LITHIUM EXPLORATION GROUP, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
June
30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,405
|
|
$
|
33,136
|
|
Prepaid expenses
|
|
1,100
|
|
|
1,100
|
|
Current assets held for sale (Note 11)
|
|
20,416
|
|
|
19,852
|
|
Total current assets
|
|
27,921
|
|
|
54,088
|
|
|
|
|
|
|
|
|
Advances to WhiteTop (Note 5)
|
|
879,620
|
|
|
783,620
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
907,541
|
|
$
|
837,708
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
76,661
|
|
$
|
90,864
|
|
Derivative liability
convertible promissory notes (Note 7)
|
|
2,727,997
|
|
|
3,386,251
|
|
Derivative liability warrants
(Note 7)
|
|
479,059
|
|
|
338,873
|
|
Due to related
party (Note 8)
|
|
115,000
|
|
|
115,000
|
|
Short-term notes payable
|
|
105,000
|
|
|
-
|
|
Convertible promissory
notes - net of unamortized debt discount (Note 7)
|
|
3,101,363
|
|
|
2,841,109
|
|
Accrued interest convertible
promissory notes (Note 7)
|
|
334,291
|
|
|
210,202
|
|
Current liabilities held for
sale (Note 11)
|
|
6,643
|
|
|
6,429
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
6,946,014
|
|
|
6,988,728
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIT
|
|
|
|
|
|
|
Lithium Explorations Group, Inc.
Stockholders Deficit
|
|
|
|
|
|
|
Capital stock (Note 3)
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
500,000 preferred shares, $0.001
par value
|
|
|
|
|
|
|
50,000,000
common shares, $0.001 par value
|
|
|
|
|
|
|
Issued and outstanding:
|
|
|
|
|
|
|
350,000 Series C
preferred shares (June 30, 2017 Nil)
|
|
350
|
|
|
-
|
|
24,270,585 common shares (June
30, 2017 13,245,760)
|
|
24,271
|
|
|
13,246
|
|
Additional paid-in capital
|
|
53,988,225
|
|
|
51,905,254
|
|
Accumulated other comprehensive loss
|
|
(33,319
|
)
|
|
(33,890
|
)
|
Accumulated deficit
|
|
(59,665,886
|
)
|
|
(57,683,563
|
)
|
Total Lithium
Exploration Group, Inc. Stockholders Deficit
|
|
(5,686,359
|
)
|
|
(5,798,953
|
)
|
Non-Controlling Interest
|
|
(352,114
|
)
|
|
(352,067
|
)
|
Total Deficit
|
|
(6,038,473
|
)
|
|
(6,151,020
|
)
|
|
|
|
|
|
|
|
Total
Liabilities and Deficit
|
$
|
907,541
|
|
$
|
837,708
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
LITHIUM EXPLORATION GROUP, INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
Six
Months
Ended
|
|
|
Six
Months
Ended
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining expenses
|
|
25,000
|
|
|
2,549
|
|
|
25,000
|
|
|
37,632
|
|
Selling, general and
administrative
|
|
263,952
|
|
|
263,809
|
|
|
451,293
|
|
|
442,466
|
|
Total operating expenses
|
|
288,952
|
|
|
266,358
|
|
|
476,293
|
|
|
480,098
|
|
Loss from operations
|
|
(288,952
|
)
|
|
(266,358
|
)
|
|
(476,293
|
)
|
|
(480,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (Note 6)
|
|
(198,279
|
)
|
|
(172,462
|
)
|
|
(671,799
|
)
|
|
(395,678
|
)
|
(Loss) gain on change in the fair value of
derivative liability (Note 7)
|
|
(292,529
|
)
|
|
1,308,622
|
|
|
689,034
|
|
|
158,292
|
|
Amortization of debt discount
|
|
(723,298
|
)
|
|
(404,026
|
)
|
|
(1,484,829
|
)
|
|
(546,358
|
)
|
Other income
|
|
70,472
|
|
|
-
|
|
|
70,472
|
|
|
-
|
|
Gain (loss) on extinguishment of liability
|
|
(108,860
|
)
|
|
(48,619
|
)
|
|
(108,860
|
)
|
|
(1,539,701
|
)
|
|
|
(1,252,494
|
)
|
|
683,515
|
|
|
(1,505,982
|
)
|
|
(2,323,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
(1,541,446
|
)
|
|
417,157
|
|
|
(1,982,275
|
)
|
|
(2,803,543
|
)
|
Provision for income taxes (Note 4)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net (loss)
income
from
continuing operations
|
|
(1,541,446
|
)
|
|
417,157
|
|
|
(1,982,275
|
)
|
|
(2,803,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
(47
|
)
|
|
(49
|
)
|
|
(95
|
)
|
|
(80
|
)
|
Net (loss
)
income
|
|
(1,541,493
|
)
|
|
417,108
|
|
|
(1,982,370
|
)
|
|
(2,803,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to the non-controlling interest
|
|
(24
|
)
|
|
(24
|
)
|
|
(47
|
)
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Lithium Exploration Group, Inc.
common shareholder
|
$
|
(1,541,469
|
)
|
$
|
417,132
|
|
$
|
(1,982,323
|
)
|
$
|
(2,803,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted (Loss) Income per Common Share
from continuing operation
|
$
|
(0.08
|
)
|
$
|
0.30
|
|
$
|
(0.11
|
)
|
$
|
(2.75
|
)
|
Basic and Diluted Loss per Common Share from
discontinued operations
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
Basic and Diluted Weighted Average
Number of Common Shares Outstanding
|
|
20,549,383
|
|
|
1,411,979
|
|
|
18,161,747
|
|
|
1,019,723
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(1,541,493
|
)
|
$
|
417,108
|
|
$
|
(1,982,370
|
)
|
$
|
(2,803,623
|
)
|
Foreign currency translation adjustment
|
|
(251
|
)
|
|
(328
|
)
|
|
571
|
|
|
(449
|
)
|
Comprehensive (loss) income:
|
|
(1,541,744
|
)
|
|
416,780
|
|
|
(1,981,799
|
)
|
|
(2,804,072
|
)
|
Comprehensive loss attributable to non-controlling interest
|
|
(24
|
)
|
|
(24
|
)
|
|
(47
|
)
|
|
(39
|
)
|
Comprehensive (loss) income attributable to Lithium Exploration Group, Inc. common shareholders
|
$
|
(1,541,720
|
)
|
$
|
416,804
|
|
$
|
(1,981,752
|
)
|
$
|
(2,804,033
|
)
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
LITHIUM EXPLORATION GROUP, INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS DEFICIT
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
Common
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Non-controlling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount $
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2016
|
|
-
|
|
$
|
-
|
|
|
598,864
|
|
$
|
599
|
|
$
|
48,717,947
|
|
$
|
(33,731
|
)
|
$
|
(50,806,439
|
)
|
$
|
(351,976
|
)
|
$
|
(2,473,600.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for debt
conversion and interest
|
|
-
|
|
|
-
|
|
|
11,696,896
|
|
|
11,697
|
|
|
1,255,122
|
|
|
|
|
|
|
|
|
|
|
|
1,266,819
|
|
Derivative liability transferred to paid in
capital on conversion of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,818,596
|
|
|
|
|
|
|
|
|
|
|
|
1,818,596
|
|
Common shares issued for
exercise of warrants
|
|
|
|
|
|
|
|
950,000
|
|
|
950
|
|
|
113,589
|
|
|
|
|
|
|
|
|
|
|
|
114,539
|
|
Foreign exchange translation
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
(159
|
)
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,877,124
|
)
|
|
(91
|
)
|
|
(6,877,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2017
|
|
-
|
|
$
|
-
|
|
|
13,245,760
|
|
$
|
13,246
|
|
$
|
51,905,254
|
|
$
|
(33,890
|
)
|
$
|
(57,683,563
|
)
|
$
|
(352,067
|
)
|
$
|
(6,151,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for debt
conversion and interest
|
|
-
|
|
|
-
|
|
|
10,966,465
|
|
|
10,967
|
|
|
615,253
|
|
|
|
|
|
|
|
|
|
|
|
626,220
|
|
Common shares issued for accounts payable
|
|
|
|
|
|
|
|
58,333
|
|
|
58
|
|
|
8,108
|
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
Preferred shares issued for
settlement of debt and accrued interest
|
|
350,000
|
|
|
350
|
|
|
|
|
|
|
|
|
756,997
|
|
|
|
|
|
|
|
|
|
|
|
757,347
|
|
Derivative liability transferred to paid in
capital on conversion of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,613
|
|
|
|
|
|
|
|
|
|
|
|
702,613
|
|
Foreign exchange translation
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
571
|
|
|
|
|
|
|
|
|
571
|
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,982,323
|
)
|
|
(47
|
)
|
|
(1,982,370
|
)
|
Rounding related to reverse stock split
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance December 31,
2017
|
|
350,000
|
|
$
|
350
|
|
|
24,270,585
|
|
$
|
24,271
|
|
$
|
53,988,225
|
|
$
|
(33,319
|
)
|
$
|
(59,665,886
|
)
|
$
|
(352,114
|
)
|
$
|
(6,038,473.00
|
)
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
6
LITHIUM EXPLORATION GROUP, INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net loss from continuing
operations
|
$
|
(1,982,275
|
)
|
$
|
(2,803,543
|
)
|
Loss from
discontinued operations
|
|
(95
|
)
|
|
(80
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Non-cash interest expense
|
|
374,470
|
|
|
258,994
|
|
Common shares issued for interest
|
|
-
|
|
|
2,402
|
|
Gain on change in the fair value of derivative
liability
|
|
(689,034
|
)
|
|
(158,292
|
)
|
Amortization of debt discount
|
|
1,484,829
|
|
|
546,358
|
|
Loss on extinguishment of debt and derivative
liabilities
|
|
108,860
|
|
|
1,539,701
|
|
Expenses incurred by convertible note holder
|
|
11,000
|
|
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
Prepaid expenses
|
|
-
|
|
|
1,688
|
|
Accrued interest
|
|
208,282
|
|
|
134,200
|
|
Accounts payable and
accrued liabilities
|
|
(6,035
|
)
|
|
74,383
|
|
Net cash used in operating activities from
continuing operations
|
|
(489,998
|
)
|
|
(404,189
|
)
|
Net cash (used in) provided
by operating activities from discontinued operations
|
|
(350
|
)
|
|
500
|
|
Net cash used in operating activities
|
|
(490,348
|
)
|
|
(403,689
|
)
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
Investment in PetroChase, Inc.
|
|
-
|
|
|
(250,000
|
)
|
Advances to WhiteTop
|
|
(96,000
|
)
|
|
-
|
|
Net cash used
in investing activities
|
|
(96,000
|
)
|
|
(250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
Proceed from issuance of
convertible promissory notes, net
|
|
454,046
|
|
|
697,500
|
|
Proceed from issuance of
short-term notes payable
|
|
105,000
|
|
|
-
|
|
Net cash
provided by financing activities
|
|
559,046
|
|
|
697,500
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange
|
|
571
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
(26,731
|
)
|
|
43,362
|
|
Cash and cash equivalents - beginning of period
|
|
33,136
|
|
|
25,208
|
|
Cash and cash
equivalents - end of period
|
$
|
6,405
|
|
$
|
68,570
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Supplementary non- cash Investing and Financing
Activities:
|
|
|
|
|
|
|
Non-cash investing and financing
activities:
|
|
|
|
|
|
|
Common stock issued for debt
conversion and accrued interest
|
$
|
626,220
|
|
$
|
207,623
|
|
Common stock
issued for accounts payable
|
$
|
8,166
|
|
$
|
-
|
|
Preferred stock issued for debt
settlement
|
$
|
757,347
|
|
$
|
-
|
|
Derivative
liability re-classed to additional paid in capital
|
$
|
702,613
|
|
$
|
305,763
|
|
Debt discount on issuance of
convertible note and warrants
|
$
|
499,109
|
|
$
|
1,266,294
|
|
Initial
derivative liability on note and warrant issuance
|
$
|
873,578
|
|
$
|
1,525,435
|
|
Interest reclassed to
convertible note
|
$
|
-
|
|
$
|
137,883
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
7
LITHIUM EXPLORATION GROUP, INC.
|
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31,
2017
|
NOTE 1 - ORGANIZATION
Lithium Exploration Group, Inc.
(the Company) is a U.S.-based exploration and development company that had
been focused on the acquisition and development potential of lithium brines and
other precious metals that demonstrate high probability for near-term
production. Currently the company is focused testing its SonCav Technology for
use in the oil and gas industry and the acquisition of oil and gas related
assets in Western Canada and Southwest Louisiana. The Company was incorporated
on May 31, 2006 in the State of Nevada under the name Mariposa Resources, Ltd.
Effective November 30, 2010, it changed its name to Lithium Exploration Group,
Inc., by way of a merger with its wholly-owned subsidiary Lithium Exploration
Group, Inc., which was formed solely for the change of name.
As used in this Quarterly Report
on Form 10-Q and the accompanying unaudited condensed consolidated financial
statements and notes, and unless otherwise indicated, the terms we, us,
our or the Company refer to Lithium Exploration Group, Inc. a Nevada
corporation, including our wholly-owned subsidiaries, Alta Disposal Ltd., an
Alberta, Canada corporation (Alta Disposal), Black Box Energy, Inc., a Nevada
corporation (Black Box Energy), and our 51% owned subsidiary, Alta Disposal
Morinville Ltd., (formerly Bluetap Resources, Ltd.) an Alberta, Canada
corporation (ADM), unless otherwise indicated.
On October 17, 2014, the Company
amended its Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
common shares from 500,000,000 common shares, par value $0.001, to 2,000,000,000
common shares, par value $0.001. The then authorized capital consists of
2,000,000,000 common shares and 100,000,000 preferred shares, all with a par
value of $0.001.
On January 19, 2015, the Company
received written consent from its Board of Directors to implement a reverse
stock split of its issued and outstanding shares of common stock on a basis of
20 old shares of common stock for 1 new share of common stock. Stockholders of
the Company originally approved the reverse stock split on October 14, 2014 at a
special meeting. The reverse stock split was reviewed and approved for filing by
FINRA and made effective on February 25, 2015.
On July 13, 2015, the Board of
Directors approved an increase in authorized capital from 2,000,000,000 shares
of common stock, par value $0.001, to 10,000,000,000 shares of common stock, par
value of $0.001 per share, and a reverse stock split on a basis of up to 200 old
shares of common stock for 1 share of common stock. The increase of authorized
capital and stock split was approved by shareholders on July 13, 2015.
On November 20, 2017, our Board
of Directors approved a reverse stock split of our issued and authorized shares
of common and preferred stock on the basis of 200 old shares for one (1) new
share. On December 20, 2017, FINRA effected the reverse stock split. As a result
of the reverse stock split, our issued and outstanding share capital decreased
from 4,433,023,053 shares of common stock and 70,000,000 shares of Class C
Preferred Stock to 22,165,142 shares of common stock and 350,000 shares of Class
C Preferred Stock, all with a par value of $0.001 (which remained unchanged).
Our authorized capital proportionately decreased from 10,000,000,000 shares of
common stock and 100,000,000 shares of preferred stock to 50,000,000 shares of
common stock and 500,000 shares of preferred stock. No fractional shares were
issued in connection with the reverse stock split.
Unless indicated otherwise, all
share and per share information included in these financial statements give
effect to the reverse split.
The Companys executive offices
are located at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The
telephone number for our Tempe office is (480) 641-4790.
8
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America.
These interim financial
statements as of and for the three and six months ended December 31, 2017 and
2016 are unaudited; however, in the opinion of management, such statements
include all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position, results of operations and cash flows of
the Company for the periods presented. The results for the three and six months
ended December 31, 2017 are not necessarily indicative of the results to be
expected for the year ended June 30, 2018 or for any future period. All
references to December 31, 2017 and 2016 in these footnotes are unaudited.
Principal of Consolidation
The consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiary Alta
Disposal and its 51% owned subsidiary ADM. Intercompany accounts and
transactions have been eliminated in consolidation in conformity with the
applicable accounting framework. No transactions occurred within Black Box
Energy for the six months ended December 31, 2017.
Use of Estimates
The preparation of consolidated
financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The Companys periodic filings with
the Securities and Exchange Commission include, where applicable, disclosures of
estimates, assumptions, uncertainties and markets that could affect the
financial statements and future operations of the Company. Significant estimates
that may materially change in the near term include the valuation of derivative
liabilities and the underlying warrants, as well as fair value of investments.
Cash and Cash Equivalents
Cash and cash equivalents include
cash in banks, money market funds, and certificates of term deposits with
original maturities of less than three months, which are readily convertible to
known amounts of cash and which, in the opinion of management, are subject to an
insignificant risk of loss in value. The Company had $6,405 and $33,136 in cash
and cash equivalents at December 31, 2017 and June 30, 2017, respectively.
Concentration of Risk
The Company maintains cash
balances at a financial institution which, from time to time, may exceed Federal
Deposit Insurance Corporation insured limits for banks located in the US. As of
December 31, 2017 and June 30, 2017, the Company had no deposits in excess of
federally insured limits in its US bank. The Company has not experienced any
losses with regard to its bank accounts and believes it is not exposed to any
risk of loss on its cash in bank accounts.
Prepaid Expenses
Prepaid expenses consist of
security deposit for office lease which will be expensed or refunded at the end
of the lease period, which is currently on a month-to-month basis.
Start-Up Costs
In accordance with FASC 720-15-20
Start-Up Costs, the Company expenses all costs incurred in connection with the
start-up and organization of the Company.
Mineral Acquisition and Exploration Costs
9
The Company has been in the
exploration stage since its formation on May 31, 2006. Mineral property
acquisition and exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a result of
establishing proven and probable reserves, the costs incurred to develop such
property are capitalized. Such costs will be amortized using the
units-of-production method over the estimated life of the probable reserves.
Concentrations of Credit Risk
The Companys financial
instruments that are exposed to concentrations of credit risk primarily consist
of its cash and cash equivalents and related party payables it will likely incur
in the near future. The Company places its cash and cash equivalents with
financial institutions of high credit worthiness. At times, its cash and cash
equivalents with a particular financial institution may exceed any applicable
government insurance limits. The Companys management plans to assess the
financial strength and credit worthiness of any parties to which it extends
funds, and as such, it believes that any associated credit risk exposures are
limited.
Non-controlling Interest
The 49% third party ownership of
Alta Disposal Morinville Ltd. (formerly Blue Tap Resources Ltd.) at December 31,
2017 and June 30, 2017 are recorded as non-controlling interests in the
consolidated financial statements. Details of changes in the non-controlling
interests during the three and six months ended December 31, 2017 and 2016 and
are reflected in the unaudited condensed consolidated statement of deficit.
Related Parties
Parties are considered to be
related to the Company if the parties, directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the
Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. The Company discloses
all related party transactions. All transactions shall be recorded at fair value
of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the
related party in excess of the cost is reflected as a distribution to related
party.
Net Income or (Loss) per Share of Common Stock
The Company has adopted FASC
Topic No. 260, Earnings Per Share, (EPS) which requires presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying financial statements, basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Potentially dilutive securities
are not presented in the computation of EPS since their effects are
anti-dilutive. The total number of potential number of dilutive shares is
72,570,036 as of December 31, 2017.
Foreign Currency Translations
The Companys functional and
reporting currency is the U.S. dollar. All transactions initiated in other
currencies are translated into U.S. dollars using the exchange rate prevailing
on the date of transaction. Monetary assets and liabilities denominated in
foreign currencies are translated into the US dollar at the rate of exchange in
effect at the balance sheet date. Unrealized exchange gains and losses arising
from such transactions are deferred until realization and are included as a
separate component of stockholders equity (deficit) as a component of
comprehensive income or loss. Upon realization, the amount deferred is
recognized in income in the period when it is realized.
10
Translation of Foreign Operations
The financial results and
position of foreign operations whose functional currency is different from the
Companys presentation currency are translated as follows:
-
assets and liabilities are translated at period-end exchange rates
prevailing at that reporting date;
-
equity is translated at historical exchange rates; and
-
income and expenses are translated at average exchange rates for the
period.
Exchange differences arising on
translation of foreign operations are transferred directly to the Companys
accumulated other comprehensive loss in the consolidated financial statements.
Transaction gains and losses arising from exchange rate fluctuation on
transactions denominated in a currency other than the functional currency are
included in the consolidated statements of operations.
The relevant translation rates
are as follows:
|
|
|
Six months ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Closing rate CDN$ to US$ as of December 31,
|
$
|
0.795
|
|
$
|
0.745
|
|
|
Average rate CDN$ to US $ for the period December 31,
|
|
0.793
|
|
|
0.758
|
|
Comprehensive Income (Loss)
FASC Topic No. 220,
Comprehensive Income, establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. As of December 31, 2017 and 2016, the Company had no
material items of other comprehensive income except for the foreign currency
translation adjustment.
Risks and Uncertainties
Our company operates in the
resource exploration industry that is subject to significant risks and
uncertainties, including financial, operational, technological, and other risks
associated with operating a resource exploration business, including the
potential risk of business failure.
Environmental Expenditures
The operations of our company
have been, and may in the future be, affected from time to time in varying
degree by changes in environmental regulations, including those for future
reclamation and site restoration costs. Both the likelihood of new regulations
and their overall effect upon our company vary greatly and are not predictable.
Our company's policy is to meet or, if possible, surpass standards set by
relevant legislation by application of technically proven and economically
feasible measures.
Environmental expenditures that
relate to ongoing environmental and reclamation programs are charged against
earnings as incurred or capitalized and amortized depending on their future
economic benefits. All of these types of expenditures incurred since inception
have been charged against earnings due to the uncertainty of their future
recoverability. Estimated future reclamation and site restoration costs, when
the ultimate liability is reasonably determinable, are charged against earnings
over the estimated remaining life of the related business operation, net of
expected recoveries.
Warrants
The Company accounts for
currently outstanding detachable warrants to purchase common stock as derivative
liabilities as they are freestanding derivative financial instruments. The
warrants are recorded as derivative liabilities at fair value, estimated using a
Black-Scholes option pricing model, and marked to market at each balance sheet
date, with changes in the fair value of the derivative liabilities recorded in
the consolidated statements of operations and comprehensive loss. Upon exercise
of a derivative financial instrument, the instrument is marked to fair value at
the conversion date and is reclassified to equity.
11
Convertible Instruments
The Company evaluates and
accounts for conversion options embedded in its convertible instruments in
accordance with ASC 815 Derivatives and Hedging. It provides three criteria
that, if met, require companies to bifurcate conversion options from their host
instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a separate instrument
with the same terms as the embedded derivative instrument would be considered a
derivative instrument. The result of this accounting treatment could be that the
fair value of a financial instrument is classified as a derivative financial
instrument and is marked-to-market at each balance sheet date and recorded as a
liability. In the event that the fair value is recorded as a liability, the
change in fair value is recorded in the statement of operations as other income
or other expense. Upon conversion or exercise of a derivative financial
instrument, the instrument is marked to fair value at the conversion date and is
reclassified to equity. The Company records, when necessary, discounts to
convertible notes for the intrinsic value of conversion options embedded in debt
instruments based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their earliest date of notes
redemption.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements
and Disclosures requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 820
establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial
instruments categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to measure fair value:
-
Level 1 - Quoted prices in active markets for identical assets or
liabilities;
-
Level 2 - Inputs other than quoted prices included within Level 1 that are
either directly or indirectly observable; and
-
Level 3 - Unobservable inputs that are supported by little or no market
activity, therefore requiring an entity to develop its own assumptions about
the assumptions that market participants would use in pricing.
The carrying amounts of our
companys financial assets and liabilities, such as cash and cash equivalents,
prepaid expenses, deposit, accounts payable and accrued liabilities, and due to
a related party approximate their fair values because of the short maturity of
these instruments.
Our Level 3 financial liabilities
consist of the derivative liability of our companys secured convertible
promissory notes and debentures issued to investors, and the derivative warrants
issued in connection with these convertible promissory notes and debentures.
There is no current market for these securities such that the determination of
fair value requires significant judgment or estimation. Our company used a
lattice model which incorporates transaction details such as company stock
price, contractual terms, maturity, risk free rates, as well as assumptions
about future financings, volatility, and holder behavior as of the date of
issuance and each balance sheet date.
Revenue Recognition
The Company has generated little
revenues to date. It is the Companys policy that revenue from product sales or
services will be recognized in accordance with ASC 605 Revenue Recognition.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and
(4) collectability is reasonably assured. Determination of criteria (3) and (4)
are based on management's judgments regarding the fixed nature of the selling
prices of the products delivered and the collectability of those amounts.
Provisions for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period the
related sales are recorded. The Company will defer any revenue for which the
product/services was not delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product/service has been
delivered or no refund will be required.
12
Sales comprise the fair value of
the consideration received or receivable for the sale of goods and rendering of
services in the ordinary course of the Companys activities. Sales are
presented, net of tax, rebates and discounts, and after eliminating intercompany
sales. The Company recognizes revenue when the amount of revenue and related
cost can be reliably measured and it is probable that the collectability of the
related receivables is reasonably assured.
During the three and six months
ended December 31, 2017 and 2016, the Company had no revenue under continuing
operation.
Income Taxes
The Company accounts for income
taxes pursuant to the provisions of ASC 740-10, Income Taxes which requires,
among other things, an asset and liability approach to calculating deferred
income taxes. The asset and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net
deferred asset will not be realized.
The Company also follows the
provisions of ASC 740-10 related to accounting for uncertain income tax
positions. When tax returns are filed, some positions taken may be sustained
upon examination by the taxing authorities, while others may be subject to
uncertainty about the merits of the position taken or the amount of the position
that would be ultimately sustained. In accordance with the guidance of ASC
740-10, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. As of
December 31, 2017 and 2016, the Company has had no uncertain tax positions. The
Company recognizes interest and penalties, if any, related to uncertain tax
positions as general and administrative expenses. The Company currently has no
federal or state tax examinations nor has it had any federal or state
examinations since its inception.
Receivables
Trade and other receivables are
customer obligations due under normal trade terms and are recorded at face value
less any provisions for uncollectible amounts considered necessary. The Company
includes any balances that are determined to be uncollectible in its overall
allowance for doubtful accounts. The Company recorded $Nil (December 31, 2016 -
$Nil) in allowance for doubtful accounts.
Recent Accounting Pronouncements
In July 2017, the FASB issued ASU
2017-11,
Earnings Per Share (Topic
260
), Distinguishing Liabilities
from Equity (Topic
480
), Derivatives and Hedging (Topic
815
) I.
Accounting for Certain Financial Instruments with Down Round Features and II.
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception
("ASU 2017-11"), which
addresses the complexity of accounting for certain financial instruments with
down round features and addresses the difficulty of navigating Topic 480 because
of the existence of extensive pending content in the ASC as a result of the
indefinite deferral of accounting requirements about mandatorily redeemable
financial instruments of certain nonpublic entities and certain mandatorily
redeemable noncontrolling interests. This update applies to all entities that
issue financial instruments that include down round features and entities that present earnings per share in accordance with
Topic 260. This guidance is effective for financial statements issued for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. If
early adopted in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. The Company
is currently evaluating the impact of the adoption of ASU 2017-11 on its
financial statements and disclosures.
13
On May 10, 2017, the Financial
Accounting Standards Board (FASB) issued an Accounting Standards Update
(ASU) 2017-09 CompensationStock Compensation (Topic 718): Scope of
Modification Accounting, which provides guidance to clarify when to account for
a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is required only
if the fair value, the vesting conditions, or the classification of the award
(as equity or liability) changes as a result of the change in terms or
conditions. The guidance is effective prospectively for all companies for annual
periods beginning on or after December 15, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting this guidance.
In March 2017, the Financial
Accounting Standards Board (FASB) issued ASU 2017-08,
ReceivablesNonrefundable Fees and Other Costs. The Board is issuing this
update to amend the amortization period for certain purchased callable debt
securities held at a premium, the Board is shortening the amortization period
for the premium to the earliest call date. For public business entities, the
amendments in this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. For all other
entities, the amendments are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15,
2020. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued
Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill
Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill
impairment by removing Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. ASU 2017-04 is effective for annual or
interim goodwill impairment tests in fiscal years beginning after December 15,
2019, and should be applied on a prospective basis. Early adoption is permitted
for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04
will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued
Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business
("ASU 2017-01"). The standard clarifies the definition of a business by adding
guidance to assist entities in evaluating whether transactions should be
accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective
for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. Under ASU 2017-01, to be considered a business, the assets
in the transaction need to include an input and a substantive process that
together significantly contribute to the ability to create outputs. Prior to the
adoption of the new guidance, an acquisition or disposition would be considered
a business if there were inputs, as well as processes that when applied to those
inputs had the ability to create outputs. Early adoption is permitted for
certain transactions. The Company does not anticipate the adoption of ASU
2017-01 will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued
Accounting Standards Update No. 2016-18, Restricted Cash (a consensus of the
FASB Emerging Issue Task Force) ("ASU 2016-18"). This new standard addresses the
diversity that exists in the classification and presentation of changes in
restricted cash on the statement of cash flows. The amendments in ASU 2016-18
require that a statement of cash flows explain the change during the period in
the total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. This guidance
is effective for fiscal years beginning after December 15, 2017, including
interim periods within the year of adoption, with early adoption permitted. The
Company does not expect that the adoption of ASU 2016-18 will have a material
impact on its consolidated financial statements.
In August, 2016, the FASB issued
Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force) ("ASU
2016-15"). The amendments in ASU 2016-15 address eight specific cash flow issues
and apply to all entities that are required to present a statement of cash flows under ASC Topic 230,
Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public
business entities for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is permitted,
including adoption during an interim period. The Company has not yet completed
the analysis of how adopting this guidance will affect its consolidated
financial statements.
14
In October 2016, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 will require the tax effects of intercompany transactions, other
than sales of inventory, to be recognized currently, eliminating an exception
under current GAAP in which the tax effects of intra-entity asset transfers are
deferred until the transferred asset is sold to a third party or otherwise
recovered through use. The guidance will be effective for the first interim
period of our 2019 fiscal year, with early adoption permitted. The Company does
not anticipate the adoption of ASU 2016-16 will have a material impact on its
consolidated financial statements.
In connection with its financial
instruments project, the FASB issued ASU 2016-13 - Financial Instruments -
Credit Losses: Measurement of Credit Losses on Financial Instruments in June
2016 and ASU 2016-01 - Financial Instruments - Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities in January 2016. ASU
2016-13 introduces a new impairment model for most financial assets and certain
other instruments. For trade and other receivables, held-to-maturity debt
securities, loans and other instruments, entities will be required to use a
forward-looking expected loss model that will replace the current incurred
loss model and generally will result in earlier recognition of allowances for
losses. The guidance will be effective for the first interim period of our 2021
fiscal year, with early adoption in fiscal year 2020 permitted.
ASU 2016-01 addresses certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. Among other
provisions, the new guidance requires the fair value measurement of investments
in certain equity securities. For investments without readily determinable fair
values, entities have the option to either measure these investments at fair
value or at cost adjusted for changes in observable prices minus impairment. All
changes in measurement will be recognized in net income. The guidance will be
effective for the first interim period of our 2019 fiscal year. Early adoption
is not permitted, except for certain provisions relating to financial
liabilities.
In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to
apply revenue recognition guidance related to whether an entity is a principal
or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the
entity has control of the goods or services before they are transferred to the
customer and provides additional guidance about how to apply the control
principle when services are provided and when goods or services are combined
with other goods or services. The effective date for ASU 2016-08 is the same as
the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual
reporting periods beginning after December 15, 2017, including interim periods
within those years. The Company has not yet determined the impact of ASU 2016-08
on its consolidated financial statements.
In April 2016, the FASB issued
ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, which provides further guidance on
identifying performance obligations and improves the operability and
understandability of licensing implementation guidance. The effective date for
ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU
2015-14, for annual reporting periods beginning after December 15, 2017,
including interim periods within those years. The Company has not yet determined
the impact of ASU 2016-10 on its consolidated financial statements.
FASB ASU 2016-12, Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients was issued in June 2016 and clarifies the objective of the
collectability criterion, presentation of taxes collected from customers,
non-cash consideration, contract modifications at transition, completed
contracts at transition and how guidance in Topic 606 is retrospectively
applied. The amendments do not change the core principle of the guidance in
Topic 606. The effective dates are the same as those for Topic 606.
In March 2016, the FASB issued
ASU No. 2016-09, Compensation Stock Compensation, or ASU No. 2016-09. The
areas for simplification in this Update involve several aspects of the
accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. For public entities, the
amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted in any interim
or annual period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. An entity that elects early adoption must adopt
all of the amendments in the same period. Amendments related to the timing of
when excess tax benefits are recognized, minimum statutory withholding
requirements, forfeitures, and intrinsic value should be applied using a
modified retrospective transition method by means of a cumulative-effect
adjustment to equity as of the beginning of the period in which the guidance is
adopted. Amendments related to the presentation of employee taxes paid on the
statement of cash flows when an employer withholds shares to meet the minimum
statutory withholding requirement should be applied retrospectively. Amendments
requiring recognition of excess tax benefits and tax deficiencies in the income
statement and the practical expedient for estimating expected term should be
applied prospectively. An entity may elect to apply the amendments related to
the presentation of excess tax benefits on the statement of cash flows using
either a prospective transition method or a retrospective transition method. The
Company is currently evaluating the impact of adopting ASU No. 2016-09 on its
consolidated financial statements.
15
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. Topic
842 affects any entity that enters into a lease, with some specified scope
exemptions. The guidance in this Update supersedes Topic 840, Leases. The core
principle of Topic 842 is that a lessee should recognize the assets and
liabilities that arise from leases. A lessee should recognize in the statement
of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for
the lease term. For public companies, the amendments in this Update are
effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is currently evaluating the
impact of adopting ASU No. 2016-02 on its consolidated financial statements.
In January 2016, the FASB issued
an accounting standard update which requires, among other things, that entities
measure equity investments (except those accounted for under the equity method
of accounting or those that result in consolidation of the investee) at fair
value, with changes in fair value recognized in earnings. Under the standard,
entities will no longer be able to recognize unrealized holding gains and losses
on equity securities classified today as available for sale as a component of
other comprehensive income. For equity investments without readily determinable
fair values the cost method of accounting is also eliminated, however subject to
certain exceptions, entities will be able to elect to record equity investments
without readily determinable fair values at cost, less impairment and plus or
minus adjustments for observable price changes, with all such changes recognized
in earnings. This new standard does not change the guidance for classifying and
measuring investments in debt securities and loans. The standard is effective
for us on July 1, 2018 (the first quarter of our 2019 fiscal year). The Company
is currently evaluating the anticipated impact of this standard on its
consolidated financial statements.
NOTE 3 CAPITAL STOCK
Reverse Stock Splits
On January 19, 2015, the
Company's board of directors consented to effect a reverse stock split of the
Companys issued and outstanding shares of common stock on a basis of 20 old
shares of common stock for one 1 new share of common stock. The reverse stock
split was reviewed and approved for filing by the FNRA effective February 25,
2015.
On July 13, 2015, the Company's
board of directors consented to effect a reverse stock split of the Companys
issued and outstanding shares of common stock on a basis of 200 old shares of
common stock for one 1 new share of common stock. The reverse stock split was
reviewed and approved for filing by the FNRA effective September 30, 2015. The
Companys authorized capital will not be affected by the reverse stock split.
The split is reflected retrospectively in the accompanying financial statements.
On November 20, 2017, our Board
of Directors approved a reverse stock split of our issued and authorized shares
of common and preferred stock on the basis of 200 old shares for one (1) new
share. On December 20, 2017, FINRA effected the reverse stock split. As a result
of the reverse stock split, our issued and outstanding share capital decreased from 4,433,023,053 shares of common stock and
70,000,000 shares of Class C Preferred Stock to 22,165,142 shares of common
stock and 350,000 shares of Class C Preferred Stock, all with a par value of
$0.001 (which remained unchanged). Our authorized capital proportionately
decreased from 10,000,000,000 shares of common stock and 100,000,000 shares of
preferred stock to 50,000,000 shares of common stock and 500,000 shares of
preferred stock. No fractional shares were issued in connection with the reverse
stock split.
16
Unless indicated otherwise, all
share and per share information included in these financial statements give
effect to the reverse split.
Authorized Stock
At inception, the Company
authorized 100,000,000 common shares and 100,000,000 preferred shares, both with
a par value of $0.001 per share. Each common share entitles the holder to one
vote, in person or proxy, on any matter on which action of the stockholders of
the corporation is sought.
On April 8, 2009, the Company
increased the number of authorized shares to 600,000,000 shares, of which
500,000,000 shares are designated as common stock par value $0.001 per share,
and 100,000,000 shares are designated as preferred stock, par value $0.001 per
share.
On October 25, 2012, the Company
designated 20,000,000 series A convertible preferred stock with a par value of
$0.001 per share and stated value of $100 per share. The designated preferred
stock is convertible at the option of the holder, at any time beginning one year
from the date such shares are issued, into common stock of the Company with a
par value of $0.001. All shares of common stock of the Company, shall be of
junior rank to all series A preferred stock in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. All other shares of preferred stock shall be of junior rank to all
series A preferred shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
On January 3, 2014, the Company
designated 2,000,000 series B convertible preferred stock with a par value
$0.001 per share, issuable only in consideration of the extinguishment of
existing debt convertible in to the Companys common stock with a par value of
$0.001. The designated preferred stock shall be issued on the basis of 1
preferred stock for each $1 of convertible debt. The series B convertible
preferred stock shall be subordinate to and rank junior to all indebtedness of
the Company now or hereafter outstanding.
On October 17, 2014, the Company
amended its Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
its common shares from 500,000,000 common shares, par value $0.001 to
2,000,000,000 common shares, par value $0.001.
The Company's authorized capital
consists of 2,000,000,000 common shares and 100,000,000 preferred shares, all
with a par value of $0.001.
Effective June 22, 2015, the
Company designated 50,000,000 of its 100,000,000 authorized shares of preferred
stock as series A preferred stock. The series A preferred stock, par value
$0.001, will rank senior to the Companys common stock, carrying general voting
rights with the common stock at the rate of 62 votes per share. The series A
preferred stock will be deemed cancelled within 1 year of issuance and are not
entitled to share in dividends or other distributions. So long as any shares of
series A preferred stock are outstanding, the affirmative vote of not less than
75% of those outstanding shares of series A preferred stock will be required for
any change to the Companys Articles of Incorporation.
Effective September 9, 2015, the
Company increased the authorized capital of its common shares from 2,000,000,000
common shares, par value $0.001 to 10,000,000,000 common shares, par value
$0.001.
On August 22, 2017, the Board of
Directors approved a Certificate of Designation authorizing the creation of
70,000,000 Class C Preferred Shares. The Class C Shares are convertible,
redeemable and have certain enhanced voting rights. Each Class C Share is
convertible into 2 shares of the Companys common stock.
17
Effective December 20, 2017, in
connection with the 200-for-1 reverse stock split, the Company decreased the
authorized capital of its common shares from 10,000,000,000 common shares, par
value $0.001 to 50,000,000 common shares, par value $0.001. Additionally, it
decreased the authorized capital of its preferred stock from 100,000,000
preferred shares, par value $0.001 to 500,000 preferred shares, par value $0.001
Share Issuances
Preferred Stock Issuance
During the six months ended
December 31, 2017, the Company issued 350,000 Series C Preferred Shares for
settlement of convertible promissory notes and accrued interest, valued at
$757,347.
Common Stock Issuance
During the six months ended
December 31, 2017, the Company issued 10,966,465 common shares at deemed prices
ranging from $0.044 to $0.090 per share upon conversion of the convertible
promissory notes and accrued interest, valued at $626,220.
On July 31, 2017, the Company
issued 58,333 common shares in payment for past legal services at a deemed value
of $8,166.
NOTE 4 PROVISION FOR INCOME TAXES
The Company recognizes the tax
effects of transactions in the year in which such transactions enter into the
determination of net income, regardless of when reported for tax purposes.
Deferred taxes are provided in the financial statements under FASC 740-20-20 to
give effect to the resulting temporary differences which may arise from
differences in the bases of fixed assets, depreciation methods, allowances, and
start-up costs based on the income taxes expected to be payable in future years.
Exploration stage deferred tax
assets arising as a result of net operating loss carryforwards have been offset
completely by a valuation allowance due to the uncertainty of their utilization
in future periods. Operating loss carryforwards generated during the period from
May 31, 2006 (date of inception) through December 31, 2017 of approximately $15
million will begin to expire in 2027. Accordingly, deferred tax assets were
offset by the valuation allowance that increased by approximately $246,103 and
$215,033 during the six months ended December 31, 2017 and 2016 respectively.
The Company follows the
provisions of uncertain tax positions as addressed in FASC 740-10-65-1. The
Company recognized approximately no increase in the liability for unrecognized
tax benefits.
The Company has no tax position
at December 31, 2017 for which the ultimate deductibility is highly certain but
for which there is uncertainty about the timing of such deductibility. The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. No such interest or
penalties were recognized during the periods presented. The Company had no
accruals for interest and penalties at December 31, 2017. The Companys
utilization of any net operating loss carry forward may be unlikely as a result
of its intended exploration stage activities. The tax years for June 30, 2016,
2015, 2014, and 2013 are still open for examination by the Internal Revenue
Service (IRS).
|
|
For the six months ended
|
|
|
|
December 31, 2017
|
|
|
|
Amount
|
|
|
Tax Effect (35%)
|
|
Loss before income tax
|
$
|
1,982,275
|
|
|
693,796
|
|
Shares issued for interest expenses
|
|
-
|
|
|
-
|
|
Non-cash interest expense
|
|
(374,470
|
)
|
|
(131,065
|
)
|
Gain on change in fair value of derivative liability and
extinguishment of debt
|
|
689,034
|
|
|
241,162
|
|
Loss on extinguishment of liability
|
|
(108,860
|
)
|
|
(38,101
|
)
|
Amortization of debt discount
|
|
(1,484,829
|
)
|
|
(519,690
|
)
|
Total
|
|
703,150
|
|
|
246,103
|
|
Valuation allowance
|
|
(703,150
|
)
|
|
(246,103
|
)
|
Net deferred tax asset (liability)
|
$
|
-
|
|
$
|
-
|
|
18
|
|
For the six months ended
|
|
|
|
December 31, 2016
|
|
|
|
Amount
|
|
|
Tax Effect (35%)
|
|
Loss before income tax
|
$
|
2,803,543
|
|
$
|
981,240
|
|
Shares issued for interest expenses
|
|
(2,402
|
)
|
|
(841
|
)
|
Non-cash interest expense
|
|
(258,994
|
)
|
|
(90,648
|
)
|
Loss on change in fair value of derivative liability
|
|
(1,381,409
|
)
|
|
(483,493
|
)
|
Loss on extinguishment of liability
|
|
-
|
|
|
-
|
|
Amortization of debt discount
|
|
(546,358
|
)
|
|
(191,225
|
)
|
Total
|
|
614,380
|
|
|
215,033
|
|
Valuation allowance
|
|
(614,380
|
)
|
|
(215,033
|
)
|
Net deferred tax asset (liability)
|
$
|
-
|
|
$
|
-
|
|
NOTE 5 DEPOSITS, ADVANCES AND OTHER ASSETS
Joint Development and Option Agreement with White Top
On April 13, 2017, the Companys
wholly-owned subsidiary, BBE, entered into a Joint Development and Option
Agreement with White Top Oil & Gas, LLC (White Top), a Louisiana limited
liability company (the White Top Agreement), under which White Top is the
designee to a funding agreement to finance and participate in the completion of
certain oil and gas development, exploration and operating activities on certain
lands located in Sulphur, Louisiana. Under the terms of the White Top Agreement,
BBE has advanced $879,620 as of December 31, 2017 ($783,620 as of June 30, 2017)
to White Top as consideration, which is reflected as Advances to White Top on
the Companys balance sheet (see Note 10).
On October 9, 2017, the Company
sold its investment of 800,000 common shares of First Reef Energy to a third
party for CDN $90,000, net of CDN $10,000 of sellers fees, resulting in a gain
of CDN $90,000 (USD 70,472). The Company originally purchased these shares for
USD $197,393 during the year ended June 30, 2012, and subsequently reduced the
carrying value to $0 during the year ended June 30, 2013.
NOTE 6 SHORT-TERM NOTES PAYABLE
In November and December of 2017,
the Company entered into four Bridge Loan Agreements totaling $105,000. The
notes accrue annual interest at 10% and mature in 30 days. The notes are all in
default as of the date of this report. The Company recorded interest expenses of
$914 on these loans. As of December 31, 2017, interest payable was $914 on these
notes.
19
NOTE 7 CONVERTIBLE PROMISSORY NOTES
Summary of convertible promissory
notes at December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
Accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
Transfer
|
|
|
|
|
|
|
June 30,
|
|
|
Principal
|
|
|
Issuance
|
|
|
Total
|
|
|
|
|
|
(Loan
|
|
|
June 30,
|
|
|
|
2017
|
|
|
Issued
|
|
|
Cost
|
|
|
Converted
|
|
|
Repaid
|
|
|
Extinguished)
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 13, 2013
|
$
|
10,954
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(10,954
|
)
|
$
|
-
|
|
$
|
-
|
|
July 22, 2014
|
|
7,222
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,222
|
|
February 6, 2015
|
|
7,150
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
117,846
|
|
|
124,996
|
|
September 9, 2015
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
August 12, 2016
|
|
45,712
|
|
|
-
|
|
|
1,037
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46,749
|
|
September 8, 2016
|
|
27,201
|
|
|
-
|
|
|
577
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,778
|
|
September 9, 2016
|
|
139,810
|
|
|
-
|
|
|
5,316
|
|
|
(145,126
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
September 9, 2016
|
|
20,925
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,925
|
|
September 15, 2016
|
|
-
|
|
|
-
|
|
|
4,719
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,719
|
|
September 19, 2016
|
|
1,165,000
|
|
|
-
|
|
|
-
|
|
|
(55,500
|
)
|
|
-
|
|
|
(708,000
|
)
|
|
401,500
|
|
September 27, 2016
|
|
121,655
|
|
|
-
|
|
|
4,358
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
126,013
|
|
October 10, 2016
|
|
99,740
|
|
|
-
|
|
|
2,628
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
102,368
|
|
October 27, 2016
|
|
45,365
|
|
|
-
|
|
|
3,036
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,401
|
|
October 31, 2016
|
|
157,594
|
|
|
-
|
|
|
5,740
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
163,334
|
|
November 14, 2016
|
|
28,569
|
|
|
-
|
|
|
2,542
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,111
|
|
November 22, 2016
|
|
27,693
|
|
|
-
|
|
|
2,006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,699
|
|
November 30, 2016
|
|
94,215
|
|
|
-
|
|
|
5,785
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
December 23, 2016
|
|
41,221
|
|
|
-
|
|
|
3,878
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,099
|
|
December 29, 2016
|
|
86,432
|
|
|
-
|
|
|
4,679
|
|
|
(91,111
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
January 17, 2017
|
|
46,179
|
|
|
-
|
|
|
4,177
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50,356
|
|
January 25, 2017
|
|
112,735
|
|
|
-
|
|
|
19,488
|
|
|
(132,223
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
January 26, 2017
|
|
80,707
|
|
|
-
|
|
|
14,591
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
95,298
|
|
January 27, 2017
|
|
106,680
|
|
|
-
|
|
|
6,583
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
113,263
|
|
February 3, 2017
|
|
73,223
|
|
|
-
|
|
|
5,988
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
79,211
|
|
March 1, 2017
|
|
331,754
|
|
|
-
|
|
|
23,123
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
354,877
|
|
March 13, 2017
|
|
78,074
|
|
|
-
|
|
|
7,726
|
|
|
(85,800
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
March 20, 2017
|
|
77,870
|
|
|
-
|
|
|
5,263
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83,133
|
|
March 28, 2017
|
|
128,167
|
|
|
|
|
|
8,698
|
|
|
(62,000
|
)
|
|
-
|
|
|
-
|
|
|
74,865
|
|
April 4, 2017
|
|
127,958
|
|
|
-
|
|
|
8,670
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
136,628
|
|
May 2, 2017
|
|
25,763
|
|
|
-
|
|
|
1,751
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,514
|
|
May 5, 2017
|
|
25,755
|
|
|
-
|
|
|
2,845
|
|
|
(28,600
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
May 15, 2017
|
|
308,729
|
|
|
-
|
|
|
21,008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
329,737
|
|
20
May 17, 2017
|
|
309,655
|
|
|
-
|
|
|
21,453
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
331,108
|
|
June 8, 2017
|
|
76,985
|
|
|
-
|
|
|
5,252
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
82,237
|
|
June 8, 2017
|
|
76,985
|
|
|
-
|
|
|
5,252
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
82,237
|
|
June 30, 2017
|
|
100,063
|
|
|
-
|
|
|
6,884
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,947
|
|
July 3, 2017
|
|
-
|
|
|
100,000
|
|
|
4,869
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
104,869
|
|
July 14, 2017
|
|
-
|
|
|
15,000
|
|
|
1,066
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16,066
|
|
July 26, 2017
|
|
-
|
|
|
15,000
|
|
|
1,054
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16,054
|
|
July 26, 2017
|
|
-
|
|
|
30,000
|
|
|
1,461
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,461
|
|
August 4, 2017
|
|
-
|
|
|
30,000
|
|
|
1,461
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,461
|
|
August 4, 2017
|
|
-
|
|
|
30,000
|
|
|
2,089
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,089
|
|
September 5, 2017
|
|
-
|
|
|
30,000
|
|
|
1,461
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,461
|
|
September 7, 2017
|
|
-
|
|
|
55,000
|
|
|
3,691
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
58,691
|
|
September 28, 2017
|
|
-
|
|
|
50,000
|
|
|
3,191
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
53,191
|
|
October 4, 2017
|
|
-
|
|
|
35,000
|
|
|
942
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
35,942
|
|
October 24, 2017
|
|
-
|
|
|
35,000
|
|
|
1,261
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36,261
|
|
November 1, 2017
|
|
-
|
|
|
30,000
|
|
|
1,050
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,050
|
|
November 9, 2017
|
|
-
|
|
|
10,000
|
|
|
338
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,338
|
|
December 15, 2017
|
|
-
|
|
|
3,000
|
|
|
83
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,083
|
|
December 15, 2017
|
|
-
|
|
|
8,000
|
|
|
163
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,243,740
|
|
$
|
476,000
|
|
$
|
239,233
|
|
$
|
(600,359
|
)
|
$
|
(10,954
|
)
|
$
|
(590,154
|
)
|
$
|
3,757,507
|
|
Less: Unamortized debt discount
|
$
|
(1,402,631
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(656,144
|
)
|
Total note payable, net of debt discount
|
$
|
2,841,109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
3,101,363
|
|
Current portion
|
$
|
2,841,109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
3,101,363
|
|
Long term portion
|
$
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
On July 3, 2017 Company issued an
aggregate of $110,000 Convertible Promissory Notes with an issuance discount of
$10,000 that matures on July 3, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to the lessor of
$1.00 or a discount of 25% of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day upon which a Notice of Conversion is
received.
21
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $132,991 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $57,619 was allocated as a debt discount with the
remainder $75,372 was charged to current period operations as interest expense.
On July 14, 2017 Company issued
an aggregate of $17,160 Convertible Promissory Notes with an issuance discount
of $2,160 that matures on July 14, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to the lessor of
$1.00 or a discount of 25% of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $20,747 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $8,989 was allocated as a debt discount with the
remainder $11,758 was charged to current period operations as interest expense.
On July 26, 2017 Company issued
an aggregate of $17,160 Convertible Promissory Notes with an issuance discount
of $2,160 that matures on July 26, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to the lessor of
$1.00 or a discount of 25% of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
22
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $20,747 of the embedded derivative, subject to the conversion limitation of beneficially owning not
more than 9.99% shares together with the affiliates. The fair value of the
embedded derivative was determined using the Black Scholes Model based on the
following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $8,989 was allocated as a debt discount with the
remainder $11,758 was charged to current period operations as interest expense.
On July 26, 2017 Company issued
an aggregate of $33,000 Convertible Promissory Notes with an issuance discount
of $3,000 that matures on July 26, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to the lessor of
$1.00 or a discount of 25% of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $39,897 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $17,286 was allocated as a debt discount with the
remainder $22,612 was charged to current period operations as interest expense.
On August 4, 2017 Company issued
an aggregate of $33,000 Convertible Promissory Notes with an issuance discount
of $3,000 that matures on August 4, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to the
lessor of $1.00 or a discount of 25% of the lowest trading price of the Common
Stock as reported on the OTC Markets for the twenty prior trading days including
the day upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $47,543 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
23
The initial fair values of the
embedded debt derivative $25,667 was allocated as a debt discount with the
remainder $21,876 was charged to current period operations as interest expense.
On August 4, 2017 Company issued
an aggregate of $34,320 Convertible Promissory Notes with an issuance discount
of $4,320 that matures on August 4, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to the
lessor of $1.00 or a discount of 25% of the lowest trading price of the Common
Stock as reported on the OTC Markets for the twenty prior trading days including
the day upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $49,445 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $26,693 was allocated as a debt discount with the
remainder $22,751 was charged to current period operations as interest expense.
On September 5, 2017, the Company
issued an aggregate of $33,000 Convertible Promissory Notes with an issuance
discount of $3,000 that matures on September 5, 2018. These notes bear 10%
interest per annum and the Holder of this Note is entitled, at its option, at
any time, to convert all or any amount of the principal face amount of this Note
then outstanding into shares of the Company's common stock at a price equal to
the lessor of $1.00 or a discount of 25% of the lowest trading price of the
Common Stock as reported on the OTC Markets for the twenty prior trading days
including the day upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $34,230 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $11,000 was allocated as a debt discount with the
remainder $23,230 was charged to current period operations as interest expense.
On September 7, 2017, the Company
issued an aggregate of $62,920 Convertible Promissory Notes with an issuance discount of $7,920 that matures on September 7, 2018.
These notes bear 10% interest per annum and the Holder of this Note is entitled,
at its option, at any time, to convert all or any amount of the principal face
amount of this Note then outstanding into shares of the Company's common stock
at a price equal to the lessor of $1.00 or a discount of 25% of the lowest
trading price of the Common Stock as reported on the OTC Markets for the twenty
prior trading days including the day upon which a Notice of Conversion is
received.
24
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $80,426 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $37,752 was allocated as a debt discount up to the
proceeds of the note with the remainder $42,674 was charged to current period
operations as interest expense.
On September 28, 2017, the
Company issued an aggregate of $57,200 Convertible Promissory Notes with an
issuance discount of $7,200 that matures on September 28, 2018. These notes bear
10% interest per annum and the Holder of this Note is entitled, at its option,
at any time, to convert all or any amount of the principal face amount of this
Note then outstanding into shares of the Company's common stock at a price equal
to the lessor of $1.00 or a discount of 25% of the lowest trading price of the
Common Stock as reported on the OTC Markets for the twenty prior trading days
including the day upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $73,114 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
225.76%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $34,320 was allocated as a debt discount up to the
proceeds of the note with the remainder $38,794 was charged to current period
operations as interest expense.
On October 4, 2017, the Company
issued a $40,040 Convertible Promissory Note with an issuance discount of $5,040
that matures on May 15, 2018. The notes bears 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at a price equal to the lessor of $1.00 or
a discount of 25% of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
25
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded derivatives included certain conversion features. The
accounting treatment of derivative financial instruments requires that the
Company record the fair value of the derivatives as of the inception date of the
Convertible Promissory Note and to adjust the fair value as of each subsequent
balance sheet date. At the inception of the Convertible Promissory Note, the
Company determined a fair value of $44,066 of the embedded derivative, subject
to the conversion limitation of beneficially owning not more than 9.99% shares
together with the affiliates. The fair value of the embedded derivative was
determined using the Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
254.34%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $13,347 was allocated as a debt discount with the
remaining $30,719 charged to current period operations as interest expense.
On October 24, 2017, the Company
issued a $40,040 Convertible Promissory Note with an issuance discount of $5,040
that matures on June 8, 2018. The notes bears 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at a price equal to the lessor of $1.00 or
a discount of 25% of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $56,401 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
254.34%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $26,693 was allocated as a debt discount with the
remaining $29,707 charged to current period operations as interest expense.
On November 1, 2017, the Company
issued a $34,320 Convertible Promissory Note with an issuance discount of $4,320
that matures on June 8, 2018. The notes bears 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at a price equal to the lessor of $1.00 or
a discount of 25% of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $48,343 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
26
Dividend yield:
|
0.00%
|
Volatility
|
254.34%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $22,880 was allocated as a debt discount with the
remaining $25,463 charged to current period operations as interest expense.
On November 9, 2017, the Company
issued a $11,440 Convertible Promissory Note with an issuance discount of $1,440
that matures on June 8, 2018. The notes bears 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at a price equal to the lessor of $1.00 or
a discount of 25% of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $16,114 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
254.34%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $7,627 was allocated as a debt discount with the
remaining $8,488 charged to current period operations as interest expense.
On December 15, 2017, the Company
issued a $3,432 Convertible Promissory Note with an issuance discount of $432
that matures on June 8, 2018. The notes bears 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at a price equal to the lessor of $1.00 or
a discount of 25% of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $4,834 of the embedded derivative, subject to the conversion limitation
of beneficially owning not more than 9.99% shares together with the affiliates.
The fair value of the embedded derivative was determined using the Black Scholes
Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
254.34%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $2,288 was allocated as a debt discount with the remaining $2,546 charged to current period operations as
interest expense.
27
On December 15, 2017, the Company
issued a $9,152 Convertible Promissory Note with an issuance discount of $1,152
that matures on June 8, 2018. The notes bears 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at a price equal to the lessor of $1.00 or
a discount of 25% of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $13,839 of the embedded derivative, subject to the conversion
limitation of beneficially owning not more than 9.99% shares together with the
affiliates. The fair value of the embedded derivative was determined using the
Black Scholes Model based on the following assumptions:
Dividend yield:
|
0.00%
|
Volatility
|
254.34%
|
Risk free rate:
|
1.03%
|
The initial fair values of the
embedded debt derivative $7,118 was allocated as a debt discount with the
remaining $6,721 charged to current period operations as interest expense.
The modification of the Notes was
evaluated under FASB Accounting Standards Codification (ASC) Topic No.
470-50-40, Debt Modification and Extinguishments. Therefore, according to the
guidance, the instruments were determined to be substantially different, and the
transaction qualified for extinguishment accounting. During the six months ended
December 31, 2017 and 2016, $108,860 and $1,539,701, respectively, was recorded
as loss on extinguishment of debt due to settlement agreement with note holders.
The $1,539,701 consists of net increase in principal of convertible promissory
notes of $1,429,501 (net of extinguished interests of $137,883), increase in
principal of non-convertible promissory notes of $520,000, extinguished
derivative liabilities for debt and warrants with fair values on date of
conversion was $298,728 and $111,072 respectively.
On June 28, 2017, the Company
entered into a Note and Warrant Repayment and Repurchase Agreement whereby the
Company agreed to repurchase 1,011 warrants and settle an outstanding
convertible note payable from the holder totaling $21,908 for two payments to
the holder of $100,000 each. The first $100,000 payment was made on June 30,
2017 resulting in the repurchase of 506 warrants and a $10,954 reduction of the
note. The portion of the payment allocated to the warrant repurchase ($89,046)
was recorded as a loss on settlement and is included in interest expense for the
year ended June 28, 2017. The second and final $100,000 payment was made to the
holder on July 3, 2017, resulting in the repurchase of the remaining 505
warrants and settlement of the remaining balance of the note of $10,954. The
portion of the payment allocated to the warrant repurchase ($89,046) was
recorded as a loss on settlement and is included in interest expense for the six
months ended December 31, 2017.
During the six months ended
December 31, 2017 and 2016 the Company amortized the debt discount on all the
notes of $1,484,829 and $546,358, respectively to operations as expense
including $239,233 and $33,052, respectively, for accretion expenses. During the
three months ended December 31, 2017 and 2016 the Company amortized the debt
discount on all the notes of $723,298 and $404,026, respectively to operations
as expense including $123,568 and $28,957, respectively, for accretion expenses
28
Derivative Liability - Debt
The fair value of the described
embedded derivative on all debt was valued at $2,727,997 and $3,386,252 at December 31, 2017 and June 30, 2017, respectively, which was
determined using the Black Scholes Model with the following assumptions:
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
Dividend yield:
|
|
0 %
|
|
|
0%
|
|
Volatility
|
|
254.34 258.62 %
|
|
|
247.5 284.4%
|
|
Risk free rate:
|
|
1.03 1.76 %
|
|
|
1.03 1.89%
|
|
The Company recorded change in
fair value of the derivative liability on debt to market resulting in non-cash,
non-operating gain (loss) of $638,378 and $(270,809) for the six months ended
December 31, 2017 and 2016, respectively. The Company recorded change in fair
value of the derivative liability on debt to market resulting in non-cash,
non-operating gain (loss) of $(242,895) and $1,239,892 for the three months
ended December 31, 2017 and 2016, respectively
During the periods ended December
31, 2017 and June 30, 2017 the Company issued 10,966,465 and 11,696,896 shares
of the Companys common stock in settlement of $625,051 and $1,266,819,
respectively, of convertible note and interest.
During the six months period
ended December 31, 2017 and year ended June 30, 2017 the Company reclassed the
derivative liability of $703,782 and $1,818,596, respectively, to additional
paid in capital on conversion of convertible note.
The following table provides a
summary of changes in fair value of the Companys Level 3 financial liabilities
as of December 31, 2017 and June 30, 2017:
|
|
Derivative
|
|
|
|
Liability (convertible
|
|
|
|
promissory notes)
|
|
Balance, June 30, 2016
|
$
|
1,162,058
|
|
Initial fair value at note issuances
|
|
5,290,359
|
|
Fair value of liability at note conversion
|
|
(1,818,596
|
)
|
Extinguishment of derivative liability
|
|
(298,728
|
)
|
Mark-to-market at June 30, 2017
|
|
(948,842
|
)
|
Balance, June 30, 2017
|
$
|
3,386,251
|
|
|
|
|
|
Initial fair value at note issuances
|
|
682,736
|
|
Fair value of liability at note conversion
|
|
(702,612
|
)
|
Extinguishment of derivative liability
|
|
-
|
|
Mark-to-market at December 31, 2017
|
|
(638,378
|
)
|
|
|
|
|
Balance, December 31, 2017
|
$
|
2,727,997
|
|
Net gain for the period included in earnings relating to
the liabilities held at December 31, 2017
|
$
|
638,378
|
|
Derivative Liability- Warrants
Along with the promissory notes,
the Company issued warrants that bear a cashless exercise provision. The
warrants also include anti-dilution protection with respect to lower priced
issuances of common stock or securities convertible or exchangeable into common
stock, which provision resulted in derivative liability treatment under ASC 480.
The warrants are recorded at fair value using the Black-Scholes option pricing
model and marked-to-market at each reporting period, with the changes in the
fair value recorded in the consolidated statement of operations and
comprehensive income (loss).
During the six months ended
December 31, 2017, a total of 1,371,429 warrants were issued related to
amendments of convertible notes. During the six months ended December 31, 2016
no warrants were issued along with convertible notes.
29
The fair value of the described
embedded derivative on all warrants was valued at $479,059 at December 31, 2017
and $338,873 at June 30, 2017 which was determined using the Black Scholes Model
with the following assumptions:
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
Dividend yield:
|
|
0 %
|
|
|
0%
|
|
Volatility
|
|
263.85 - 269.45 %
|
|
|
247.5%
|
|
Risk free rate:
|
|
1.31 2.20 %
|
|
|
1.89%
|
|
|
|
Warrants
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
Price
|
|
|
life
|
|
Balance, June 30, 2016
|
|
135
|
|
$
|
20,040
|
|
|
2.79 years
|
|
Exercised
|
|
(1
|
)
|
|
42,480
|
|
|
-
|
|
Issued
|
|
|
|
|
|
|
|
-
|
|
Expired
|
|
(3
|
)
|
|
56,000
|
|
|
-
|
|
Cancelled
|
|
(58
|
)
|
|
38,160
|
|
|
-
|
|
Balance, June 30, 2017
|
|
74
|
|
$
|
42,752
|
|
|
2.55 years
|
|
Exercised
|
|
-
|
|
|
|
|
|
-
|
|
Issued
|
|
1,371,429
|
|
|
0.58
|
|
|
-
|
|
Expired
|
|
-
|
|
|
|
|
|
-
|
|
Cancelled
|
|
(3
|
)
|
|
42,816
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2017
|
|
1,371,500
|
|
$
|
0.74
|
|
|
4.61
years
|
|
The following table provides a
summary of changes in fair value of the Companys Level 3 financial liabilities
as of December 31, 2017:
|
|
Derivative
|
|
|
|
Liability (warrants)
|
|
Balance, June 30, 2016
|
$
|
268,611
|
|
Fair value of warrant cancelled
|
|
(111,073
|
)
|
Fair value of warrant exercised
|
|
(71,595
|
)
|
Mark-to-market at
June 30, 2017 warrant liability
|
|
252,931
|
|
Balance, June 30, 2017
|
$
|
338,874
|
|
Initial fair value of warrant derivatives at note issuances
|
|
190,841
|
|
Fair value of warrant cancelled
|
|
-
|
|
Fair value of warrant exercised
|
|
-
|
|
Mark-to-market at December 31, 2017 warrant liability
|
|
(50,656
|
)
|
Balance, December 31, 2017
|
$
|
479,059
|
|
|
|
|
|
Net gain for the
period included in earnings relating to the liabilities held at December $
31, 2017
|
|
50,656
|
|
The Company recorded change in
fair value of the derivative liability on warrants to market resulting in non-cash, non-operating gain of $50,656 and a loss of $112,517
for the six months ended December 31, 2017 and 2016, respectively. The Company
recorded change in fair value of the derivative liability on warrants to market
resulting in non-cash, non-operating loss of $49,634 and a gain of $68,730 for
the three months ended December 31, 2017 and 2016, respectively
30
During the period ended December
31, 2017 and June 30, 2017 the Company reclassed the derivative liability on
warrants of $0 and $71,595, respectively, to additional paid in capital on
exercise of warrants.
NOTE 8 RELATED PARTY TRANSACTIONS
During the three and six months
ended December 31, 2017, the Company incurred consulting fees of $33,000 and
$49,000, respectively (December 31, 2016 - $17,000 and $41,000) with directors
and officers (including directors and officers of our subsidiaries) out of which
there were no stock payments.
As of December 31, 2017, the
Company owed a director for a non-interest-bearing demand loan with a balance
outstanding of $115,000 (June 30, 2017 - $115,000).
These transactions are in the
normal course of operations and are measured at the exchange amount of
consideration established and agreed to by the related parties.
NOTE 9 GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying unaudited
condensed consolidated financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. As of December 31, 2017, the Company had a working capital
deficiency of $6,918,093 (June 30, 2017 - $6,934,640) and an accumulated deficit
of $59,665,886 (June 30, 2017 - $57,683,563). The Company intends to fund
operations through equity financing arrangements, which may be insufficient to
fund its capital expenditures, working capital and other cash requirements for
the next twelve months.
The ability of the Company to
emerge from the exploration stage is dependent upon, among other things,
obtaining additional financing to continue operations, explore and develop the
mineral properties and the discovery, development and sale of ore reserves.
In response to these problems,
management intends to raise additional funds through public or private placement
offerings.
These factors, among others,
raise substantial doubt about the Companys ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Employment Agreements
On January 12, 2014, the Company
entered into an employment agreement with a director and officer. Commencing on
January 12, 2014, the director and officer will be employed for 24 months ending
on January 12, 2016. Pursuant to the agreement, annual salary of US$120,000 is
payable monthly in cash or if the Company does not have available cash, in
shares of the Companys common stock. The Company is currently in the process of
renewing this agreement.
Lease Commitment
On May 25, 2016, the Company
entered into a sublease agreement for a term of twelve months and expired on May
30, 2017. The sublease agreement is on a month-to-month basis for $1,199 per
month beginning June 1, 2017.
31
Litigation
On March 22, 2017, our
wholly-owned subsidiary, Black Box Energy, Inc. (BBE), filed a complaint in
the Superior Court of the State of Arizona (Maricopa County) against PetroChase,
Inc., Warren County PC#1, LLC, Stephen R. Moore and Sheree Moore, as well as
certain unidentified, predecessor and success corporations, parent corporations
or subsidiaries of the defendants (collectively the Defendants).
In 2016 the Defendant, Stephen R.
Moore, on behalf of PetroChase, solicited investment from our Company to
subscribe to a 50% (of 70%) working interest in the McKean County Project wells.
On September 9, 2016, BBE entered into a letter agreement with PetroChase to
acquire a 50% (of 70%) working interest in the wells, in addition access to the
wells for the purposes of the developing our mechanical ultrasound technology
for use in water purification. BBE paid $250,000 to PetroChase in consideration
of the rights granted, which funds were to be used for costs associated with
development of the wells. Drilling of the wells was to be commenced within a
reasonable time and was to continue until all the wells were completed. To date,
drilling of the wells has not been completed.
The complaint seeks a return of
the $250,000 for breach of the letter agreement, treble damages ($750,000 in the
aggregate), plus attorneys fees, costs, and punitive damages. The Company has
engaged legal counsel and intends to respond to the complaint with an answer or
motion in due course.
From time to time we may be a
defendant and plaintiff in various other legal proceedings arising in the normal
course of our business. Except as disclosed above, we are currently not a party
to any material legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, we are not aware
of any known litigation or liabilities involving the operators of our properties
that could affect our operations. Furthermore, as of the date of this Quarterly
Report, our management is not aware of any proceedings to which any of our
directors, officers, or affiliates, or any associate of any such director,
officer, affiliate, or security holder is a party adverse to our company or has
a material interest adverse to us.
Joint Development and Option Agreement
On April 13, 2017, the Companys
wholly-owned subsidiary, Black Box Energy, Inc. (BBE), entered into a Joint
Development and Option Agreement with White Top Oil & Gas, LLC (White
Top), a Louisiana limited liability company (the White Top Agreement), under
which White Top is the designee to a funding agreement to finance and
participate in the completion of certain oil and gas development, exploration
and operating activities on certain lands located in Sulphur, Louisiana (the
White Top Field). Under the terms of the White Top Agreement, BBE has advanced
approximately $879,620 as of December 31, 2017 to White Top as consideration to
White Top for the option to convert and the right to repayment of payouts for
the necessary capital, overrating, technical, and related support costs
necessary to further develop the White Top Field. White Tops rights to
repayment of the monies received from BBE shall be limited to funding from
certain payouts received under terms agreed by the parties under such joint
development project, as mutually agreed.
Purchase Option
On October 12, 2017, the Company
entered into a Patent Option and Purchase Agreement whereby the Company paid a
non-refundable deposit of $25,000 for a 120-day option to purchase certain
intellectual property from a third-party seller for a total of $100,000. The
Company elected not to exercise the option. Total payments of $33,333 were
including in selling, general and administrative expense for the three and six
months ended December 31, 2017.
NOTE 11 DISCONTINUED OPERATIONS
On September 4, 2015, the Company
entered into an Asset Purchase agreement whereby the Company sells the net
assets of Alta Disposal Morinville Ltd. (of which the Company had acquired 51%
interest on October 18, 2013) for total purchase price of CDN$10,000.
32
Operating results for the six
months ended December 31, 2017 and 2016 for Alta Disposal Morinville Ltd. are
presented as discontinued operations and the assets and liabilities classified
as held for sale are presented separately in the unaudited condensed balance
sheet.
A breakdown of the discontinued
operations is presented as follow:
Consolidated Statements of Operations and Comprehensive Loss
|
|
Three months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
Selling, general and administrative
|
|
(47
|
)
|
|
(49
|
)
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
$
|
(47
|
)
|
$
|
(49
|
)
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
Selling, general and administrative
|
|
(95
|
)
|
|
(80
|
)
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
$
|
(95
|
)
|
$
|
(80
|
)
|
Consolidated Balance Sheets
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,057
|
|
$
|
1,115
|
|
Receivable, net
|
|
674
|
|
|
652
|
|
Prepaid expenses
|
|
1,885
|
|
|
1,824
|
|
GST Receivable
|
|
16,800
|
|
|
16,260
|
|
|
|
|
|
|
|
|
|
$
|
20,416
|
|
$
|
19,852
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
$
|
6,643
|
|
$
|
6,429
|
|
NOTE 12 SETTLEMENTS
Debt Settlements and Class C Preferred Shares
Effective August 11, 2017, the
Company entered into a Debt Settlement Agreement with each Blue Citi, LLC (Blue
Citi) and Concord Holding Group, LLC (Concord). On August 11, 2017, the
Company was indebted to Blue Citi and Concord in the aggregate principal amounts
of approximately $2,400,000 and $1,700,000, respectively (exclusive of accrued
interest and penalties), pursuant to various convertible promissory notes issued
to Blue Citi and Concord between March, 2014 and June, 2017. Pursuant to the
Debt Settlement Agreements, each Blue Citi and Concord has agreed to
indefinitely forbear from enforcing its rights pursuant to the promissory notes.
In consideration, the Company has issued to each Blue Citi and Concord warrants
to purchase up to $400,000 in shares of our common stock ($800,000 in the aggregate), with
50% of the warrants exercisable at $0.50 per share, and 50% exercisable at $0.70
per share. The warrants are exercisable until August 11, 2022 and may also be
exercised on a cashless basis. In the event that the closing price of the
Companys common stock falls to $0.10 or less for a period of 3 days during the
warrant exercise period, the exercise price of the $0.50 per share warrants
shall adjust to 300% of the lowest trading price during such 3-day period, and
the exercise price of the $0.70 warrants will adjust to 400% of the lowest
trading during the 3-day period. As additional consideration for the issuance of
securities to Blue Citi and Concord, promissory notes held by them that were
convertible into the Companys common stock at 50% discount to market price will
instead be subject to a 25% discount to market price. The fair value of the
warrants upon issuance on August 11, 2017 was approximately $190,842 in
aggregate. Total amortization expense related to these warrants was $43,723 and $67,682, respectively, for the three and six months ended December 31, 2017, leaving an unamortized balance of $123,161 as of December 31, 2017.
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On August 3, 2017, the Company
entered into a debt settlement subscription agreement with a creditor for
settlement of amounts owed relating to an outstanding convertible note in the
principal amount of $708,000, with $49,347 of accrued interest. In lieu of
receiving cash as payment, the creditor has agreed to accept 350,000 Class C
Convertible Preferred Shares of the Company as payment of the indebtedness,
pursuant to the terms of the settlement agreement. Thereafter, on August 23,
2017, Company issued an aggregate of 350,000 Class C Convertible Preferred
Shares at the deemed price of $2.02 per share. The Company has issued all of the
shares to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933), relying on Rule 506 promulgated under Regulation D of
the Securities Act of 1933, as amended.
On January 11, 2018, the Company
entered into a Debt Settlement Agreement with a notes holder, whereby the
Company agreed to pay $25,000, plus $99,996 in common stock, payable in
installments through May 1, 2018, to settle a convertible note dated February 6.
2015, resulting in a loss on extinguishment of liability of $108,860 for the six
months ended December 31, 2017. The transaction is considered as debt
extinguishment for accounting purposes. The derivative liability associated with
the debt totaling $4,696 increased to $143,801 as of December 31, 2017 as a
result of this agreement.
NOTE 13 SUBSEQUENT EVENTS
Convertible Secured Redeemable Notes
In January 2018, the Company issued an
aggregate of $143,000 of Convertible Promissory Notes that mature in various
dates from January 2019 to January 2020, resulting in cash proceeds totaling
$125,000. These notes bear 10% interest per annum and the Holder of this Note is
entitled, at its option, at any time, to convert all or any amount of the
principal face amount of this Note then outstanding into shares of the Company's
common stock at the lesser of $1.00 per share or at a price equal to 25% of the
lowest trading price of the Common Stock as reported on the OTC Markets for the
twenty prior trading days including the day upon which a Notice of Conversion is
received.
In January and February 2018, the
Company issued 9,328,567 common shares at deemed prices ranging from $0.02325 to
$0.0450 per share upon conversion of the convertible promissory notes and
accrued interest, valued at $343,418.
In January 2018, the Company issued
10,305 round up shares to existing shareholders as a result of the Company's
reverse split that was effective in December 2017.
On January 8, 2018, the Company
executed a consulting agreement for advisory services on a month-to-month basis
at a rate of $5,000 per month commencing January 8, 2018.
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