NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Golden Matrix Group, Inc. (“GMGI” or the “Company”), a Nevada corporation, formed on June 4, 2008, under the name Ibex Resources Corp., has a global presence with offices in Las Vegas Nevada and Sydney Australia. GMGI’s sophisticated social gaming software supports multiple languages including English and Chinese.
The accompanying consolidated financial statements of GMGI include the accounts of GMGI and its wholly-owned subsidiary, companies IRC Exploration Ltd., (‘IRC”) a company incorporated in Alberta, Canada on August 1, 2008; Northern Bonanza Inc., (‘NBI”) a company incorporated in Ontario, Canada on June 30, 2010; Source Bonanza LLC, (“SB”) a Limited Liability Company incorporated in Nevada, USA on June 18, 2010; and Vulture Gold LLC (“Vulture”), a Nevada Limited Liability Company which was acquired on August 7, 2010, and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. All intercompany balances have been eliminated.
NOTE 2 – GOING CONCERN
The accompanying consolidated financial statements of GMGI have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses from operations and had a net working capital deficit of $1,536,147 at July 31, 2017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for GMGI to continue as a going concern. GMGI’s management plans on raising cash from public or private debt or equity financing, on an as needed basis, and in the longer term, revenues from the gambling business. GMGI’s ability to continue as a going concern is dependent on these additional cash financings, and ultimately upon achieving profitable operations through the development of its online gaming business.
NOTE 3 – SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of July 31, 2017 and 2016, there were no allowances for doubtful accounts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Derivative Instruments
We review the terms of the common stock, warrants and convertible debt we issue to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any are then allocated to the host instruments themselves, usually resulting in those instruments being recorded as a discount from their face value.
Derivatives are measured at their fair value on the balance sheet. Changes in fair value are recorded in the statement of operation.
Intangible Assets
Intangible assets consist of expenditures for domain names and certain intellectual properties acquired for an online horse racing product the Company is developing. The intangible assets are recorded at cost and amortized over its estimated useful life of 3 years.
Long Lived Assets
Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.
Debt Discount
Debt discount is amortized over the term of the related debt using the effective interest rate method.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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·
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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·
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.
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Our financial instruments include cash, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term nature. The derivative liabilities are stated at their fair value as a level 3 measurement. The Company used a Black-Scholes model to determine the fair values of these derivative liabilities.
Stock-Based Compensation
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is typically the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Earnings (Loss) Per Common Share
Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.
The following is a reconciliation of basic and diluted earnings (loss) per common share for 2017 and 2016:
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For the Years Ended
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July 31,
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2017
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2016
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Basic earnings (loss) per common share
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Numerator:
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Net income (loss) available to common shareholders
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$
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1,801,080
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$
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(10,006,245
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)
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Denominator:
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Weighted average common shares outstanding
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49,825,902
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221,956
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Basic earnings (loss) per common share
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$
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0.04
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$
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(45.08
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)
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Diluted earnings (loss) per common share
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Numerator:
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Net income (loss) available to common shareholders
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$
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1,801,080
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$
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(10,006,245
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)
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Denominator:
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Weighted average common shares outstanding
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49,825,902
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221,956
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Preferred shares
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1,000
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-
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Convertible Debt
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1,752,202,561
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-
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Adjusted weighted average common shares outstanding
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1,802,029,463
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221,956
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Diluted earnings (loss) per common share
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$
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0.00
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$
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(45.08
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)
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For the year ended July 31, 2016 the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Revenues
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Subsequent Events
GMGI evaluated subsequent events through the date these financial statements were issued for disclosure purposes.
Recently Issued Accounting Standards
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 4 – INTANGIBLE ASSETS
On November 6, 2015 and December 7, 2015, the Company purchased 100% interest in the intellectual property “We Buy Gold.” The Company expects the intellectual property to bring value to the Company for the first three years of its service and as such the property is classified as a definitive asset and is amortized over a 3-year period. During the year ended July 31, 2016, management evaluated the carrying value on the intellectual property “We Buy Gold.” and recorded an impairment of $1,800,000 due to uncertain recoverability.
On February 22, 2016 the Company entered into a Know-How and Asset Purchase Agreement with Luxor Capital, LLC, whereby the Company acquired Gaming IP and know-how. The purchase price for these assets consisted of a convertible note in the amount of $2,874,712, included $2,374,712 payable to Luxor Capital, LLC and 1,666,667 shares of the Company’s common stock. During the year ended July 31, 2016, management evaluated the carrying value on the intellectual property and recorded an impairment of $2,874,712 due to uncertain recoverability.
NOTE 5 –NOTES PAYABLE
Convertible notes payable
Convertible notes payable at July 31, 2017 and 2016 consisted of the following:
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July 31,
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July 31,
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2017
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2016
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Promissory Note #2
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30,000
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30,000
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Promissory Note #31- in default
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9,550
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23,741
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Promissory Note #39
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-
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12,969
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Promissory Note #42 - in default
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430
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13,955
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Promissory Note #44 - in default
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4,400
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25,000
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Promissory Note #45 - in default
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28,285
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28,285
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Promissory Note #46 - in default
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33,000
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33,000
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Promissory Note #50
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-
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313,145
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Promissory Note #52
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-
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211,945
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Promissory Note #59 - in default
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10,000
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175,000
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Promissory Note #68 - Related party
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795,712
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1,045,712
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Promissory Note #69
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33,810
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-
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Blackbridge Note
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-
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44,460
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Notes payable, principal
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$
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945,187
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$
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1,957,212
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Debt discount
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(12,035
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)
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(277,798
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)
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Total notes payable, net of discount
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933,152
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1,679,414
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Promissory Note #2
On March 19, 2012, the Company received $30,000 cash from the issuance of a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand. As of July 31, 2017 and 2016, principal of this note was $30,000 and $30,000, respectively.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 2,000 common shares of the Company.
The Company determined that this Promissory note should be accounted for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion Features”. The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (per share being $0.08), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. As of July 31, 2017, debt discount balance $0 was recorded.
Promissory Note #31
On March 17, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $26,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 17, 2015. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $42,734 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on March 17, 2015.
During the year ended July 31, 2017, the Company issued 11,049,577 shares of common stock for the conversion of this note in the amount of $14,191 and accrued interest of $7,007. As of July 31, 2017 and 2016, principal of this note was $9,550 and $23,741, respectively. As of July 31, 2017 and 2016, derivative liability of this note was $9,550 and $42,734, respectively. The note is currently in default and has a default interest rate of 24% per annum.
Promissory Note #39
On May 19, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 19, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $32,007 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on May 19, 2015.
During the year ended July 31, 2017, the Company issued 620,473 common shares upon the conversion of $12,969 in principal and $4,677 in interest. As of July 31, 2017 and 2016, principal balance of this note was $0 and $12,969, respectively. As of July 31, 2017 and 2016, derivative liability of this note was $23,345 and $0, respectively. As of July 31, 2017, As of July 31, 2017, debt discount balance was $0.
Promissory Note #42
On June 6, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 6, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 60% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $33,550 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on June 6, 2015.
During the year ended July 31, 2017, the Company issued 1,054,799 common shares upon the conversion of $13,525 in principal and $3,466 in interest. As of July 31, 2017 and 2016, principal balance of this note was $286 and $13,955, respectively. As of July 31, 2017 and 2016, derivative liability of this note was $25,119 and $0, respectively. This note is currently in default and has a default interest rate of 16% per annum.
Promissory Note #44
On July 2, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 6, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 60% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $40,725 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on June 6, 2015.
During the year ended July 31, 2017, the Company issued 31,863,966 common shares upon the conversion of $20,600 in principal and $4,310 in interest. As of July 31, 2017 and 2016, principal balance of this note was $4,400 and $25,000, respectively. As of July 31, 2017 and 2016, derivative liability of this note was $44,999 and $2,931, respectively.
Promissory Note #45
On July 9, 2014, the Company arranged a debt swap under which Syndication Capital Note #20 for $75,000 was transferred to LG Capital Funding, LLC. The promissory note is unsecured, bears interest at 8% per annum and matures on July 9, 2015. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $202,937 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on July 9, 2015.
As of July 31, 2017 and 2016, principal balance of this note was $28,285 and $28,285, respectively. As of July 31, 2017 and 2016, derivative liability of this note was $50,912 and $28,284, respectively. This note is currently in default and has a default interest rate of 16% per annum.
Promissory Note #46
On July 9, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $33,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 9, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $130,556 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on July 9, 2015.
As of July 31, 2017 and 2016, principal balance of this note was $33,000 and $33,000, respectively. As of July 31, 2017 and 2016, derivative liability of this note was $59,400 and $33,000, respectively. This note is currently in default and has a default interest rate of 16% per annum.
Promissory Note #50
On December31, 2014 the Company entered into a Convertible Promissory Note with Direct Capital Group, Inc. in the sum of $360,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2015. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. On April 27, 2016, the Company transferred the note to N600PG, LLC.
On September 22, 2016, the Company entered into a Cancellation and Release Agreement with Direct Capital Group, Inc. (“Direct”) and N600PG, LLC. (“N600PG”). In terms of Cancellation and Release Agreement, Direct and N600PG agreed to cancel the convertible promissory note with the Company. The Company will have no further obligation to Direct and N600PG under those Convertible Notes and Direct shall be forever barred from seeking further conversions or claiming obligations of the Company under the Convertible Notes. The Company recorded a gain on extinguishment of debt of $313,145 related to the agreement.
As of July 31, 2017 and 2016, principal balance of this note was $0 and $ 313,145, respectively.
Promissory Note #52
On April 30, 2015 the Company entered into a Convertible Promissory Note with Direct Capital Group, Inc. in the sum of $240,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 30, 2015. Any principal amount not paid by the maturity date bears interest at 22% per annum.
On April 30, 2015, interest expense relating to the beneficial conversion feature of this convertible note of $240,000 was recorded in the financial statements, with a corresponding increase to additional paid in capital. During the life of the promissory note, the debt discount was accreted to the statement of operations.
On January 19, 2016, the note was reassigned to Rockwell Capital Partners. At any time the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 50% of the market price, where market price is defined as “the lowest closing price on any day with a fifteen day look back”. On 18th April 2016, Rockwell Capital Partners reassigned $165,000 of the original note back to Direct Capital Group, Inc.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $479,999 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on October 30, 2015.
On September 22, 2016, the Company entered into a Cancellation and Release Agreement with Direct Capital Group, Inc. (“Direct”). In terms of Cancellation and Release Agreement Direct agreed to cancel the convertible promissory note with the Company totaling $198,530. In consideration for the cancellation of the convertible promissory notes and in terms of the Asset Purchase Agreement dated February 22, 2016, the Company has agreed to transfer ownership of mining claims held in the Company’s name. It was also agreed by both the Company and Direct that Direct shall release all future claims to subsequent conversions of the Notes and the Company will have no further obligation to Direct under those Convertible Notes and Direct shall be forever barred from seeking further conversions or claiming obligations of the Company under the Convertible Notes.
On March 18, 2017, the Company agreed to settle a dispute regarding a claim by Rockwell that GMGI, was liable for damages and penalty interest. In this settlement the Company reached an agreement to pay Rockwell $12,000 in full and final settlement of all interest and any damages claimed. The Company made no admissions regarding the penalties claimed by Rockwell which may have been caused by the change in Transfer Agents.
During the year ended July 31, 2017, the Company issued 48,533,334 common shares upon the conversion of $46,946 in principal and $11,804 in interest. As of July 31, 2017 and 2016, derivative liability of this note was $0 and $381,504, respectively. As of July 31, 2017 and 2016, principal balance of this note was $0 and 211,945, respectively.
Promissory Note #59
On July 31, 2015 the Company entered into a Convertible Promissory Note with Direct Capital Group, Inc. in the sum of $240,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 31, 2016. Any principal amount not paid by the maturity date bears interest at 22% per annum.
On April 26, 2016, $50,000 was reassigned to Blackbridge Capital, LLC (“Blackbridge”). Blackbridge failed to meet terms of the Assignment and Assumption and were therefore in default of their obligations. The Company took legal advice regarding the breach of Blackbridge Capital LLC’s obligations. On the June 2, 2016, the Company’s legal counsel, wrote to Blackbridge Capital advising them of the breach and also that the Company had cancelled the remaining balance on the note. The Company recorded a gain on extinguishment of debt $47,151.
On July 21, 2016, $25,000 was reassigned to Istvan Elek. At any time the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 50% of the market price, where market price is defined as “the lowest closing price on any day with a fifteen day look back”.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
On July 31, 2015, interest expense relating to the beneficial conversion feature of this convertible note of $0 was recorded in the financial statements, with a corresponding increase to additional paid in capital.
On September 22, 2016, the Company entered into a Cancellation and Release Agreement with Direct Capital Group, Inc. (“Direct”). In terms of Cancellation and Release Agreement Direct agreed to cancel the convertible promissory note with the Company totaling $183,157. In consideration for the cancellation of the convertible promissory notes and in terms of the Asset Purchase Agreement dated February 22, 2016, the Company has agreed to transfer ownership of mining claims held in the Company’s name. It was also agreed by both the Company and Direct that Direct shall release all future claims to subsequent conversions of the Notes and the Company will have no further obligation to Direct under those Convertible Notes and Direct shall be forever barred from seeking further conversions or claiming obligations of the Company under the Convertible Notes. The Company recorded a gain on extinguishment of debt of $165,000 related to the agreement.
During the year ended July 31, 2017, the Company issued 15,000,000 common shares upon the conversion of $15,000 in principal to Istvan Elek. As of July 31, 2017 and 2016, derivative liability of this note was $20,000 and $18,000, respectively. As of July 31, 2017 and 2016, principal balance of this note was $10,000 and $175,000, respectively.
Promissory Note #68
On March 1, 2016 the Company entered into a convertible promissory note with Luxor Capital, LLC (“Luxor”) in the amount of $2,374,712. The promissory note is unsecured, bears interest at 6% per annum, and matures on March 1, 2017.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $1,662,243 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the year ended July 31, 2017, $277,799 amortization of debt discount expense on this note was recorded. As of July 2017 and 2016, debt discount of this note was $0 and $277,799, respectively.
During the year ended July 31, 2017, the Company issued 34,113,061 common shares upon the conversion of $250,000 in principal. As of July 31, 2017 and 2016, derivative liability of this note was $0 and $0, respectively. As of July 31, 2017 and 2016, principal balance of this note was $795,712 and $1,045,712, respectively. This note is currently in default. The default had no effect on the note’s interest rate.
Promissory Note #69
On January 11, 2017 the Company entered into a convertible promissory note with Power Up Lending Group Ltd (“Power Up”) in the amount of $38,000. The promissory note bears interest at 8% per annum, and matures on October 28, 2017. Any principal amount not paid by the maturity date bears interest at 22% per annum.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $61,883 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the year ended July 31, 2017, $25,965 amortization of debt discount expense was recorded on this note. As of July 2017 and 2016, debt discount of this note was $12,035 and $0, respectively.
During the year ended July 31, 2017, the Company issued 17,660,870 common shares upon the conversion of $4,190 in principal. As of July 31, 2017 and 2016, derivative liability of this note was $0 and $42,124, respectively. As of July 31, 2017 and 2016, principal balance of this note was $33,810 and $0, respectively.
Debt Discount
The table below presents the changes of the debt discount during the years ended July 31, 2017 and 2016:
|
|
Amount
|
|
|
|
|
|
July 31, 2016
|
|
$
|
277,798
|
|
Additions
|
|
|
38,000
|
|
Amortization
|
|
|
(303,764
|
)
|
July 31, 2017
|
|
$
|
12,034
|
|
Loans from shareholders
During the year ended July 31, 2016 and, the Company received a loan of $1,000 from its officer to open a new bank account. As of July 31, 2017, the balance of the loan was $1,000. The loan form the officers are due on demand, unsecured with no interest.
NOTE 6 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE
Due to the conversion features contained in the convertible notes issued, the actual number of shares of common stock that would be required if a conversion of the notes as further described in Note 6 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.
During the year July 31, 2017 and 2016, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $61,883 and $3,754,182 respectively. The conversion feature of the convertible notes issued during the years ended July 31, 2017 and 2016 was valued at $61,883 and $3,754,182, respectively, on the issuance date.
The Company remeasured the fair value of the instruments as of July 31, 2017 and 2016, and recorded an unrealized gain of $1,611,153 and a loss of $2,959,471 for the years ended July 31, 2017 and 2016, respectively. The Company recorded a gain on settlement of derivative liability of $254,306 at July 31, 2017 and a loss on settlement of derivative liability of $5,095,929 at July 31, 2016, respectively. At July 31, 2017 and 2016, the derivative liability associated with the note conversion features were $136,177 and $1,939,753, respectively.
These derivative liabilities have been measured in accordance with fair value measurements, as defined by ASC 820. The valuation assumptions are classified within Level 1 and Level 2 inputs. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above.
The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:
|
|
Amount
|
|
Fair value at July 31, 2016
|
|
|
1,939,753
|
|
Initial recognition of derivative liability
|
|
|
61,883
|
|
Conversion of derivative liability
|
|
|
(254,306
|
)
|
Market-to-Market adjustment to fair value
|
|
|
(1,611,153
|
)
|
Fair value at July 31, 2017
|
|
$
|
136,177
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
All related party transactions have been recorded at the exchange value which was the amount of consideration established and agreed to by the related parties.
On February 22, 2016, the Company entered into an Asset Purchase Agreement with Luxor Capital, LLC, which is wholly owned by Anthony Goodman, CEO of the Company. The Company purchased a Certain Gaming IP, along with the “know how” of that Gaming IP from Luxor. Pursuant to the Asset Purchase Agreement, 11,112 shares of common stock have been issued to Luxor Capital, LLC and its designed party.
On April 1, 2016, the Company entered into a Services Agreement with Articulate Pty Ltd, which is wholly owned by Anthony Goodman CEO of the Company, for consulting services. Pursuant to the agreement Articulated would receive $4,500 per month ending for services rendered plus reimbursement of the Company’s expenses. The agreement may be terminated by either party upon 30 days written notice. During the year ended July 31, 2017 and 2016, general and administrative expense related to this service was $250,217 and $73,659, respectively. As of July 31, 2017, the Company has a $249,984 payable to Articulate Pty Ltd.
On June 1, 2016, the Company entered a distribution usage rights agreement with Globaltech Software Services LLC. (“Globaltech”), a company in which Anthony Goodman the Chief Executive Officer has an interest, the Company agreed to provide certain proprietary technology in the form of a Credit Management system, Social Gaming system and other Marketing and Gaming Technology. This agreement not only brings operating revenue to the Company, but also solidifies the Company’s expertise in the social gaming market. During the year ended July 31, 2017 and 2016, revenue from Globaltech was $120,000 and $20,000, respectively. As of July 31, 2017, the Company had a $62,500 accounts receivable to Globaltech.
NOTE 8 – EQUITY
Preferred Stock
The Company is authorized to issue 20,000,000 shares of it $0.00001 par value preferred stock.
On August 10, 2015, the Company’s Board of Directors authorized the creation of 1,000 shares of Series B Voting Preferred Stock. The holder of the shares of the Series B Voting Preferred Stock has the right to vote those shares of the Series B Voting Preferred Stock regarding any matter or action that is required to be submitted to the shareholders of the Company for approval. The vote of each share of the Series B Voting Preferred Stock is equal to and counted as 4 times the votes of all of the shares of the Company’s (i) common stock, and (ii) other voting preferred stock issued and outstanding on the date of each and every vote or consent of the shareholders of the Company regarding each and every matter submitted to the shareholders of the Company for approval.
On August 10, 2015, the Company filed a Certificate of Designation with the Nevada Secretary of State creating the 1,000 shares of Series B Voting Preferred Stock
On August 14, 2015, the Company issued 1,000 shares of Series B Voting Preferred Stock to Santa Rosa Resources, representing 100% of the total issued and outstanding shares of the Company’s Series B Voting Preferred Stock.
On April 3, 2016, the Company cancelled 1,000 shares of Series B Voting Preferred Stock to Santa Rosa Resources and a new certificate issued in the name of Luxor Capital LLC in the amount of 1000 Series B shares.
As of July 31, 2017, 19,999,000 Series A preferred shares and 1,000 Series B preferred shares of par value $0.00001 were authorized, of which 0 Series A shares were issued and outstanding, 1,000 Series B shares were issued and outstanding.
As of July 31, 2016, 19,999,000 Series A preferred shares and 1,000 Series B preferred shares of par value $0.00001 were authorized, of which 0 Series A shares were issued and outstanding, 1,000 Series B shares were issued and outstanding.
Common Stock
The Company is authorized to issue 2,480,000,000 shares of its $0.00001 par value common stock.
On October 15, 2015, the Company effectuated a 1 for 2,000 reverse stock split, thereby reducing the issued and outstanding shares of common stock from 3,472,433,130 prior to the reverse split to 1,736,217 following the reverse split. An additional 1,043 shares were issued due to no fractional shares used as a result of the reverse stock split.
On November 6, 2015, the Company purchased all data and rights to the “We Buy Gold” website from Santa Rosa Resources. The Company issued 223 shares of common stock on November 6, 2015 and 223 shares of common stock on December 7, 2015, with a total value equal to $1,800,000.
On March 9, 2016, the Company’s Board of Directors approved 1 for 1,500 reverse split for the Company’s authorized, issued and outstanding shares of common stock. The reverse stock split was effective on April 7, 2016 upon approval of shareholders holding a majority of the voting stock.
On December 5, 2016, the Company’s Board of Directors approved 1 for 150 reverse split for the Company’s authorized, issued and outstanding shares of common stock, reducing the number of authorized shares to 19,866,667. The reverse stock split was effective on January 9, 2017 upon approval of shareholders holding a majority of the voting stock. On January 17, 2017, the authorized number of shares of common stock was increased to 2,480,000,000.
During the year end July 31, 2017, the Company issued additional 4,100 shares were issued due to no fractional shares used as a result of per reverse stock split.
During the year ended July 31, 2016, the Company issued 2,597,798 common shares upon the conversion of $1,487,932 in principal and $ 2,876 interest of promissory notes into common stock. $5,095,929 derivative liability was re-classed to additional paid in capital on the date of conversion.
During the year ended July 31, 2017, the Company issued 144,896,078 common shares upon the conversion of $362,420 in principal and $31,265 interest of promissory notes into common stock. As of July 31, 2017, stock payable balance was $1,600, for which 6,400,000 common shares upon the conversion. As of July 31, 2017, the Company issued 22,700,000 common shares upon settlement agreement with Rockwell.
As of July 31, 2017, 2,480,000,000 common shares of par value $0.00001 were authorized, of which 141,096,983 shares were issued and outstanding.
NOTE 9 – INCOME TAXES
A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:
|
|
2017
|
|
|
2016
|
|
Operating loss for the years ended July 31
|
|
$
|
1,801,080
|
|
|
$
|
(10,006,245
|
)
|
Average statutory tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Deferred tax Liability (asset) attributable to net operating loss carry-forwards
|
|
$
|
612,367
|
|
|
$
|
(3,402,123
|
)
|
Significant components of the Company’s deferred tax assets and liabilities as at July 31, 2017 after applying enacted corporate tax rates, are as follows:
|
|
2017
|
|
Deferred tax asset attributable to net operating loss carry-forwards
|
|
$
|
612,367
|
|
Less: valuation allowance
|
|
$
|
(3,402,123
|
)
|
Net deferred income tax assets
|
|
$
|
(2,789,756
|
)
|
The Company has net operating losses carried forward of approximately $2,789,756 for tax purpose which may be recognized in future periods, not to exceed 20 years.
NOTE 10 – CONCENTRATIONS
The Company’s revenues for the year ended July 31, 2017 were from one related party. As of July 31, 2017, the aggregate amount due from the customer was $120,000, which included $62,500 receivable for expenses paid on behalf of one customer.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
None.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to July 31, 2017, the Company issued 228,133,043 shares of common stock for the conversion of $49,360 in principal, $9,466 in interest, and $1,600 in stock payable. Subsequent issuances included all of the issuance that increased the outstanding shares from 141,096,983 at July 31, 2017 to the 369,230,026 at July 31, 2017.
On September 7, 2017 the Company entered into a convertible promissory note with Power Up Lending Group Ltd (“Power Up”) in the amount of $38,000. The promissory note bears interest at 8% per annum, and matures on June 15, 2018. Any principal amount not paid by the maturity date bears interest at 22% per annum.
On September 14, 2017, the Company submitted a certificate of amendment to the Nevada Secretary of State to increase the Company’s authorized common shares from 2,480,000,000 to 4,000,000,000 shares.