NOTE 5
–
CONVERTIBLE PROMISSORY NOTES PAYABLE
Convertible promissory notes, including accrued interest, at June 30, 2017 and March 31, 2017 are as follows:
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June 30, 2017
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March 31, 2017
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TCA Global Fund, Inc., including accrued interest of $102,987 and $70,758 as of June 30, 2017 and March 31, 2017, respectively
|
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$
602,987
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|
$
570,758
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|
LG Capital Funding, LLC, accrued interest of $0 and $363, as of June 30, 2017 and March 31, 2017, respectively
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-
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363
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|
Mammoth Corporation, including accrued interest of $4,544 and $0, net of debt discount of $92,079 and $134,090 and original issue discount interest of $13,418 and $22,588 as of June 30, 2017 and March 31, 2017, respectively
|
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137,389
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114,551
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Auctus Fund, LLC, including accrued interest of $3,184 and $1,239, net of debt discount of $33,288 and $47,312 and original issue discount interest of $5,178 and $7,360 as of June 30, 2017 and March 31, 2017, respectively
|
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29,718
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11,567
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Crown Bridge Capital, including accrued interest of $1,759 and $23 and net of debt discount of $61,322 and $28,841 and original issue discount interest of $8,896 and $5,965 as of June 30, 2017 and March 31, 2017, respectively
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16,416
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217
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GS Capital, including accrued interest of $833 and net of debt discount of $40,690 and original issue discount interest of $4,069 as of June 30, 2017
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7,774
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Adar Bays, LLC, including accrued interest of $1,085 and net of debt discount of $40,959 of June 30, 2017
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10,126
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-
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Convertible promissory note payable, net
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$
804,410
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$
697,456
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|
TCA Global Master Credit Fund, L.P.
On January 26, 2016, the Company issued the Convertible Note in favor of TCA Global Master Credit Fund, L.P. ("TCA"). The maturity date of the Convertible Note was June 18, 2016, and the Convertible Note bears interest at a rate of sixteen and one-half percent (16.5%) per annum. The Convertible Note is convertible, at TCA's option upon an event of default, into shares of the Company
’
s common stock, par value $0.001 per share (the "Common Stock") at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the date of conversion. The Convertible Note may be prepaid in whole or in part at the Company
’
s option without penalty.
Furthermore, the Company shall
pays
$2,000 on the first day of each third month during the term. The fee shall increase by $500 for each subsequent line of credit increase with a cap of $2,500.
At any time and from time to time while this Convertible Note is outstanding, the principal and accrued interest may be, at the sole option of TCA upon an Event of Default, convertible into shares of the Company's common stock. The note is convertible into shares of common stock at a price equal to a variable conversion price of eighty-five percent (85%) of the volume-weighted averages the five (5) days preceding the date of conversion.
On March 31, 2017, the Company accepted and agreed to a debt purchase agreement, whereby Mammoth Corporation acquired $100,000 of convertible note payable interest in exchange for $115,000 (see Mammoth Corporation below).
The balance as of June 30, 2017 and March 31, 2017 amounted to $602,987 and $570,758 comprised of principal balance amounted to $500,000 and accrued interest of $102,987 and $70,758, respectively.
As of June 30, 2017, the six-month term of the agreement has expired and the obligations continues to be outstanding The Company has accrued default interest at a rate of 18% as of December 31, 2016.
LG Capital Funding, LLC
On April 19, 2016, the Company entered into a convertible note payable with LG Capital Funding, LLC. The $40,700 note payable includes $5,700 of original issuance discount and financing costs and and bears interest at a 8% per annum interest rate. The note matured on April 19, 2017 and may only be repaid within 180 days of issuance date with prepayment penalties ranging from 18% to 48% of principal. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the twenty (20) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest and financing costs in the amount of $2,854 and $1,124 during the three months ending June 30, 2017, respectively. On October 28, 2016, the Company accepted and agreed to a debt purchase agreement, whereby Mammoth Corporation acquired the $40,700 convertible note payable and accrued interest in exchange for $68,743 (see Mammoth Corporate below).
F-6
On June 19, 2016, the Company entered into a convertible note payable with LG Capital Funding, LLC. The $40,700 note payable includes $5,700 of original issuance discount and financing costs and bears interest at an 8% per annum interest rate. The note matured on June 19, 2017 and may only be repaid within 180 days of issuance date with prepayment penalties ranging from 18% to 48% of principal. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the twenty (20) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $1,041 and $219 during the three months ending June 30, 2016, respectively.
In the year ended March 31, 2017, the lender converted the $40,700 of principal and $1,849 into 22,358,211 shares of common stock at a fair market value of $97,601 and recorded an extinguishment of debt expense of $55,053.
The note was repaid in the year ended March 31, 2017.
Mammoth Corporation
On November 18, 2015, the Company entered into a convertible note payable with Mammoth Corporation. The $17,300 note payable note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. The note is due on demand and the default rate is 18% per annum interest. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty-five percent (65%) of the five (5) lowest closing price averages the fifteen (15) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. In the three months ended June 30, 2017, the lender converted the $7,638 of principal in exchange for 4,700,000 shares common stock payable at a fair market value of $16,450 and recorded an extinguishment of debt expense of $8,812. The principal balance as of June 30 and March 31, 2017 amounted to $2,349 and $9,987, respectively.
On July 29, 2016, the Company entered into a convertible note payable with Mammoth Corporation. The $27,500 note payable includes $6,000 of original issuance discount. The note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the reservation of 300,000 shares of the Company common stock which upon settlement of the debt are to be returned to the Company. The reserve shares are not accounted for as issued. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the five (5) lowest closing price averages the fifteen (15) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The balance as of June 30, 2017 and March 31, 2017 amounted to $25,315 and $18,459 comprised of principal balance amounted to $27,500 net of remaining debt discount of $1,629 and $6,740 and original issue discount of $556 and $2,301, respectively.
On September 28, 2016, the Company entered into a convertible note payable with Mammoth Corporation. The $50,000 note payable includes $13,190 of original issuance discount. The note payable includes advances to the Company of $7,500 on September 28, 2016, additional advances of $8,040 in October 2016 and $2,300 on January 17, 2017. The note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the issuance of 300,000 shares of the Company common stock. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the lowest market price one year preceding the date of the conversion notice. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $7,368 and $3,374 during the three months ended June 30, 2017, respectively. The balance as of March 31, 2017 amounted to $39,493 and $28,751 comprised of principal balance amounted to $50,000 net of remaining debt discount of $7,207 and $14,575 and original issue discount of $3,300 and $6,674, respectively.
On October 28, 2016, the Company entered into a $68,743 convertible note payable with Mammoth Corporation. The note payable is a balance of $62,493 of principal and accrued interest assigned from the April 29, 2016 LG Capital Funding, LLC note payable and includes $6,250 of original issuance discount. The note is due one year upon issuance October 28, 2017 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of market price six months preceding the date of the conversion notice. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $3,353 and $1,558 during the three months ended June 30, 2017, respectively. The balance as of June 30, 2017 and March 31, 2017 amounted to $62,266 and $57,356 comprised of the principal balance in the amount of $68,743 net of remaining debt discount of $4,422 and $7,775 and original issue discount of $2,055 and $3,613, respectively.
F-7
On March 31, 2017, the Company entered into a $115,000 convertible note payable with Mammoth Corporation. The note payable is a balance of $100,000 of interest assigned from the November 18, 2016 TCA note payable and includes $10,000 of original issuance discount and $5,000 in financing costs. The note is due one year upon issuance March 31, 2018 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the lowest market price one year preceding the date of the conversion notice.The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. In the three months ended June 30, 2017, the lender converted the $25,250 of principal into 20,200,000 shares of common stock at a fair market value of $84,440 and recorded an extinguishment of debt expense of $59,190. The balance as of June 30, 2017 and March 31, 2017 amounted to $7,965 and $0 comprised of principal balance amounted to $115,000 and accrued interest of $4,544 and $0, net of remaining debt discount of $78,822 and $105,000 and original issue discount of $7,507 and $10,000, respectively.
Auctus Fund, LLC
On January 31, 2017, the Company entered into a convertible note payable with Auctus Fund, LLC. The $65,000 note payable includes $8,750 of original issuance discount. The note is due one year upon issuance November 1, 2017 and bears interest at a 12% rate per annum. The note is collateralized by the reservation of shares of the Company common stock equivalent to 700% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the volume-weighted averages the twenty-five (25) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $14,023 and $2,182 during the three months ended June 30, 2017, respectively. The balance as of June 30, 2017 and March 31, 2017 amounted to $29,718 and $11,567 comprised of principal balance amounted to $65,000 and accrued interest of $3,184 and $1,239 and net of remaining debt discount of $33,288 and $47,312 and original issue discount of $5,178 and $7,360, respectively.
Crown Bridge Partners
On March 29, 2017, the Company entered into a convertible note payable with Crown Bridge Partners, LLC up to $105,000 in principal. On March 31, 2017, the Company entered into a $35,000 tranche including $6,000 of original issuance discount and $2,000 of financing costs and on May 19, 2017 a $49,875 tranche including $5,000 of original issuance discount. The note is due one year upon issuance of each tranche and bears interest at a 12% rate per annum. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the volume-weighted averages the twenty-five (25) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $12,394 and $2,071 during the three months ended June 30, 2017, respectively. The balance as of June 30, 2017 and March 31, 2017 amounted to $16,416 and $192 comprised of a principal balance amounted of $84,875 and $35,000 and accrued interest of $1,759 and $23 and net of remaining debt discount of $61,322 and $28,841 and original issue discount of $8,896 and $5,967, respectively.
GS Capital Partner, LLC
On May 12, 2017, the Company entered into a convertible note payable with GS Capital Partners, LLC. The $51,700 note payable bears interest at a 8% per annum interest rate. The note matures on May 12, 2018. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the fifteen (15) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $6,310 and $631 during the three months ended June 30, 2017, respectively. The balance as of June 30, 2017 amounted to $7,774 comprised of principal balance $51,700 and accrued interest of $833, net of remaining debt discount of $40,690 and original issue discount of $4,069, respectively.
Adar Bay
On April 25, 2017, the Company entered into a convertible note payable with Adar Bays, LLC. The $50,000 note payable bears interest at a 12% per annum interest rate. The note matures on April 25, 2018. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the lowest trading price for the twenty-five (25) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount in the amount of $9,041 during the three months ended June 30, 2017. The balance as of June 30, 2017 amounted to $10,126 comprised of principal balance $50,000 and accrued interest of $1,085, net of remaining debt discount of $40,959.
F-8
NOTE 6
—
RELATED PARTIES
Advances
From time to time, the Company has received advances from certain of its officers and shareholders to meet short-term working capital needs. For the years ended June 30, 2017 and March 31, 2017, a total of $22,880 and $24,917 advances from related parties is outstanding, respectively. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.
Officer Agreements
On January 28, 2016, the Company entered into an employment agreement, effective February 15, 2016, with the Company's Chief Executive Office whereby the Company provides for compensation of $10,000 per month. A total salary of $30,000 was expensed during the three months ended June 30, 2017 and 2016. The total balance due to the Chief Executive Officer for accrued salaries at June 30, 2017 and March 31, 2017, was $67,910 and $95,010, respectively.
The Company
’
s Chief Executive Officer provides office space to the Company at no costs.
NOTE 7
–
EQUITY
Common shares
The Company had authorized 999,000,000 common shares as of June 30, 2017 and March 31, 2017 and the Company had 149,796,593 and 89,960,093 common shares issued and outstanding, respectively. The common shares entitle the holder thereof to one vote per share on all matters coming before the shareholders of our company for a vote.
On February 6, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the
“
Amended and Restated Articles
”
) that had the effect of changing the name of the corporation to Elite Group, Inc. and designating 999,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company
’
s board of directors.
On September 5, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the
“
Amended and Restated Articles
”
) that had the effect of designating 2,499,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company
’
s board of directors.
The Company issued the following equity instruments during the three months ended June 30, 2017:
In May and June 2017, the Mammoth Capital converted $32,888 of principal balance of convertible notes payable and issued $11,250 of common stock payable as of March 31, 2017 into 29,400,000 shares of common stock.
On April 26, 2017, the Company entered into a Settlement Agreement and Stipulation (the
“
Settlement Agreement
”
) with Rockwell Capital Partners, Inc. (
“
Rockwell
”
), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $46,000 (the
“
Settlement Amount
”
) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company. The Company issued 26,436,500 Settlement shares to Rockwell to reduce the $46,000 outstanding liability (See Note 7).
In conjunction with the settlement agreement, the Company issued 4,000,000 shares of common stock at a fair market value of $23,200 to Rockwell for fees related to the Settlement Agreement.
Preferred shares
–
Series A
The Company has designated 1,000 share of preferred stock as Series A Preferred Stock (
“
Series A
”
). The holder of the Series A Preferred shall not be entitled to receive dividends. Upon liquidation each shareholder of Series A Preferred shall be entitled to receive a preferential distribution in the amount of $1.00 per share of each Series A. For so long as Series A is issued and outstanding, the holders of Series A shall vote together as a single class with the holders of the Company
’
s common stock with the Series A holders entitled to fifty-one percent (51%) of the total votes on all matters. The Company issued the Series A to the Company
’
s Chief Executive Officer on January 25, 2017.
F-9
NOTE 8
–
FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2016, the amounts reported for cash, accrued interest and other expenses, notes payables, and derivative liability approximate the fair value because of their short maturities.
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. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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●
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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●
|
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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●
|
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 or more significant inputs or significant value drivers are unobservable.
|
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2017:
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Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
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|
|
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Derivative and warrant liability
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,363,412
|
|
|
Total liabilities measured at fair value
|
|
|
$
-
|
|
|
|
|
$
-
|
|
|
|
$
-
|
|
|
|
$
1,363,412
|
|
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2017:
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|
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Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative and warrant liability
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,351,129
|
|
|
Total liabilities measured at fair value
|
|
|
$
-
|
|
|
|
|
$
-
|
|
|
|
$
-
|
|
|
|
$
1,351,129
|
|
The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
|
|
|
|
|
|
Beginning balance as of March 31, 2017
|
|
|
$
1,351,129
|
|
|
Day one loss on derivative liability
|
|
|
404,586
|
|
|
Debt discount
|
|
|
141,875
|
|
|
Reclassification of derivative liability to paid-in capital
|
|
|
(85,073)
|
|
|
Gain on change in derivative liability
|
|
|
(449,105)
|
|
|
Ending balance as of June 30, 2017
|
|
|
$
1,363,412
|
|
Convertible Debentures
The derivative liabilities related to the embedded conversion feature were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:
|
|
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|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
Embedded Conversion Feature
|
|
|
|
Risk free interest rate
|
|
|
|
|
|
|
1.03% to 1.24
|
%
|
|
|
Expected volatility (peer group)
|
|
|
|
|
|
|
317.32% to 339.00
|
%
|
|
|
Expected life (in years)
|
|
|
|
|
|
|
0.5 to 1.00
|
|
|
|
Expected dividend yield
|
|
|
|
|
|
|
-
|
|
|
|
Number outstanding
|
|
|
|
|
|
|
344,690,343
|
|
|
F-10
NOTE 9
—
COMMITMENTS AND CONTINGENCIES
The Company neither owns nor leases any real or personal property. An office space has been leased on a month by month basis.
The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.
Consulting Agreements
On December 18, 2015, the Company entered into an advisory services agreement with TCA Global Master Fund (
“
Consultants
”
) for investment banking services. In consideration, the Company shall issue the Consultant $250,000 in the form of restricted shares of the Company common stock. The issuance of shares are subject to an anti-dilution share issuances to the extent the cash proceeds from the share issuances are inadequate to satisfy the $250,000 fee. The Company issued 139,750 shares of common stock at closing valued at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the agreement date. As of June 30, 2017, an additional issuance of 54,324,511 shares with a fair market value of $249,359 are required to satisfied the advisory agreement whereby an additional financing costs has been recorded to common stock payable. The Company recorded $490 and $64,271 of advisory services stock-based financing costs for the three months ended June 30, 2017 and 2016, respectively.
Settlement Agreement with Rockwell Capital Partners
On April 26, 2017, the Company entered into a Settlement Agreement and Stipulation (the
“
Settlement Agreement
”
) with Rockwell Capital Partners, Inc. (
“
Rockwell
”
), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $46,000 (the
“
Settlement Amount
”
) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
On April 26, 2017, the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida (the
“
Manatee Court
”
), entered an order (the
“
Rockwell Order
”
) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the
“
Securities Act
”
), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement between the Company and Rockwell. The Company issued 26,436,500 Settlement shares to Rockwell to reduce certain outstanding liabilities through May 11, 2017 resulting in a loss on debt extinguishment of $79,708.
In conjunction with the settlement agreement, the Company issued 4,000,000 shares of common stock at a fair market value of $23,200 to Rockwell for fees related to the Settlement Agreement.
NOTE 10
—
SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) the Company has analyzed its operations subsequent to June 30, 2017 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than those specified below.
TCA Convertible Debenture Agreement
As of June 30, 2017, the six-month term of the agreement has expired and the obligations continues to be outstanding which is a nonpayment of the obligation of the Senior Secured Revolving Credit Facility dated December 18, 2015 (see Note 5).
Convertible Debenture Agreement Mammoth Capital
On August 18, 2017, the Company entered into a convertible note payable with Mammoth Capital up to $45,000 with a stated principal of $49,500 including Original Issue Discount interest of $4,500. The Company received $40,000 of the principal. The note matures on August 18, 2018.
On September 22, 2017, the Company entered into a convertible note payable with Mammoth Capital up to $14,500 with a stated principal of $18,000 including Original Issue Discount interest of $3,500. The Company received $4,000 of the principal on September 22, 2017. The note matures on September 22, 2018.
In the three months ending September 30, 2017, the Mammoth Capital converted $44,395 of principal balance of convertible notes payable into 36,316,190 shares of common stock.
Authorized Share Increase
On September 5, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the
“
Amended and Restated Articles
”
) that had the effect of designating 2,499,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company
’
s board of directors.
F-11
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Business in general
Elite Group Inc. (the
“
Company
”
) was formed in the State of Nevada on May 21, 2013. On January 26, 2016, as a result of a private transaction, whereby 2,000,000 shares of common stock, has been cancelled by the former CEO and 2,020,000 shares of common stock have been issued to Terrence Tecco, a change of control of the Company occurred.
On February 6, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the
“
Amended and Restated Articles
”
) that had the effect of changing the name of the corporation to Elite Group, Inc. and designating 999,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company
’
s board of directors.
On September 5, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the
“
Amended and Restated Articles
”
) that had the effect of designating 2,499,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company
’
s board of directors.
General strategy
The Company plans to acquire water properties for the oilfield service sector. Management specializes in the acquisition of assets relating to the management of oilfield water used in upstream oil and gas operations. Management's objective is to acquire and consolidate water processing assets in prolific oil and gas exploration areas. Management believes it will accomplish its goal to maximize shareholder value through strategic acquisitions, effective business model design and economies of scale to a fragmented industry. The Company will control the entire process from wellhead to the final destination and use the most environmental friendly practices in all aspects of our operations to protect and conserve the environment for future generations.
CURRENT BUSINESS OPERATIONS
The Company plans to concentrate its development efforts in the Eagle Ford Formation in South Texas. We believe such opportunities exist in the United States with the recent improvements in water disposal. We have only recently begun our planned business operations. To date our operations have primarily been devoted to forming the entity and developing our business plan. We have several properties under contract and have completed most of the financing for these acquisitions.
Results of Operations
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
3
Three Month Period Ended June 30, 2017 Compared to Three Month Period Ended June 30, 2016.
Our net loss for the three months ended June 30, 2017 was $401,113 compared to a net loss of $489,091, during the three months ended June 30, 2016. Our loss was attributable to operating costs, financing and administrative costs and professional fees incurred compared to nominal business activity in the prior year.
This change in net loss was primarily the result of the following:
Revenue
We recognized no revenue during the three months ended June 30, 2017 and 2016.
Operating expenses
We incurred operating expenses of $105,776 during the three months ended June 30, 2017 compared to $118,294 of operating expenses during the three months ended June 30, 2016. The primary expense in the three months ended June 30, 2017 was $30,000 of salary expense to our Chief Executive Officer in accordance with an employment agreement dated January 26, 2016. Other operating expenses consisted of general and administrative fees of $68,562 and professional and legal expenses of $37,214, compared to general and administrative fees of $28,566 and professional and legal expense of $59,730 in the three months ended June 30, 2016 related to office, compliance and professional fees.
Other Income (Expense)
We incurred interest expense of $460,649 and $45,123, amortization of debt discount of $83,779 and $3,895 financing costs of $51,814 and $64,420 related to our convertible debenture in the three months ended June 31, 2017 and 2016, respectively. Additionally, the change in fair value of the Company
’
s derivative instruments amounted to a gain of $449,105 and a loss of $193,088 in the three months ended June 30, 2017 and 2016, respectively. The Company also issued 55,836,500 shares of common stock on the conversion of Mammoth Capital convertible debt and settlement shares to Rockwell to reduce certain outstanding liabilities through June 30, 2017 resulted in an aggregate loss on debt extinguishment of $147,710.
Furthermore, the Company into an advisory services agreement with TCA Global Master Fund for investment banking services. The Company shall issue $250,000 in the form of restricted shares of the Company common stock. The issuance of shares are subject to an anti-dilution share issuances to the extent the cash proceeds from the share issuances are inadequate to satisfy the $250,000 fee. The Company issued 139,750 shares of common stock at closing valued at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the agreement date. As of June 30, 2017, an additional issuance of 54,326,511 shares with a fair market value of $249,359 are required to satisfy the advisory agreement whereby an additional financing costs has been recorded to common stock payable. The Company recorded $490 and $64,271 of stock-based financing costs for the three months ended June 30, 2017 and 2016, respectively.
Net Losses
Our net loss for the fiscal three months ended June 30, 2017
was $401,113 compared to a net loss of $489,091 during the three months ended June 30, 2016 due to the factors discussed above.
Weighted average number of shares
The weighted average number of shares outstanding was 117,377,037 and 3,014,719 for the years ended June 30, 2017 and 2016, respectively. The weighted average number of shares is an average calculation incorporating changes to the shares outstanding within the period reported.
4
LIQUIDITY AND CAPITAL RESOURCES
Three months ended June 30, 2017 Compared with Three months ended June 30, 2016
As of June 30, 2017, and March 31, 2017, we had $6,844 and $27,222 of cash and cash equivalents.
We have experienced losses of $401,113 and $489,091 for the three months ended June 30, 2017 and 2016, respectively, and have an accumulated deficit of $19,119,231 at June 30, 2017. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. There is no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and exploration of our leases. These conditions raise substantial doubt about our ability to continue as a
“
going concern
”
.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and, or, the private placement of convertible debt and/or issuance of common stock.
Because of the Company's history of losses, its independent auditors, in the reports on the financial statements for the three months ended June 30, 2017 and 2016, expressed substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management's efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
Cash Flows from Operating Activities
We have generated negative cash flows from operating activities. For the three months ended June 30, 2017, net cash flows used in operating activities was $133,716 consisting primarily of a net loss of $401,113, offset by stock based compensation of $490, stock issued for services of $23,200, amortization of Original Discount Issuance of $19,683, amortization of debt discount of $83,779, and a change in derivative liability of $449,105 and debt discount feature at issuance of $404,586 and non-cash loss on extinguishment of debt of $147,710, an increase of $27,774 in accounts payables and accrued liabilities, an decrease of $27,100 of accrued officer salary and an increase of $36,380 in accrued interest payable.
For the three months ended June 30, 2016, net cash flows used in operating activities was $70,518 consisting primarily of a net loss of $489,091, offset by the amortization of financing costs of $62,554, non-cash stock compensation of $64,271 and a change in derivative liability of $193,088, an increase of $34,893 in accounts payables and accrued liabilities, an increase of $14,750 of accrued officer salary and an increase of $21,365 in accrued interest payable.
Cash Flows from Investing Activities
We purchased $26,500 in equipment in the three months ended June 30, 2017. The Company did not purchase any equipment in the three months ended June 30, 2016.
Cash Flows from Financing Activities
We have financed our operations primarily from the issuance of convertible debt in the three months ended June 30, 2017. We generated cash from financing activities of $141,875 in the issuance of convertible debentures and $2,037 repayment of shareholder loans in the three months ended June 30, 2017. We generated cash from financing activities of $70,000 in the issuance of convertible debentures, offset by $7,197 of financing costs, and $9,100 from shareholder loans in the three months ended June 30, 2016.
5
PLAN OF OPERATION
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to the acquisition of assets. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
MATERIAL COMMITMENTS
As of the date of this Quarterly Report, we have entered into the following material commitments:
Settlement Agreement with Rockwell Capital Partners
On April 26, 2017, the Company entered into a Settlement Agreement and Stipulation (the
“
Settlement Agreement
”
) with Rockwell Capital Partners, Inc. (
“
Rockwell
”
), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $46,000 (the
“
Settlement Amount
”
) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
On April 26, 2017, the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida (the
“
Manatee Court
”
), entered an order (the
“
Rockwell Order
”
) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the
“
Securities Act
”
), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement between the Company and Rockwell. The Company issued 26,436,500 Settlement shares to Rockwell to reduce certain outstanding liabilities through May 11, 2017 resulting in a loss on debt extinguishment of $79,708.
In conjunction with the settlement agreement, the Company issued 4,000,000 shares of common stock at a fair market value of $23,200 to Rockwell for fees related to the Settlement Agreement.
Convertible Debenture Agreement Adar Bay
On April 25, 2017, the Company entered into a note payable with Adar Bays, LLC. The $50,000 note payable bears interest at a 12% per annum interest rate. The note matures on April 25, 2018.
Convertible Debenture Agreement GS Capital Partner, LLC
On May 12, 2017, the Company entered into a convertible note payable with GS Capital Partners, LLC. The $51,700 note payable bears interest at an 8% per annum interest rate. The note matures on May 12, 2018.
Convertible Debenture Agreement Crown
On May 19, 2017, the Company entered into additional draw of the Crown Bridge Partners, LLC convertible debenture agreement in the amount of $44,975. The note is due one year upon issuance of each tranche and bears interest at a 12% rate per annum.
GOING CONCERN
The independent auditors' audit report accompanying our March 31, 2017 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
OFF-BALANCE SHEET ARANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet.
6
SIGNIFCANT ACCOUNTING POLICIES
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company
’
s promissory note obligations approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar risk.
We account for our derivative financial instruments, consisting solely of certain stock purchase warrants that contain non-standard anti-dilutions provisions and/or cash settlement features, and certain conversion options embedded in our convertible instruments, at fair value using level 3 inputs. We determine the fair value of these derivative liabilities using the Black-Scholes option pricing model when appropriate, and in certain circumstances using binomial lattice models or other accepted valuation practices.
When determining the fair value of our financial assets and liabilities using the Black-Scholes option pricing model, we are required to use various estimates and unobservable inputs, including, among other things, contractual terms of the instruments, expected volatility of our stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value.
Recent Accounting Pronouncements
We reviewed all recent accounting pronouncements issued by the FASB (including the Emerging Issues Task Force), the AICPA, and the SEC and we did not or are not believed by management to have a material impact on our present or future financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No report required.
7
ITEM 4. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission
’
s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer
’
s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2017. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the three month period ended June 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS
Exhibits:
31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or
15d-14(a).
31.2
Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or
15d-14(a).
32.1
Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, on October 14, 2017
ELITE GROUP INC.
By:
/s/ Terrence Tecco
Terrance Tecco
Title: Director (Principal Executive, Financial and Accounting Officer)
9