Notes to Financial Statements
(Expressed in US Dollars)
1.
Nature of Business and Continuance of Operations
PureSnax International, Inc. (the “Company”) was incorporated in the State of Nevada on June 24, 2011. The Company was initially in the business of developing, manufacturing, marketing and selling the E-Scentual Skin Care Collection, a skin care line combining science with nature to form what we believed to be an advanced beauty treatment using all natural ingredients. The Company has limited revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise. The Company has changed its name with the State of Nevada from B-Maven, Inc to PureSnax International, Inc., on July 29
th
, 2015. The Company has changed its business direction to focus on the manufacturing, distribution, sales and marketing of healthy snacks and foods products by developing their own brand and Intellectual property.
2.
Going Concern
These financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. For the period from inception on June 24, 2011 through June 30, 2017, the Company has incurred accumulated losses totalling $573,368. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As of June 30, 2017, we had limited assets which consisted of cash and cash equivalents of $15,701. In order to fund the development of our business and working capital needs for the next 12 months, we intend to secure additional funding through the sale of common stock, related and non-related party loans, or funding provided by strategic partners. To further implement our plan of operations, we anticipate the costs to develop our products on a commercial scale could very well be in excess of $100,000. We will need at least an additional $50,000 to $100,000 to purchase raw material for commercial production, professional labeling and packaging, and introductory marketing and advertising programs that will educate as well as connect with our targeted customers who seek healthy snacks and food alternatives. If we are not successful in raising additional financing, we will not be able to further our business plan towards commercial production
3.
Summary of Significant Accounting Policies
a)
Basis of Presentation
These financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are expressed in US dollars. The Company’s fiscal year end is June 30.
b)
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to income taxes. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The company has no cash equivalents
F-6
d)
Derivative Financial Instruments
The company evaluates all its agreements to determine if such instruments have 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-base derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instrument at inception and on subsequent valuation dates. The classification of derivative instrument, 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. As of June 30, 2017 and 2016 the Company’s derivative financial instruments were three convertible debt notes and one of then includes convertible warrant that are derivative due to the “reset” and “dilutive issuance” clause in the note relating to the conversion price from dilute share issuance. See Note 7.
e)
Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures”, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments”, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in the active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurements.
The Company’s derivative instruments were reported at fair value using Level 2 inputs as discussed in Note 7.
The Company uses level 2 inputs for its valuation methodology for the warrant derivative liabilities as their fair values were determined by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liability is adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in result of operations as adjustments to fair value of derivatives.
At June 30, 2017 and 2016, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
Description
|
|
Fair Value
as of
June 30, 2017
|
|
|
|
Fair Value
Measurements at
June 30, 2017
Using Fair Value
Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liability
|
$
|
98,041
|
$
|
-
|
$
|
-
|
$
|
98,041
|
Contingent consideration for business combination
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
$
|
98,041
|
$
|
-
|
$
|
-
|
$
|
98,041
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value
as of
June 30, 2016
|
|
|
|
Fair Value
Measurements at
June 30, 2016
Using Fair Value
Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liability
|
$
|
112,243
|
$
|
-
|
$
|
-
|
$
|
112,243
|
Contingent consideration for business combination
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
$
|
112,243
|
$
|
-
|
$
|
-
|
$
|
112,243
|
F-7
f)
Inventory
Inventory for the fiscal years ended June 30, 2017 and 2016 were $0 and $9,197, respectively. As of June 30, 2017, the company didn’t have any inventory. As of June 30, 2016, the inventory consisted of finish goods inventory of $9,197. The Company uses FIFO method to account for its inventory. The Company’s policy for obsolete inventory is
based on periodical reviews of the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions.
g)
Earnings (Loss) Per Share
Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company's Consolidated Balance Sheet. Diluted net loss per share is computed using the weighted average number of common shares outstanding and if dilutive; potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable in respect of convertible debt and warrants.
The following table presents the computation of basic and diluted net loss per share:
|
|
For the Years Ended June 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Net loss attributable to PureSnax
|
$
|
(263,691)
|
$
|
(245,047)
|
Less: preferred stock dividends
|
|
-
|
|
-
|
Net loss applicable to common stock
|
$
|
(263,691)
|
$
|
(245,047)
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
379,104,082
|
|
150,733,517
|
|
|
|
|
|
Loss per share - basic and diluted
|
$
|
(0.0007)
|
$
|
(0.0016)
|
h)
Foreign Currency Translation
The Company’s initial operations will be in the United States however global expansion is anticipated which results in exposure to market risks from changes in foreign currency exchange rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk. The Company's functional currency for all operations worldwide is the U.S. dollar. Nonmonetary assets and liabilities are translated into their U.S. dollar equivalents at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results of operations.
i)
Recent Accounting Pronouncements
Jumpstart Our Business Startups Act (“JOBS Act”) Transition Accounting: pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company”. This election will permit us to delay the adoption of new or revised accounting standards that will have difference effective dates for public and private companies until such time as those standards apply to private companies. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates.
In April 2016, the FASB issued Accounting Standards Update (ASU) 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing (ASU 2016-10). ASU 2016-10 was issued by the Board to improve Topic 606 by reducing:
1)
The potential for diversity in practice at initial application
2)
The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.
F-8
The core principle of the guidance in Topic 606 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.
To achieve that core principle, an entity should apply the following steps:
1)
Identify the contract(s) with a customer
2)
Identify the performance obligations in the contract
3)
Determine the transaction price.
4)
Allocate the transaction price to the performance obligations in the contract.
5)
Recognize revenue when (or as) the entity satisfies a performance obligation.
The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guide, while retaining the related principles for those areas. The effective date and transition requirements for the amendments in ASU 2016-10 are for annual reporting periods beginning after December 31, 2016, including interim periods within that reporting period. FASB ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently assessing this guidance for future implementation.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 was issued as part of the Board’s Simplification Initiative. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, Accounting for Income Taxes, Classification of Excess Tax Benefits on the Statement of Cash Flows, Forfeitures, Minimum Statutory Tax Withholding Requirements, Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-Withholding Purposes, Practical Expedient- Expected Term, and Intrinsic Value. The amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing this guidance for future implementation.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires entities to recognize lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments.
For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.
The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.
In January 2015, FASB issued Accounting Standards Update (ASU) No. 201501 Income Statement – Extraordinary and Unusual Items, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
F-9
4.
Related Party Transactions
a)
At June 30, 2017, Mr. Patrick Gosselin loaned the Company $21,041, and Gosselin Consulting Group, Inc. loaned the Company $4,880. Gosselin Consulting Group, Inc., is a private Canadian company that is owned by Mr. Patrick Gosselin. The amounts owed are unsecured, non-interest bearing with interest imputed at 2.47% per annum, and have no specified repayment terms. The loan to related parties is $25,921 as of June 30, 2017.
5.
Stockholders’ Equity
The Company’s authorized capital consists of 500,000,000 shares of common stock with a par value of $0.001 per share and 1,000,000 shares of preferred stock with a par value of $0.001 per share.
On June 1, 2015, the board of directors approved a forward split of the issued and outstanding common shares on the basis of 40 new common shares for each 1 existing common share. Upon effectiveness of the forward split, the issued and outstanding shares of common stock increased from 10,000,000 to 400,000,000. All share and per share amounts have been retroactively adjusted to reflect the forward stock split. On June 11, 2015, the Company’s Articles of Incorporation were amended reflect these changes.
On September 21, 2015, Patrick Gosselin executed an agreement whereby an aggregate of 300,000,000 common stock shares would be cancelled in exchange for the issuance of 1,000,000 shares of Series A Convertible Preferred stock.
On September 29, 2015 the Company filed an amendment to its certificate of designation whereby its Series A Convertible Preferred Stock authorized was increased to 1,000,000 shares with a par value of $0.001 per share, Senior liquidation preference to all junior shares, Convertible into common shares at a ratio of one Series A Preferred to 120 common shares, Right to vote for each share of common stock into which a convertible share could be converted, No redemption rights, Certain protective provisions, and No pre-emptive rights.
On February 24, 2016, the Company issued to Typenex Co-Investment, LLC,
85,662 common stock purchase warrants, with a term of three years, at an exercise price of $0.271 per share. This was in connection with the Promissory
convertible note the Company issued to Typenex Co-Investment, LLC.
On April 1, 2016, the Company executed a subscription agreement with Nick Mastoris for the purchase of 44,118 restricted shares of Common Stock for a purchase price of $15,000.
On April 5, 2016, the Company executed a subscription agreement with Gary Kamen for the purchase of 73,530 restricted shares of Common Stock for a purchase price of $25,000.
On April 1, 2016, the Company executed a subscription agreement with Principe Asset Partners LLC for the purchase of 44,118 restricted shares of Common Stock for a purchase price of $15,000.
On May 13, 2016, Typenex Co-Investment, LLC elected to convert warrant # 1 with a fair market value of $26,433 into 73,798 shares of the Company’s common stock,
at an exercise price of $0.35789 per share.
On June 7, 2016, the Company issued to Typenex Co-Investment, LLC,
31,852 common stock purchase warrants, with a term of three years, at an exercise price of $0.69 per share.
On August 25, 2016, EMA Financial, LLC, elected to convert $7,000 of its
convertible promissory note in the principal amount of $30,000
into 500,000 shares of the company common stock at a conversion price of $0.035. The principal remaining after conversion was $23,000.
On September 9, 2016, Typenex Co-Investment, LLC, elected to convert $20,000 of its
convertible promissory note in the principal amount of $115,000
into 332,779 shares of the company’s common stock at a conversion price of $0.0601. The principal remaining after conversion was $100,962.
On September 16, 2016, EMA Financial, LLC, elected to convert $4,392 of its
convertible promissory note in the principal amount of $30,000
into 200,000 shares of the company’s common stock at a conversion price of $0.008785. The principal remaining after conversion was $18,607.
On September 20, 2016, Typenex Co-Investment, LLC, elected to convert $15,019.14 of its
convertible promissory note in the principal amount of $115,000
into 999,943 shares of the company’s common stock at a conversion price of $0.01502. The principal remaining after conversion was $86,846.84.
F-10
On September 21, 2016, Pinz Capital International, LP, elected to convert $10,000 of its
convertible promissory note in the principal amount of $30,556
into 664,010 shares of the company’s common stock at a conversion price of $0.01506. The principal remaining after conversion was $20,556.
On September 29, 2016, Pinz Capital International, LP, elected to convert $7,500 of its
convertible promissory note in the principal amount of $30,556
into 1,785,714 shares of the company’s common stock at a conversion price of $0.0042. The principal remaining after conversion was $13,056.
On September 30, 2016, EMA Financial, LLC, elected to convert $1,617 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $33 into 1,650,000 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $16,990.
On October 13, 2016, Typenex Co-Investment, LLC, elected to submit a True Up notice from a previous conversion of $20,000 (September 9, 2016) of its
convertible promissory note in the principal amount of $115,000. The True Up notice called for an additional conversion of
7,242,979 shares of the company’s common stock at a conversion price of $0.002640. The principal remaining after conversion was $100,962.
On October 14, 2016, Pinz Capital International, LP, elected to convert $5,000 of its
convertible promissory note in the principal amount of $30,556
into 2,976,190 shares of the company’s common stock at a conversion price of $0.001680. The principal remaining after conversion was $8,056.
On October 17, 2016, EMA Financial, LLC, elected to convert $5,370.40 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $109.60 into 5,480,000 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $11,620.10.
On October 25, 2016, EMA Financial, LLC, elected to convert $4,402.30 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $1,886.70 into 6,289,000 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $7,217.80.
On October 25, 2016, Pinz Capital International, LP, elected to convert $9,656 of its
convertible promissory note in the principal amount of $30,556
into 8,046,488 shares of the company’s common stock at a conversion price of $0.0012. The principal remaining after conversion was $0.
On November 2, 2016, Typenex Co-Investment, LLC, elected to submit a True Up notice from a previous conversion of $15,019.14 (September 20, 2016) of its
convertible promissory note in the principal amount of $115,000. The True Up notice called for an additional conversion of
7,834,845 shares of the company’s common stock at a conversion price of $0.00170. The principal remaining after conversion was $86,846.84.
On December 9, 2016, Typenex Co-Investment, LLC, elected to convert $18,000 of its
convertible promissory note in the principal amount of $115,000
into 16,981,132 shares of the company’s common stock at a conversion price of $0.00106. The principal remaining after conversion was $70,894.42.
On November 14, 2016, EMA Financial, LLC, elected to convert $5,201.70 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $2,229.30 into 7,431,000 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $2,016.10.
On December 6, 2016, $5,000 of a convertible promissory note in the principal amount of $10,000 was converted into 20,000,000 shares of the company at a conversion rate of $0.00025. The note was issued to Stacey Y. Jenkins, Esq. in consideration for outstanding fees for services rendered to the company prior to March 21, 2016.
On December 14, 2016 the Company filed an amendment to its certificate of designation whereby its Series A Convertible Preferred Stock was increased to 4,250,000 shares with a par value of $0.001 per share, Senior liquidation preference to all junior shares, Convertible into common shares at a ratio of one Series A Preferred to 120 common shares, Right to vote for each share of common stock into which a convertible share could be converted, No redemption rights, Certain protective provisions, and No pre-emptive rights.
On December 14, 2016 the Company filed an amendment to its certificate of designation whereby its Authorized Common Stock was increased to 1,000,000,000 shares with a par value of $0.001 per share.
On December 21, 2016, EMA Financial, LLC, elected to convert $5,103.00 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $4,617.00 into 9,720,000 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $4,948.15.
F-11
On January 17, 2017, EMA Financial, LLC, elected to convert $4,650.10 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $5,569.90 into 10,220,000 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $2,478.38.
On January 20, 2017, Typenex elected to convert $10,601.53 of its
convertible promissory note in the principal amount of $115,000
into 12,620,869 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $60,985.4.
On February 1, 2017, Typenex elected to fund Tranche #3 of $25,000 of the convertible promissory note in the principal amount of $115,000.
On February 2, 2017, $5,000 of a convertible promissory note in the principal amount of $10,000 was converted into 20,000,000 shares of the company at a conversion rate of $0.00025. The note was issued to Stacey Y. Jenkins, Esq. in consideration for outstanding fees for services rendered to the company prior to March 21, 2016.
On February 2, 2017 Typenex Co-Investment, LLC, elected to submit a True Up notice from a previous conversion of $18,000 on (December 9, 2016) of its
convertible promissory note in the principal amount of $115,000. The True Up notice called for an additional conversion of
4,447,439 shares of the company’s common stock at a conversion price of $0.00084.
On February 2, 2017, EMA Financial, LLC, elected to convert $3,498.10 of its
convertible promissory note in the principal amount of $30,000
, plus an additional principal on account of conversion of $3,640.88 into 7,138,979 shares of the company’s common stock at a conversion price of $0.001. The principal remaining after conversion was $0.
On February 16, 2017, $6,250 of a convertible promissory note in the principal amount of $8,020 was converted into 25,000,000 shares of the company at a conversion rate of $0.00025. The note was issued to Stacey Y. Jenkins, Esq. in consideration for outstanding fees for services rendered to the company prior to July 31, 2016.
On January 20, 2017, Typenex elected to convert $19,642.89 of its
convertible promissory note in the principal amount of $115,000
into 23,311,777 shares of the company’s common stock at a conversion price of $0.001.
On January 20, 2017, Typenex elected to convert $5,255 of its
convertible promissory note in the principal amount of $115,000
into 21,000,000 shares of the company’s common stock at a conversion price of $0.001.
On March 22, 2017, $1,770 of a convertible promissory note in the principal amount of $5,000 was converted into 7,080,000 shares of the company at a conversion rate of $0.00025. The note was issued to Stacey Y. Jenkins, Esq. in consideration for outstanding fees for services rendered to the company prior to March 21, 2016.
On April 12, 2017, Typenex elected to convert $6,256 of its
convertible promissory note in the principal amount of $115,000
into 25,000,000 shares of the company’s common stock at a conversion price of $0.001.
On May 2, 2017, Typenex elected to convert $5,380 of its
convertible promissory note in the principal amount of $115,000
into 21,500,000 shares of the company’s common stock at a conversion price of $0.001.
On May 25, 2017, Typenex elected to convert $8,208 of its
convertible promissory note in the principal amount of $115,000
into 32,800,000 shares of the company’s common stock at a conversion price of $0.001.
On June 13, 2017, Typenex elected to convert $8,220 of its
convertible promissory note in the principal amount of $115,000
into 32,850,000 shares of the company’s common stock at a conversion price of $0.001.
F-12
Warrants
The Company issued several Notes in prior periods and converted them in the issuance of warrants. The following table summarizes information about the Company’s warrants at June 30, 2017:
|
|
Number
of Units
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|
Intrinsic
Value
|
Outstanding at June 30, 2015
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
Granted - Warrant 1
|
|
73,798
|
|
0.36
|
|
3.01
|
|
|
Exercised - Warrant 1
|
|
(73,798)
|
|
(0.36)
|
|
|
|
|
Granted - Warrant 2
|
|
76,501
|
|
0.18
|
|
2.67
|
|
|
Outstanding at June 30, 2016
|
|
76,501
|
|
0.18
|
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
Exercised-Portion of W2
|
|
(54,485)
|
|
0.00025
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
22,016
|
$
|
0.00126
|
|
1.67
|
$
|
|
Exercisable at June 30, 2017
|
|
22,016
|
$
|
0.00126
|
|
1.67
|
$
|
|
All of the above warrants were issued in connection to conversion of convertible notes from Typenex Co-Investment, LLC. When the debt is converted and warrants are issued, the Company determines the fair value of the warrants using the Black-Scholes model and takes a charge to interest expense at the date of issuance.
The exercise price for warrants outstanding and exercisable at June 30, 2017 is as follows:
Outstanding
|
|
Exercisable
|
Number of Warrants
|
|
Exercise Price
|
|
Number of Warrants
|
|
Exercise Price
|
22,016
|
$
|
0.00126
|
|
22,016
|
$
|
0.00126
|
6.
Convertible Notes Payable
The Company issued convertible notes payable in 2017 and 2016. The outstanding balance and any accrued interest is due on maturity date. Under the agreement, the notes can be convertible at holder’s discretion into common shares of the Company stock.
The Company’s convertible notes payable are as follows:
Convertible Note
|
|
Issuance Date
|
|
Maturity Date
|
|
Interest
Rate
|
|
Original
Borrowing
|
|
Balance at
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1 EMA
|
|
February 5, 2016
|
|
February 6, 2017
|
|
10%
|
|
30,000
|
$
|
-
|
Note 3 Pinz
|
|
March 1, 2016
|
|
March 1, 2017
|
|
10%
|
|
30,556
|
|
-
|
Note 4 Typenex
|
|
June 7, 2016
|
|
February 28, 2019
|
|
8%
|
$
|
27,500
|
|
-
|
Note 5 Typenex
|
|
February 1, 2017
|
|
March 2, 2019
|
|
8%
|
|
25,000
|
|
25,000
|
Note 6 Adar
|
|
February 8, 2017
|
|
February 8, 2018
|
|
8%
|
|
30,000
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
(19,426)
|
|
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
|
|
|
|
|
|
|
$
|
35,574
|
As of June 30, 2017, convertible notes payables had a balance of $35,574 and convertible notes 1, 2, 3, and 4 were converted into common shares of the Company’s stock
The company adopted the provision of FASB ASC Topic, “Derivatives and Hedging” (“ASC 815”) (previously EITF 07-5, “Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock”), as the convertible note agreement contained certain provision that the convertible note failed to pass the “fixed for fixed” criteria of the ASC 815, the conversion feature of the convertible debt should have to be bifurcated and recorded separately until the conversion date.
F-13
Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and full ratchet provision which the Company valued the embedded derivative using the Black-Scholes method. The following table represent fair value of embedded derivative movement from the date of issuance to June 30, 2017.
Embedded Derivative Liabilities
|
|
Fair Value at
Date
of Issuance
|
|
Fair Value at
June 30, 2016
|
|
Changes In Fair
Value 2016-17
|
|
Fair Value at
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Note 1 - Issued in 2016
|
$
|
-
|
$
|
50,990
|
$
|
(50,990)
|
$
|
-
|
Note 3 - Issued in 2016
|
|
-
|
|
41,230
|
|
(41,230)
|
|
-
|
Note 4 - Issued in 2016
|
|
-
|
|
20,023
|
|
(12,953)
|
|
7,070
|
Note 5 - Issued in 2017
|
|
44,642
|
|
|
|
(3,446)
|
|
41,196
|
Note 6 - Issued In 2017
|
|
53,592
|
|
|
|
(3,817)
|
|
49,775
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
(112,436)
|
$
|
98,041
|
EMA Convertible Note Transaction
a)
On February 5, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $30,000. The note (i) is unsecured, (ii) bears interest at rate of ten (10) percent per annum, and (iii) was issued with an original issue discount of $3,500.
The principal is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to fifty percent (50%) of the lowest (20)-day volume weighted average closing bid price for the Company’s common stock, as reported in the Stock Market, for the twenty (20- trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any securities at a price per share lower than the then-current conversion price, provided, however, that in no event shall the conversion price per share be less than $.00001. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $45,072, which is recorded as a derivative liability as of the date of issuance while also recording an $30,000 debt discount on its balance sheet and $15,072 derivative expense on its profit and loss in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one-year term.
On February 7, 2017, EMA completed the final conversion and hereby surrendered the Note to the Company.
Typenex Convertible Note Transaction
b)
On February 24, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $32,500. The note (i) is unsecured, (ii) bears interest at rate of ten (10) percent per annum, and (iii) was issued with an original issue discount of $7,500.
In connection to the issuance of the Promissory Note, the Company also issued 85,662 common stock purchase warrants, with a term of three years, at an exercise price of $0.271 per share.
The principal is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to fifty cents ($0.50) and the holder of the note may convert any or all of the principal outstanding into shares of the Company’s common stock. However, in the event that Market Capitalization Falls below $15,000,000 at any time, then in such event (a) the Lender Conversion Price for all lender conversion occurring after the first date of such occurrence shall equal the lower of the lender conversion price and the market price as of any applicable date of Conversion, and (b) the true-up provision shall apply to all lender conversions that occur after the first date the market capitalization falls below $15,000,000. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $16,773, which is recorded as a derivative liability as of the date of issuance while also recording an $16,773 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term.
F-14
On June 7, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $27,500. The note (i) is unsecured, (ii) bears interest at rate of eight (8) percent per annum, and (iii) was issued with an original issue discount of $2,500. The holder of the note may convert any or all of the principal outstanding into shares of the Company’s common stock at $.50 per shares.
In connection with the issuance of the Promissory Note, the Company also issued 31,852 common stock purchase warrants, with a term of three years, at an exercise price of $0.69 per share.
The Company determined an initial derivative liability of $17,166, which is recorded as a derivative liability as of the date of issuance while also recording an $17,166 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one-year term.
Pinz Convertible Note Transaction
On March 1, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $30,556. The note (i) is unsecured, (ii) bears interest at rate of ten (10) percent per annum, and (iii) was issued with an original issue discount of $3,056.
The principal is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to sixty percent (60%) of the lowest (20)-day volume weighted average closing bid price for the Company’s common stock, as reported in the Stock Market, for the twenty (20)-trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any securities at a price per share lower than the then-current conversion price, provided. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $28,885, which is recorded as a derivative liability as of the date of issuance while also recording an $30,556 debt discount on its balance sheet, and $(1,671) derivative expense on its profit and loss in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term.
On October 25, 2016,
Pinz completed the final conversion and hereby surrendered the Note to the Company.
Adar Bay Note Transaction
On February 8, 2017, the Company issued a one-year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $30,000. The note (i) is unsecured, and (ii) bears interest at rate of eight (8) percent per annum.
The principal is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to sixty percent (50%) of the lowest (20)-day volume weighted average closing bid price for the Company’s common stock, as reported in the Stock Market, for the twenty (20)-trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any securities at a price per share lower than the then-current conversion price, provided. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $53,592, which is recorded as a derivative liability as of the date of issuance. The debt discount is being amortized over the one-year term.
7.
Derivative Liabilities
The Convertible note discussed in Note 6 had a reset provision and a dilutive issuance clause that gave rise to a derivative liability. The reset provided for the conversion price to be adjusted downward in the event that the Company issued any securities at a price per shares than the then-current conversion price; provided, however, the holder(s) of the note may convert any or all of the principal outstanding into shares of the Company’s common stock at a price equal to 50% and 60% of the lowest trading price of the common stock during the 20 trading days prior to issuing a notice of conversion to the Company and at $0.5 per shares.
The fair value of the derivative liability was recorded and shown separately under current liabilities. Changes in the fair value derivative liability were recorded in the consolidated statement of operations under other income (expenses).
F-15
The company evaluates all of its agreements to determine if such instruments have 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-base derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instrument at inception and on subsequent valuation dates. The classification of derivative instrument, 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.
The range of significant assumptions which the Company used to measure the fair value of the derivative liability at June 30, 2017 was as follows:
Typenex
Warrant 2
|
|
|
Inception
|
|
June 30, 2017
|
Stock price
|
|
$
|
0.69
|
$
|
0.0007
|
Risk free rate
|
|
|
0.94%
|
|
1.55%
|
Volatility
|
|
|
129.67%
|
|
295.36%
|
Exercise prices
|
|
$
|
0.43
|
$
|
0.0021
|
Terms (years)
|
|
|
2.73
|
|
1.67
|
|
|
|
|
|
|
Adar Bay
|
|
|
Inception
|
|
June 30, 2017
|
Stock price
|
|
$
|
0.0023
|
$
|
0.0007
|
Risk free rate
|
|
|
0.79%
|
|
1.24%
|
Volatility
|
|
|
284.69%
|
|
295.36%
|
Exercise prices
|
|
$
|
0.0012
|
$
|
0.00035
|
Terms (years)
|
|
|
1
|
|
0.61
|
The convertible notes were not repaid during the year ended June 30, 2017
The following table represents the Company’s derivative liability activity for the embedded conversion features for the years ended June 30, 2017 and 2016:
Derivative liability balance, June 30, 2015
|
$
|
-
|
Issuance of derivative liability during the year ended June 30, 2016
|
|
107,896.00
|
Change in derivative liability during the year ended June 30, 2016
|
|
4,347.00
|
Derivative liability balance, June 30, 2016
|
|
112,243.00
|
Issuance of derivative liability during the year ended June 30, 2017
|
|
98,234.00
|
Change in derivative liability during the year ended June 30, 2017
|
|
(112,436.00)
|
Derivative liability balance, June 30, 2017
|
$
|
98,041.00
|
8.
Income Taxes
The Company accounts for income taxes using the asset and liability method which provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Deferred income taxes arise from the temporary between financial statement and income tax recognition of net operating losses. These loss carryovers are limited under the Internal Revenue Code should significant change in ownership occur.
At June 30, 2017 and 2016 the Company had net operating loss carry forwards of approximately $263,691 and $245,047 respectively, that may be offset against future taxable income, if any, rateable through 2035. These carry-forwards are subject to review by the Internal Revenue Service.
The deferred tax assets of at each date of $92,292, and $85,766 created by the net operating losses has been offset by a 100% valuation allowance because the likelihood of realization of the tax benefit cannot be determined. The change in the valuation allowance in the 2016 and 2015 was $6,526 and $74,261, respectively.
F-16
The effects of the temporary differences that gives rise to significant portions of the deferred tax assets at June 30, 2017 and 2016 are as follows:
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
Deferred income tax assets
|
|
|
|
|
Federal
|
$
|
92,292
|
$
|
85,766
|
Valuation allowance
|
|
(92,292)
|
|
(85,766)
|
|
|
|
|
|
Net deferred income tax assets
|
$
|
0
|
$
|
0
|
There is no current or deferred tax expense for the years ended June 30, 2017 and 2016. The Company has not filed tax returns however management believes there are no taxes dues as of June 30, 2017 and 2016.
There was no Federal income tax expense for the years ended June 30, 2017 and 2016 due to the Company’s net losses. There are no state taxes in the State of Nevada.
The company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in general and administrative expenses.
The tax years that remain subject to examination by major taxing jurisdictions are those for the tax years of 2017, 2016 and 2015.
The Company has net operating loss carry forwards of $573,368, which expire commencing in 2035.
9.
Subsequent Events
On July 7, 2017, Typenex Co-Investment, LLC elected to convert a portion of warrant # 2 with a fair market value of $5,966.34 into 23,841,344 shares of the Company’s common stock,
at an exercise price of $0.000250 per share.
On August 1, 2017, Typenex elected to convert $11,500.00 of its
convertible promissory note in the principal amount of $115,000
into 31,944,444 shares of the company’s common stock at a conversion price of $0.00036.
On August 14, 2017, Typenex elected to convert $11,750.00 of its
convertible promissory note in the principal amount of $115,000
into 32,638,889 shares of the company’s common stock at a conversion price of $0.00036.
On August 25, 2017, Typenex Co-Investment, LLC elected to convert a portion of warrant # 2 with a fair market value of $8,561.35 into 32,885,950 shares of the Company’s common stock,
at an exercise price of $0.000260 per share.
On September 19, 2017, Typenex Co-Investment, LLC elected to convert a portion of warrant # 3 with a fair market value of $7,900.46 into 32,885,263 shares of the Company’s common stock,
at an exercise price of $0.000240 per share.
On September 27, 2017, Adar Bays elected to convert $5,000.00 of its
convertible promissory note in the principal amount of $30,000
into 25,000,000 shares of the company’s common stock at a conversion price of $0.0002.
On September 28, 2017, Typenex Co-Investment, LLC elected to convert a portion of warrant # 3 with a fair market value of $7,889.62 into 32,885,900 shares of the Company’s common stock,
at an exercise price of $0.000240 per share.
F-17