ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
18
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805 Third Avenue
New York, NY 10022
212.838-5100
212.838.2676/ Fax
www.rbsmllp.com
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Grasshopper Staffing, Inc.:
We have audited the accompanying consolidated balance sheets of Grasshopper Staffing, Inc. (the Company) as of July 31, 2017 and 2016, and the related consolidated statements of operations, statements of changes in stockholders deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Grasshopper Staffing, Inc. as of July 31, 2017 and the results of its operations and its cash flows for the year ended July 31, 2017 and 2016 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has sustained significant net losses and cash flow deficiencies. Those conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans regarding those matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RBSM LLP
New York, NY
November 14, 2017
F-1
GRASSHOPPER STAFFING, INC.
CONSOLIDATED BALANCE SHEETS
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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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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$
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2,565
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$
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-
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Accounts receivable, net
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42,950
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15,929
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Prepaid expenses and other current assets
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800
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5,474
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Total Current Assets
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46,315
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21,403
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Property and equipment, net
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3,259
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4,217
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Intangible assets, net
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840
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2,507
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4,099
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6,724
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TOTAL ASSETS
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$
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50,414
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$
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28,127
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
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Accounts payable and accrued expenses
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$
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84,951
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$
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54,041
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Accounts payable and accrued expenses - related party
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363,742
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103,742
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Payroll related liabilities
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78,670
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51,618
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Due to others
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14,204
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2,854
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Due to related party
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183,077
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121,935
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Factoring arrangement
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-
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25,022
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Total Current Liabilities
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724,644
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359,212
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TOTAL LIABILITIES
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724,644
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359,212
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Commitments and contingencies
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-
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-
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STOCKHOLDERS' DEFICIT
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Common stock par value $0.001; 200,000,000 shares authorized;
26,287,500 and 26,287,500 shares issued and outstanding as of
July 31, 2017 and July 31, 2016, respectively
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26,288
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26,288
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Additional paid-in capital
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6,795,126
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5,807,710
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Accumulated deficit
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(7,495,644)
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(6,165,083)
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TOTAL STOCKHOLDERS' DEFICIT
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(674,230)
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(331,085)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
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$
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50,414
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$
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28,127
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The accompanying notes are an integral part of these consolidated financial statements.
F-2
GRASSHOPPER STAFFING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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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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NET REVENUES
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Contract staffing services
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$
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409,354
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$
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439,736
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COST OF SERVICES
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Cost of services
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305,224
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315,282
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GROSS PROFIT
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104,130
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124,454
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SELLING, GENERAL AND ADMINISTRATIVE
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Professional fees
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1,280,634
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4,765,165
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Payroll and related expenses
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95,614
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1,055,875
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Selling, general and administrative expenses
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47,985
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72,015
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TOTAL SELLING, GENERAL AND ADMINISTRATIVE
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1,424,233
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5,893,055
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LOSS FROM OPERATIONS
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(1,320,103)
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(5,768,601)
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OTHER INCOME (EXPENSE)
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Interest expense
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(13,389)
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(11,281)
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Other income
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2,931
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-
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TOTAL OTHER INCOME (EXPENSE)
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(10,458)
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(11,281)
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NET LOSS
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$
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(1,330,561)
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$
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(5,779,882)
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NET LOSS PER COMMON SHARE
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Basic and diluted
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$
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(0.05)
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$
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(0.27)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
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Basic and diluted
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26,287,500
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21,629,850
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The accompanying notes are an integral part of these consolidated financial statements.
F-3
GRASSHOPPER STAFFING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JULY 31, 2017 AND 2016
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Additional
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Total
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Common Stock
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Paid-In
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Accumulated
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Stockholders'
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Shares
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Amount
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Capital
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Deficit
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Deficit
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Balance July 31, 2015
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16,425,000
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$
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16,425
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$
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356,759
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$
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(385,201)
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$
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(12,017)
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Stock-based compensation
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1,775,000
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1,775
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662,338
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-
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664,113
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Amortization of deferred compensation
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-
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-
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921,133
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-
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921,133
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Stock issued for cash
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87,500
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88
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17,412
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-
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17,500
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Issuance of common stock for services
- related party
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8,000,000
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8,000
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495,389
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-
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503,389
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Fair value of warrants issued for services
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-
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-
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3,354,679
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-
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3,354,679
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Net loss
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-
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-
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-
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(5,779,882)
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(5,779,882)
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Balance July 31, 2016
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26,287,500
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26,288
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5,807,710
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(6,165,083)
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(331,085)
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Amortization of deferred compensation
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-
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-
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58,083
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-
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58,083
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Amortization of common stock for services
- related party
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-
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-
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929,333
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-
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929,333
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Net loss
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-
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-
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-
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(1,330,561)
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(1,330,561)
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Balance July 31, 2017
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26,287,500
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$
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26,288
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$
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6,795,126
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$
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(7,495,644)
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$
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(674,230)
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The accompanying notes are an integral part of these consolidated financial statements.
F-4
GRASSHOPPER STAFFING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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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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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$
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(1,330,561)
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$
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(5,779,882)
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Adjustments to reconcile loss to net cash used in operating activities:
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Depreciation and amortization expense
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2,625
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2,632
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Revenue factoring expense
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8,744
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14,350
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Amortization of deferred stock compensation, related parties
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58,083
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921,133
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Issuance of common stock for services
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-
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664,113
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Issuance of common stock for services - related party
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929,333
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503,389
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Fair value of warrants issued for services
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-
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3,354,679
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Other income
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(2,950)
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-
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Changes in operating assets and liabilities:
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Accounts receivable, net
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(27,021)
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4,416
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Prepaid expenses and other current assets
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4,674
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(2,841)
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Accounts payable and accrued expenses
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32,510
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12,388
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Accounts payable and accrued expenses - related party
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240,000
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103,742
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Payroll related liabilities
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27,052
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47,974
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NET CASH USED IN OPERATING ACTIVITIES
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(57,511)
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(153,907)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from issuance of stock
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-
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17,500
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Proceeds from third party loans
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11,350
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2,854
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Proceeds from shareholder loans
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98,197
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110,564
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Payments of shareholder loans
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(15,705)
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(5,300)
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Advances under factoring arrangements
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8,746
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35,000
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Repayments under factoring arrangements
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(42,512)
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(24,328)
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NET CASH PROVIDED BY FINANCING ACTIVITIES
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60,076
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136,290
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Net increase (decrease) in cash and cash equivalents
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2,565
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(17,617)
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Cash and cash equivalents, beginning of year
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-
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17,617
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Cash and cash equivalents, end of year
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$
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2,565
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$
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-
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SUPPLEMENTAL CASH FLOW INFORMATION
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Cash paid for taxes
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$
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-
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$
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-
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Cash paid for interest
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$
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-
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$
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-
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|
|
|
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NON-CASH ACTIVITIES
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Reclassification of related party loans
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$
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20,000
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$
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-
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The accompanying notes are an integral part of these consolidated financial statements.
F-5
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 1 - NATURE OF OPERATIONS
Grasshopper Staffing Inc (the Company), formally Tomichi Creek Outfitters, was formed in the state of Nevada on June 25, 2013 and its year-end is July 31.
On March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which it acquired the business and assets of Grasshopper Staffing Inc (Grasshopper Colorado), formed in the state of Colorado on January 13, 2015. The exchange for $10,651 was represented by 250,000 shares of the Companys common stock in exchange for all of the outstanding shares of Grasshopper Colorado. The assets purchased include the logo and website, office supplies and office furniture. Grasshopper Colorado is operating as a wholly-owned subsidiary of the Company and is now the primary operation of its business.
Grasshopper Colorado was founded as a solution to the staffing needs presented in the blossoming cannabis industry in Colorado.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. The Company has a history of losses, an accumulated deficit, has negative working capital and has not generated cash from its operations to support meaningful ongoing operations. It is managements opinion that these conditions raise substantial doubt about the Companys ability to continue as a going concern.
In view of these matters, the Companys ability to continue as a going concern is dependent upon advancement of operations and to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared using the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (U.S. GAAP).
The consolidated financial statements include the Companys accounts and those of the Companys wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation.
F-6
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash Equivalents
The Company considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. At July 31, 2017 and 2016, the Company wrote off $7,935 and $4,396 to the allowance.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the statement of operations. Depreciation is calculated using the straight-line method which depreciates the assets over the estimated useful lives of the depreciable assets ranging from five to seven years.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. The Company did not recognize any impairment losses for any periods presented.
Intangible Assets
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 3 years for website development. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible assets remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. At July 31, 2017, no revision to the remaining amortization period of the intangible assets was made.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
F-7
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fair Value of Financial Instruments, contd
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Revenue Recognition
Revenue is derived from the placement of temporary workers. The Company recognizes revenue when it is realized or realizable and estimable in accordance with ASC 605, Revenue Recognition. The Company will recognize revenue only when all of the following criteria have been met:
·
Persuasive evidence for an agreement exists;
·
Service has been provided;
·
The fee is fixed or determinable; and,
·
Collection is reasonably assured.
Advertising
Advertising costs are expensed as incurred. As of July 31, 2017 and July 31, 2016, no advertising costs have been incurred.
Basic Net Loss Per Common Share
Basic net loss per common share is computed by dividing the loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.
Stock Based Compensation
The Company accounts for the grant of restricted stock awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of equity based compensation. The expense is recognized over the period during which the employee is required to provide service in exchange for the compensation. Any remaining unrecognized balance will be recognized ratably over the life of the vesting period and is a reduction of stockholders' equity.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 Equity-Based Payments to Non-Employees.
F-8
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income Taxes
Under ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of July 31, 2017 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09--Revenue from Contracts with Customers (Topic 606). The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB delayed the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In addition, in March and April 2016, the FASB issued new guidance intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. Both amendments permit the use of either a retrospective or cumulative effect transition method and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early application permitted. The Company is assessing the impact of this new standard on its financial statements and has not yet selected a transition method.
In February 2016, the FASB issued ASU 2016-02--Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is evaluating the effect that the updated standard will have on its financial statements and related disclosures.
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-15--Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this new standard on its financial statements.
In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles - Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
F-9
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31, 2017 and 2016:
|
|
|
|
|
| |
|
|
July 31,
2017
|
|
July 31,
2016
|
Computer equipment
|
|
$
|
2,643
|
|
$
|
2,643
|
Furniture and fixtures
|
|
|
3,007
|
|
|
3,007
|
Subtotal
|
|
|
5,650
|
|
|
5,650
|
Less: accumulated depreciation
|
|
|
(2,391)
|
|
|
(1,434)
|
Total property and equipment, net
|
|
$
|
3,259
|
|
$
|
4,217
|
Depreciation expense for the years ended July 31, 2017 and 2016 was $958 and $961 respectively.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consisted of the following at July 31, 2017 and 2016:
|
|
|
|
|
| |
|
|
July 31,
2017
|
|
July 31,
2016
|
Website development
|
|
$
|
5,000
|
|
$
|
5,000
|
Less: accumulated amortization
|
|
|
(4,160)
|
|
|
(2,493)
|
Total intangible assets, net
|
|
$
|
840
|
|
$
|
2,507
|
Amortization expense for the years ended July 31, 2017 and 2016 was $1,667 and $1,671 respectively.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at July 31, 2017 and 2016:
|
|
|
|
| |
|
July 31,
2017
|
|
July 31,
2016
|
Accounts Payable
|
$
|
61,344
|
|
$
|
40,486
|
Accrued Expenses
|
|
6,000
|
|
|
1,600
|
Accrued Payroll
|
|
17,607
|
|
|
10,951
|
Cash Overdraft
|
|
--
|
|
|
1,004
|
Total
|
$
|
84,951
|
|
$
|
54,041
|
NOTE 7 - PAYROLL LIABILITIES
The Company has past due payroll liabilities due to the Internal Revenue Service (IRS) for unpaid payroll taxes, penalties and interest for 2015 and 2016. The original unpaid payroll taxes to the IRS for these periods totaled $32,966.
F-10
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 7 - PAYROLL LIABILITIES
(continued)
As of July 31, 2017, the past due balance due to the IRS, including penalties, interest, and fees, totaled $78,670. On February 10, 2017, the Company paid back $10,116 of the outstanding liability, interest and penalties related to the March 31, 2016 tax period. During the year ended July 31, 2016 the Company incurred $9,539 in penalties and interest from the IRS. During the year ended July 31, 2017, the Company recorded $11,560 in additional penalties and interest related to these outstanding liabilities. The Company is working with the IRS to negotiate a payment plan for the remaining balance due.
NOTE 8 - FACTORING ARRANGEMENTS
On April 13, 2016, the Company entered into a revenue-based factoring agreement with TUV Investments LLC (TUV), pursuant to which for consideration of $20,000 the Company agreed to sell, assign and transfer all of the Companys future receipts until the repayment of the agreed upon purchase price of $27,600 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay TUV the greater of an authorized daily debit (ACH withdrawal) of $199 on each available banking day, or 14% of the Companys daily receipts until the $27,600 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $8,305 as factoring expenses on the date of the agreement. The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries. As of July 31, 2017, this agreement has an outstanding balance of $0.
On May 6, 2016, the Company entered into a revenue-based factoring agreement with Merchant Cash Advance Fund One (Merchant), pursuant to which for consideration of $7,500 the Company agreed to sell, assign and transfer all of the Companys future receipts until the repayment of the agreed upon purchase price of $10,875 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay Merchant the greater of an authorized daily debit (ACH withdrawal) of $108 on each available banking day, or 5% of the Companys daily receipts until the $10,875 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $3,774 as factoring expenses on the date of the agreement. The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries. As of July 31, 2017, this agreement has an outstanding balance of $0.
On May 6, 2016, the Company entered into a revenue-based factoring agreement with Samson Horus (Samson), pursuant to which for consideration of $7,500 the Company agreed to sell, assign and transfer all of the Companys future receipts until the repayment of the agreed upon purchase price of $10,875 is paid in full pursuant to specified repayment terms. The repayment terms provide, that the Company shall pay Samson the greater of an authorized daily debit (ACH withdrawal) of $108 on each available banking day, or 5% of the Companys daily receipts until the $10,875 is paid in full. The Company has recognized all expenses related to this agreement in the aggregate total of $4,475 as factoring expenses on the date of the agreement. The obligations of the Company and its subsidiaries under the Factoring Agreement are secured by substantially all the assets of the Company and its subsidiaries. As of July 31, 2017, this agreement has an outstanding balance of $0.
NOTE 9 - CONCENTRATIONS
The following table sets forth information as to each customer that accounted for 10% or more of the Companys revenues for the years ended July 31, 2017 and 2016. At July 31, 2017, three customers accounted for 43% of the Companys total revenue.
|
|
|
|
|
| |
Customer
|
|
Year Ended
July 31, 2017
|
|
Year Ended
July 31, 2016
|
A
|
|
|
24%
|
|
|
35%
|
B
|
|
|
10%
|
|
|
16%
|
C
|
|
|
9%
|
|
|
10%
|
F-11
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 10 - INCOME TAXES
The Company files corporate income tax returns in the United States (federal), Nevada and Colorado. The Company is subject to federal, state and local income tax examinations by tax authorities through inception.
The Company's tax expense differs from the "expected" tax expense for Federal income tax purposes (computed by applying the United States Federal tax rate of 34% and State tax rate net of federal benefit of 3.01% and 0.00% to income before taxes related to operations in Colorado and Nevada, respectfully), as follows:
|
|
|
|
|
| |
|
|
For the Years Ended July 31,
|
|
|
2017
|
|
2016
|
Expected tax (benefit)
|
|
$
|
(492,000)
|
|
$
|
(2,139,000)
|
Permanent differences - primarily equity based compensation
|
|
|
365,000
|
|
|
2,014,000
|
Increase in valuation allowance
|
|
|
127,000
|
|
|
125,000
|
Total
|
|
$
|
--
|
|
$
|
--
|
The tax effects of temporary differences that give rise to the Companys net deferred tax assets as of July 31, 2017 and 2016 are as follows:
|
|
|
|
|
| |
|
|
For the Years Ended July 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
274,800
|
|
$
|
147,800
|
Valuation allowance
|
|
|
(274,800)
|
|
|
(147,800)
|
Net deferred tax asset
|
|
$
|
--
|
|
$
|
--
|
The Company has approximately $738,000 of net operating losses (NOL) carried forward to offset taxable income, if any, in future years which expire commencing in fiscal 2037. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized. The tax returns for 2013 through 2016 remain open for inspection by federal and state taxing authorities. Utilization of the NOLs may be limited under IRC certain 382 due to ownership changes.
NOTE 11 - RELATED PARTY TRANSACTIONS
In support of the Companys efforts and cash requirements, it has relied on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note. As of July 31, 2017 and July 31, 2016, members of management have loaned the Company $183,077 and $121,935, respectively. The loans are payable on demand and carry no interest.
In addition, the Company has accrued expenses related to the January 15, 2016 consulting and advisory agreement (See Note 12). As of July 31, 2017 and 2016, the Company has accrued $363,742 and $103,742, respectively in monthly retainer fees and travel expenses related to this agreement.
F-12
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 11 - RELATED PARTY TRANSACTIONS
(continued)
On January 15, 2016, the Company entered into a three-year consulting and advisory agreement with Platinum Equity Advisors, LLC, a related party. Compensation consists of a monthly retainer fee of $20,000. In addition, for services rendered through January 15, 2016, the Company issued on February 15, 2016, 8,000,000 shares of the Companys common stock at a value of $0.35 per share or $2,788,000. The first months retainer was offset by $8,000 for the shares issued, resulting in a reduction of accounts payable and the remainder will be amortized over the life of the agreement. For the year ended July 31, 2016, the Company recorded amortization of $503,389 in consulting expense related to this agreement. For the year ended July 31, 2017, the Company recorded an additional $929,333 in consulting expense related to this agreement resulting in an unamortized portion amounting to $1,355,278.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
NOTE 12 - CAPITAL STOCK
The Company is authorized to issue an aggregate of 200,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued. At July 31, 2017 and July 31, 2016, the Company had 26,287,500 and 26,287,500 common shares issued and outstanding, respectively.
On March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which the Company acquired the business and assets of Grasshopper Colorado in exchange for $10,651, which was represented by 250,000 shares of common stock in exchange for 100% of the Grasshopper Colorados common shares. The acquisition resulted in a change in management control, therefore, the investment in the subsidiary value has been eliminated.
Shares Issued for Services:
On June 12, 2015, the Company's Board of Directors approved the issuance of 3,175,000 shares of common stock to various employees and consultants. The fair market value of the shares was $1,301,750 at the date of grant, of which $322,534 was recognized as an expense in the year ended July 31, 2015. The remaining balance of $979,216 was recorded to additional paid in capital and is being amortized over the life of the employment agreements (15 - 18 months). The Company recorded $58,083 and $921,133, of consulting expense related to this agreement for the years ended July 31, 2017 and July 31, 2016, respectively.
On August 3, 2015, the Company entered into a one-year consulting agreement with Acorn Management Partners, LLC. Under the terms of the agreement, the Company paid compensation of $12,500 for the first month and $10,000 a month thereafter and issued 375,000 shares of the Companys common stock on August 24, 2015 valued at $146,213. In addition, as per the agreement, the Company was to issue $75,000 in common stock to be priced at the closing bid price of the last trading day of the previous period during both the third and fourth three-month period. This agreement was terminated on December 3, 2015 and as a result, the additional $150,000 in common stock will not be issued. As of the date of termination, the Company had paid Acorn Management an aggregate total of $36,500. The remaining $6,000 due to Acorn was satisfied through the issuance of warrants as per the agreement dated March 29, 2016 (see below).
On January 15, 2016, the Company entered into a three-year consulting and advisory agreement with Platinum Equity Advisors, LLC, a related party. Compensation consists of a monthly retainer fee of $20,000. In addition, for services rendered through January 15, 2016, the Company issued on February 15, 2016, 8,000,000 shares of the Companys common stock at a value of $0.35 per share or $2,788,000. The first months retainer was offset by $8,000 for the shares issued, resulting in a reduction of accounts payable and the remainder will be amortized over the life of the agreement. For the year ended July 31, 2016, the Company recorded amortization of $503,389 in consulting expense related to this agreement. For the year ended July 31, 2017, the Company recorded an additional $929,333 in consulting expense related to this agreement resulting in an unamortized portion amounting to $1,355,278.
F-13
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 12 - CAPITAL STOCK
(continued)
Warrants:
On October 28, 2015, the Company entered into a one-year consulting agreement with Caro Capital LLC. Under the terms of the agreement, the Company made a commitment of $2,500 per month for nine months, until the Company closed on financing. As the agreement terminated on February 18, 2016 and no financing was raised, the Company does not owe the consultant any cash compensation and therefore no accrual is shown on the balance sheet. According to the terms of the agreement, upon execution the Company is to issue 200,000 warrants for share of the Companys common stock at an exercise price of 0.001 per share for a total purchase price of $200. In addition, the Company is to issue, and the consultant is to purchase, 200,000 additional warrants per quarter (up to 800,000 warrants in total). As of January 31, 2016 the Company has issued 400,000 warrants and recorded $127,609 in consulting fees related to the fair value of the warrants. On February 10, 2016, the Company terminated the agreement dated October 28, 2015 with Caro Capital LLC. As a result of the termination of the agreement, the 400,000 warrants were cancelled. On February 10, 2016, 400,000 shares of common stock with a market value of $0.32 per share or $128,000 were issued by the Company as compensation for four months of service.
On March 29, 2016, the Company agreed to issue 6,000,000 warrants to purchase shares of the Companys common stock as satisfaction of $6,000 in compensation that was owed to Acorn Management Partners, LLC. The warrants have an exercise price of $0.01 and expire ten years from the date of issuance. The warrants were valued using the Black-Scholes option-pricing model and a fair value of approximately $3,200,000 was expensed.
The fair value of the warrants issued and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:
|
|
|
| |
|
|
July 31, 2017
|
|
July 31, 2016
|
Volatility
|
|
--
|
|
189% - 208%
|
Expected remaining term (in years)
|
|
--
|
|
1.00 - 10.00
|
Risk-free interest rate
|
|
--
|
|
0.33% - 1.81%
|
Expected dividend yield
|
|
--
|
|
None
|
A summary of the Companys warrant activity during the years ended July 31, 2017 ad 2016 is presented below:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
Warrants
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
Balance Outstanding, July 31, 2015
|
|
|
--
|
|
$
|
--
|
|
|
--
|
|
$
|
--
|
Granted
|
|
|
6,800,000
|
|
|
0.01
|
|
|
9.67
|
|
|
--
|
Forfeited
|
|
|
(800,000)
|
|
|
--
|
|
|
--
|
|
|
--
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Expired
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Balance Outstanding, July 31, 2016
|
|
|
6,000,000
|
|
$
|
0.01
|
|
|
9.67
|
|
$
|
1,860,000
|
Granted
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Forfeited
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Expired
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
Balance Outstanding, July 31, 2017
|
|
|
6,000,000
|
|
$
|
0.01
|
|
|
8.67
|
|
$
|
2,040,000
|
Exercisable, July 31, 2017
|
|
|
6,000,000
|
|
$
|
0.01
|
|
|
8.67
|
|
$
|
2,040,000
|
As of July 31, 2017, there are no options outstanding to acquire any additional shares of common stock of the Company.
F-14
GRASSHOPPER STAFFING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2017 and JULY 31, 2016
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Legal Matters
In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company's management is unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Companys financial position or results of operations.
The Companys operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
Operating Leases
The Companys executive offices are located at 200 S Victoria Ave, Pueblo, Co 81003. The property is leased on a month to month basis with a monthly rental payment of $800.
NOTE 14 - SUBSEQUENT EVENTS
The Company follows the guidance in Sections 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company has evaluated the period after the balance sheet date up through the date of filing, which is the date that the consolidated financial statements were issued, and determined that, there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements.
F-15