017 and 2016 and cash flows for the six months ended January 31, 2017 and 2016 and our financial position as of January 31, 2017 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.
F-4
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Certain information and disclosures normally included in the notes to the annual audited consolidated financial statements have been condensed or omitted from these interim unaudited consolidated financial statements. Accordingly, these interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended July 31, 2016, which are included in the Companys annual report on Form 10-K filed on July 18, 2017. The July 31, 2016 balance sheet is derived from those statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation.
Accounts Receivable
Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. At January 31, 2017 and July 31, 2016, the Company wrote off $4,396 and $4,395, respectively to the allowance.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the statement of operations. Depreciation is calculated using the straight-line method which depreciates the assets over the estimated useful lives of the depreciable assets ranging from five to seven years.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. The Company did not recognize any impairment losses for any periods presented.
Intangible Assets
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 3 years for website development. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible assets remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. At January 31, 2017, no revision to the remaining amortization period of the intangible assets was made.
F-5
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
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. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Revenue Recognition
Revenue is derived from the placement of temporary workers. The Company recognizes revenue when it is realized or realizable and estimable in accordance with ASC 605,
Revenue Recognition
. The Company will recognize revenue only when all of the following criteria have been met:
·
Persuasive evidence for an agreement exists;
·
Service has been provided;
·
The fee is fixed or determinable; and,
·
Collection is reasonably assured.
Basic Net Loss Per Common Share
Basic net loss per common share is computed by dividing the loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.
Stock Based Compensation
The Company accounts for the grant of restricted stock awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of equity based compensation. The expense is recognized over the period during which the employee is required to provide service in exchange for the compensation. Any remaining unrecognized balance will be recognized ratably over the life of the vesting period and is a reduction of stockholders' equity.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 Equity-Based Payments to Non-Employees.
F-6
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Under ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and 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. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of January 31, 2017 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.
Recent Accounting Pronouncements
The Company has reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporations reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at January 31, 2017 and July 31, 2016:
|
|
|
|
|
| |
|
|
January 31,
2017
|
|
July 31,
2016
|
Computer equipment
|
|
$
|
2,643
|
|
$
|
2,644
|
Furniture and fixtures
|
|
|
3,007
|
|
|
3,007
|
Subtotal
|
|
|
5,650
|
|
|
5,650
|
Less: accumulated depreciation
|
|
|
(1,916)
|
|
|
(1,434)
|
Total property and equipment, net
|
|
$
|
3,734
|
|
$
|
4,217
|
Depreciation expense for the six months ended January 31, 2017 and 2016 was $483 and $483 respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consisted of the following at January 31, 2017 and July 31, 2016:
|
|
|
|
|
| |
|
|
January 31,
2017
|
|
July 31,
2016
|
Website development
|
|
$
|
5,000
|
|
$
|
5,000
|
Less: accumulated amortization
|
|
|
(3,333)
|
|
|
(2,493)
|
Total intangible assets, net
|
|
$
|
1,667
|
|
$
|
2,507
|
Amortization expense for the six months ended January 31, 2017 and 2016 was $840 and $840 respectively.
F-7
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at January 31, 2017 and July 31, 2016:
|
|
|
|
| |
|
January 31,
2017
|
|
July 31,
2016
|
Accounts Payable
|
$
|
45,048
|
|
$
|
40,486
|
Accrued Expenses
|
|
--
|
|
|
1,600
|
Accrued Payroll
|
|
8,101
|
|
|
10,951
|
Cash Overdraft
|
|
--
|
|
|
1,004
|
Total
|
$
|
53,149
|
|
$
|
54,041
|
NOTE 8 - PAYROLL LIABILITIES
The Company has past due payroll liabilities due to the Internal Revenue Service (IRS) for unpaid payroll taxes, penalties and interest for 2015 and 2016. The original unpaid payroll taxes to the IRS for these periods totaled $32,966.
As of January 31, 2017, the past due balance due to the IRS, including penalties, interest, and fees, totaled $70,263. On February 10, 2017, the Company paid back $10,116 of the outstanding liability, interest and penalties related to the March 31, 2016 tax period. During the year ended July 31, 2016 the Company incurred $9,539 in penalties and interest from the IRS. During the six months ended January 31, 2017, the Company recorded $6,150 in additional penalties and interest related to these outstanding liabilities. The Company is working with the IRS to negotiate a payment plan for the remaining balance due.
NOTE 9 - FACTORING ARRANGEMENTS
On April 13, 2016, the Company entered into a revenue-based factoring agreement with TUV Investments LLC (TUV), pursuant to which for consideration of $20,000 the Company agreed to sell, assign and transfer all of the Companys future receipts until the repayment of the agreed upon purchase price of $27,600 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay TUV the greater of an authorized daily debit (ACH withdrawal) of $199 on each available banking day, or 14% of the Companys daily receipts until the $27,600 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $8,305 as factoring expenses on the date of the agreement. The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries. As of July 31, 2016 the Company had an outstanding liability due to TUV Investments of $13,143. On October 4, 2016, the Company transferred the balance into a new loan agreement. For additional consideration of $8,857, the Company agreed to the same terms as the original agreement until the agreed upon new purchase price of $30,360 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $8,360 as factoring expenses on October 4, 2016. As of January 31, 2017, this agreement has an outstanding balance of $12,448.
On May 6, 2016, the Company entered into a revenue-based factoring agreement with Merchant Cash Advance Fund One (Merchant), pursuant to which for consideration of $7,500 the Company agreed to sell, assign and transfer all of the Companys future receipts until the repayment of the agreed upon purchase price of $10,875 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay Merchant the greater of an authorized daily debit (ACH withdrawal) of $108 on each available banking day, or 5% of the Companys daily receipts until the $10,875 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $3,774 as factoring expenses on the date of the agreement. The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries. As of January 31, 2017, this agreement has an outstanding balance of $723.
F-8
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 9 - FACTORING ARRANGEMENTS (continued)
On May 6, 2016, the Company entered into a revenue-based factoring agreement with Samson Horus (Samson), pursuant to which for consideration of $7,500 the Company agreed to sell, assign and transfer all of the Companys future receipts until the repayment of the agreed upon purchase price of $10,875 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay Samson the greater of an authorized daily debit (ACH withdrawal) of $108 on each available banking day, or 5% of the Companys daily receipts until the $10,875 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $4,475 as factoring expenses on the date of the agreement. The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries. As of January 31, 2017, this agreement has an outstanding balance of $0.
NOTE 10 - CONCENTRATIONS
The following table sets forth information as to each customer that accounted for 10% or more of the Companys revenues for the six months ended January 31, 2017 and 2016. At January 31, 2017, three customers accounted for 53% of the Companys total revenue.
|
|
|
|
|
| |
Customer
|
|
Six Months Ended
January 31, 2017
|
|
Six Months Ended
January 31, 2016
|
A
|
|
|
31%
|
|
|
60 %
|
B
|
|
|
10%
|
|
|
16 %
|
C
|
|
|
12%
|
|
|
--
|
NOTE 11 - RELATED PARTY TRANSACTIONS
In support of the Companys efforts and cash requirements, it has relied on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note. As of January 31, 2017 and July 31, 2016, members of management have loaned the Company $163,643 and $121,935, respectively. The loans are payable on demand and carry no interest.
In addition, the Company has accrued expenses related to the January 15, 2016 consulting and advisory agreement (See Note 12). As of January 31, 2017 and July 31 2016, the Company has accrued $223,742 and $103,742, respectively in monthly retainer fees and travel expenses related to this agreement.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
NOTE 12 - CAPITAL STOCK
The Company is authorized to issue an aggregate of 200,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued. At January 31, 2017 and July 31, 2016, the Company had 26,287,500 and 26,287,500 common shares issued and outstanding, respectively.
F-9
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 12 - CAPITAL STOCK (Continued)
Shares Issued for Services:
On June 12, 2015, the Company's Board of Directors approved the issuance of 3,175,000 shares of common stock to various employees and consultants. The fair market value of the shares was $1,301,750 at the date of grant, of which $322,533 was recognized as an expense in the year ended July 31, 2015. The remaining balance of $979,217 was recorded to additional paid in capital and is being amortized over the life of the employment agreements (15 - 18 months). The Company recorded $921,133 of the remaining balance in the year ended July 31, 2016 and has recorded $58,083 of consulting expense during the six months ended January 31, 2017. The expense has been fully amortized as of January 31, 2017.
On January 15, 2016, the Company entered into a three-year consulting and advisory agreement with Platinum Equity Advisors, LLC, a related party. Compensation consists of a monthly retainer fee of $20,000. In addition, for services rendered through January 15, 2016, the Company issued on February 15, 2016, 8,000,000 shares of the Companys common stock at a value of $0.35 per share or $2,788,000. The first months retainer was offset by $8,000 for the shares issued, resulting in a reduction of accounts payable and the remainder will be amortized over the life of the agreement. For the year ended July 31, 2016, the Company has recorded $503,389 in consulting expense related to this agreement. During the six months ended January 31, 2017 the Company amortized an additional $464,667 leaving an unamortized balance of $1,819,944 January 31, 2017.
Warrants:
On March 29, 2016, the Company agreed to issue 6,000,000 warrants to purchase shares of the Companys common stock as satisfaction of $6,000 in compensation that was owed to Acorn Management Partners, LLC. The warrants have an exercise price of $0.01 and expire ten years from the date of issuance. The warrants were valued using the Black-Scholes option-pricing model and a fair value of approximately $3,200,000 was expensed.
A summary of the Companys warrant activity during the three months ended January 31, 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
Warrants
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
Balance Outstanding, July 31, 2016
|
|
|
6,000,000
|
|
$
|
0.01
|
|
|
9.67
|
|
$
|
1,860,000
|
Granted
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Forfeited
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Expired
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Balance Outstanding, January 31, 2017
|
|
|
6,000,000
|
|
$
|
0.01
|
|
|
9.16
|
|
$
|
2,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2017
|
|
|
6,000,000
|
|
$
|
0.01
|
|
|
9.16
|
|
$
|
2,200,000
|
As of January 31, 2017, there are no options outstanding to acquire any additional shares of common stock of the Company.
F-10
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(unaudited)
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Legal Matters
In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company's management is unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Companys financial position or results of operations.
The Companys operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
Operating Leases
The companys executive offices are located at 200 S Victoria Ave, Pueblo, Co 81003. The property is leased on a month to month basis with a monthly rental payment of $800.
NOTE 14 - SUBSEQUENT EVENTS
The Company follows the guidance in Sections 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company has evaluated the period after the balance sheet date up through the date of filing, which is the date that the consolidated financial statements were issued, and determined that, there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements except for the following as disclosed below:
Related Party Advances
Through the date of filing there have been additional amounts representative of advances or amounts paid in satisfaction of liabilities from a director or member of management. The advances are considered temporary in nature and have not been formalized by a promissory note. As of the date of filing an additional $46,051 has been loaned to the Company. These loans are payable on demand and carry no interest (See Note 11).
F-11