We have audited the accompanying consolidated balance sheets of AppYea, Inc. and its subsidiaries (collectively, the “Company”) as of June 30, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
1. NATURE OF OPERATIONS
AppYea, Inc. ("AppYea", "the Company", "we" or "us") was incorporated in the State of South Dakota on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is in the development stage with no significant revenues and a limited operating history.
The Company incorporated a wholly-owned subsidiary, “AppYea Holdings, Inc.” in state of South Dakota on January 13, 2017 and "The Diagnostic Centers Inc." in State of South Dakota on August 2, 2017.
Through its wholly owned subsidiary, The Diagnostic Centers, Inc., AppYea markets comprehensive diagnostic testing services to physician offices, clinics, hospitals, long term care facilities, healthcare groups, and other healthcare providers.
The Company's common stock is traded on the OTC Markets (www.otcmarkets.com) under the symbol "APYP". The first day of trading on the OTC Markets was December 15, 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company's year-end is June 30.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of AppYea and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents.
Fixed Assets
The Company's fixed assets represent mobile applications that is has purchased and upgrades that it has made to these applications. These mobile applications and any upgrades are being amortized over their useful lives of 3 years. The Company also purchased a pre-owned vehicle. Due to the age of the vehicle, it is being depreciated over the useful life of 3 years.
Long-Lived Assets
The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended June 30, 2018 and 2017, no impairment losses have been identified.
Stock-based Compensation
ASC 718 "Compensation – Stock Compensation," prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, "Equity – Based Payments to Non-Employees." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Related Parties
The Company follows ASC 850, "Related Party Disclosures," for the identification of related parties and disclosure of related party transactions. See note 11.
Financial Instruments and Fair Value Measurements
As defined in ASC 820” Fair Value Measurements,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The following table summarizes fair value measurements by level at June 30, 2018 and 2017, measured at fair value on a recurring basis:
June 30, 2018
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,016,865
|
|
|
$
|
1,016,865
|
|
June 30, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
114,316
|
|
|
$
|
114,316
|
|
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Revenue Recognition
The Company generates it revenue from the sale of its mobile software applications through online mobile applications stores and revenue form marketing services on behalf of the Cedar Creek labs Series Two LLC. Revenue is recognized in accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition", when the following criteria are met: persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. The Company has no remaining obligation to customers after the date on which its customers purchase its mobile software applications.
Equity Method Investment
The Company owns membership interests of 5% in Cedar Creek Labs Series Two LLC. The Company accounts for its interest in this entity using the equity method. The Company’s investment in this entity was $25,000 at June 30, 2018. Under the equity method of accounting, the Company records the investment at cost. The Company’s investment in the entity is increased by additional contributions to the entity as well as its proportionate share of earnings in the entity. Conversely, the Company’s investment is decreased by distributions made by the Company and by its proportionate share of losses. During the year ended June 30, 2018, the Company recognized loss on Investment in equity method investee of $476. The Company reviewed Cedar Creek Labs Series Two LLC financial condition at June 30, 2018 and concluded that there is a 100% impairment loss related to the Company’s investment, and recorded an impairment loss of $24,524, for the year ended June 30, 2018.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740 "Income Taxes". Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At June 30, 2018 and 2017, a full deferred tax asset valuation allowance has been provided and no deferred tax asset has been recorded.
Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. During the year ended June 30, 2018 and 2017, there were shares of convertible preferred stock outstanding and conversion privileges attached to convertible promissory notes payable. The common share equivalents of these securities have not been included in the calculations of loss per share because such inclusions would have an anti-dilutive effect as the Company has incurred losses during the year ended June 30, 2018 and 2017.
Recent Accounting Pronouncements
In September 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In May 2014, the FASB issued some accounting standards update which modifies the requirements for identifying, allocating, and recognizing revenue related to the achievement of performance conditions under contracts with customers. This update also requires additional disclosure related to the nature, amount, timing, and uncertainty of revenue that is recognized under contracts with customers. This guidance is effective for fiscal and interim periods beginning after December 15, 2017 and is required to be applied retrospectively to all revenue arrangements. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.
3. GOING CONCERN AND LIQUIDITY
At June 30, 2018, the Company had cash of $47,196 and current liabilities of $1,904,064 and had a working capital deficit of $1,856,868 and an accumulated deficit of $6,777,119. The Company anticipates future losses in its business. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.
In our financial statements for the year ended June 30, 2018, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.
4. FIXED ASSETS
As at June 30, 2018 and 2017, the balance of fixed assets represented a vehicle and mobile application software as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Mobile applications
|
|
$
|
257,870
|
|
|
$
|
257,870
|
|
Accumulated depreciation
|
|
|
(250,570
|
)
|
|
|
(218,826
|
)
|
Fixed assets, net
|
|
$
|
7,300
|
|
|
$
|
39,044
|
|
Depreciation expense for the year ended June 30, 2018 and 2017 was $31,744 and $43,600, respectively.
5. CONVERTIBLE LOANS
At June 30, 2018 and 2017, convertible loans consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
March 2015 Note
|
|
$
|
-
|
|
|
$
|
-
|
|
November 2016 Note -1
|
|
|
150,000
|
|
|
|
246,833
|
|
November 2016 Note -2
|
|
|
-
|
|
|
|
4,044
|
|
Convertible notes - Issued in fiscal year 2018
|
|
|
195,614
|
|
|
|
-
|
|
Total convertible notes payable
|
|
|
345,614
|
|
|
|
250,877
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
27,177
|
|
|
|
11,267
|
|
Less: Unamortized debt discount
|
|
|
(81,968
|
)
|
|
|
(87,240
|
)
|
Total convertible notes
|
|
|
290,823
|
|
|
|
174,904
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes
|
|
|
290,823
|
|
|
|
174,904
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the year ended June 30, 2018 and 2017, the Company recognized amortization of discount, included in interest expense, of $320,886 and $27,760, respectively.
Conversion
During the year ended June 30, 2018 and 2017, the Company converted notes with principal amounts and accrued interest of $164,657 into 585,503,747 shares of common stock and $31,600 into 55,305,786 shares of common stock, respectively. The corresponding derivative liability at the date of conversion of $295,541 and $85,614 was credited to additional paid in capital, respectively.
March 2015 Note
On March 13, 2015, the Company issued a $10,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carries an interest rate of 12% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed. Effective March 13, 2015, the Company evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company valued the conversion feature at the issue date (March 13, 2015) at $14,552 using the Black Scholes valuation model. $10,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture. The balance of $4,552 of the value assigned to the derivative liability was expensed on the issue date of the convertible note.
As of June 30, 2018, and 2017, the outstanding principal balance of the note was $0, the note had accrued interest of $454 and an unamortized debt discount of $0.
November 2016 Note 1
On November 15, 2016, the Company entered into four separate agreements with Greentree Financial Group, Inc., consisting of a Financial Advisory Agreement, a Loan Agreement, a Convertible Promissory Note, and a Warrant.
The Loan Agreement allows for the Company to borrow up to $250,000 from Greentree, which will be evidenced by various promissory notes, which will automatically mature 12 months from the date of applicable Note, will accrue interest at a rate of 12% per annum, and will include an original issuance discount (“OID”) of 10%. In addition, the promissory notes will be convertible at a price equal to 55% of the lowest trading price during the 10 trading days immediately prior to a conversion date. The conversion price shall not be lower than $0.0001. Note may not be converted prior to 6 months from its issuance. There is a 10% prepayment penalty associated with each of the promissory notes. Each promissory note conversion shall result in $1,500 being added to the principal of each promissory note converted. An initial promissory note of $100,000 was issued on November 15, 2016.
The warrant issued to Greentree allows for the purchase of up to 5,000,000 shares of the Company’s common stock for a three year period, expiring on November 15, 2019, with an exercise price of $0.03 per share. The warrants also contain a cashless exercise feature, based on a cashless exercise formula.
The Company determined that the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The fair value of the warrants was recorded as a debt discount being amortized to interest expense over the term of the note.
On January 26, 2017 and June 30, 2017, the Company issued convertible note of $75,000 and $75,000 according to the loan agreement on November 15, 2016. Note is currently in default.
During the year ended June 30, 2017, the Company issued a total of $250,000 notes and received $225,000 in cash and recognized OID of $25,000.
During the year ended June 30, 2017, a total of $37,000 note principal was assigned to two lenders under the same term and conversion price.
During the year ended June 30, 2018, a total of $19,000 note principal was assigned to two lenders under the same term and conversion price.
November 2016 Note 2
On November 15, 2016, the Company also issued note of $25,000 for a financial advisory service, which will automatically mature 6 months from the date of applicable Note, will accrue interest at a rate of 12% per annum. In addition, the promissory notes will be convertible at a price equal to 55% of the lowest trading price during the 10 trading days immediately prior to a conversion date. The conversion price shall not be lower than $0.0001. There is a 10% prepayment penalty associated with each of the promissory notes. Each promissory note conversion shall result in $1,500 being added to the principal of each promissory note converted.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the year ended June 30, 2017 amounted to $331,959. $90,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $241,959 was recognized as a “day 1” derivative loss.
During the year ended June 30, 2017, no note principal was assigned.
During the year ended June 30, 2018, a total of $4,044 note principal was assigned to a lender under the same term and conversion price.
Promissory Notes - Issued in fiscal year 2018
During the year ended June 30, 2018, the Company issued a total of $180,614 note with the following terms:
|
·
|
Terms ranging from 6 months to 12 months.
|
|
·
|
Annual interest rates of 5% - 12%.
|
|
·
|
Convertible at the option of the holders at issuance.
|
|
·
|
Conversion prices are typically based on the discounted (35% to 45% discount) average closing prices or lowest trading prices of the Company’s shares during various periods prior to conversion. Certain notes allow for the conversion price to be a floor of $0.0002 per share.
|
|
·
|
Certain note allows the principal amount will increase by $15,000 and the discount rate of conversion price will decrease by 15% if the conversion price is less than $$0.01. As a result, the discount rate of conversion price changed from 45% to 60% and the Company recognized the penalty of $15,000 and recorded principal amount of $15,000.
|
Certain notes allow the Company to redeem the notes at rates ranging from 115% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the note includes original issue discounts and financing costs totaling to $38,447 and the Company received cash of $142,167. Certain convertible notes of $116,666 are currently in default.
On June 25, 2018, the Company entered into and closed a financing transaction with Bellridge Capital L.P. consisting of a Securities Purchase Agreement, a Secured Convertible Promissory Note, and a Warrant.
The Securities Purchase Agreement provides that Bellridge Capital L.P. would receive a Secured Convertible Promissory Note in an amount of $78,947 in exchange for a funding amount of $78,947, and as additional consideration would also receive a Warrant for the purchase of an additional 394,735,000 shares of common stock. The Convertible Promissory Note will accrue interest at a rate of 5% per annum, default interest at a rate of 24% per annum, and will be convertible at a price equal to the lesser of (i) $0.0002, and (ii) the variable conversion price, which is defined as 65% of the lowest daily VWAP in the twenty (20) Trading Days prior to the Conversion Date . The “market price” is defined as the lowest trading price for the common stock during the twenty-five trading day period ending on the last complete trading day prior to the conversion date. The “trading price” is defined as the lowest trade price on the OTC Pink, OTCQB or applicable trading market. Bellridge Capital L.P. shall not be able to convert the promissory notes in an amount that would result in the beneficial ownership of greater than 4.99% of the outstanding shares of the Company, with the exception that the limitation may be waived by Bellridge Capital L.P. with 61 days prior notice. If, at any time when the note is issued and outstanding, the Company sells or issues shares of common stock for no consideration or for a consideration price per share less than the conversion price in effect on the date of such issuance, the conversion price for the note would be reduced to the amount of the consideration per share received by the Company for such dilutive issuance. If the Company prepays the note on or before 90 days following the date of the note, the Company shall be required to pay 115%, multiplied by the sum of the outstanding principal of the note, plus all accrued and unpaid interest and default interest if any. If the Company prepays the note during the period beginning 91 days and ending 180 days from the issue date of the note, the Company shall be required to pay 120% multiplied by the sum of the then outstanding principal amount of the note, plus accrued and unpaid interest and default interest, if any. If the Company prepays the note during the period beginning after 180 days from the issue date of the note, the Company shall be required to pay 125% multiplied by the sum of the then outstanding principal amount of the note, plus accrued and unpaid interest and default interest, if any.
The warrant issued to Bellridge Capital L.P. allows for the purchase of up to 394,735,000 shares of the Company’s common stock for a three-year period with an exercise price of $0.0002 per share. The warrants also contain a cashless exercise feature, based on a cashless exercise formula. In connection with the Secured Promissory Note, the Company entered into a Security Agreement which grants the Debtor a security interest in all of the assets of the Company.
Derivative liabilities
The Company determined that the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The fair value of the warrants was recorded as a debt discount being amortized to interest expense over the term of the note.
The Company valued the conversion features using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the year ended June 30, 2018 amounted to $965,401. $277,167 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $688,234 was recognized as a “day 1” derivative loss.
Warrants
The Company identified conversion features embedded within certain notes and warrants issued during the year ended June 30, 2018. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the conversion price is variable and the Notes include a reset provision which could cause adjustments upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The warrants are exercisable into 42,500,000 and 394,735,000 shares of common stock, for a period of five and three years from issuance, at a price of $0.0005 and $0.0002 per share. As a result of the reset features for 42,500,000 warrant, the warrants increased by 150,681,818 and the total warrants exercisable into 193,181,818 shares of common stock at $0.00011 per share. The reset feature of warrants associated with this convertible note was effective at the time that a separate convertible note with lower exercise price was issued. We accounted for the issuance of the Warrants as a derivative.
A summary of activity during the year ended June 30, 2018 and 2017 follows:
|
|
Warrants Outstanding
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
5,000,000
|
|
|
|
0.03
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, June 30, 2017
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
437,235,000
|
|
|
|
0.0002
|
|
Reset feature
|
|
|
150,681,818
|
|
|
|
0.0001
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, June 30, 2018
|
|
|
592,916,818
|
|
|
$
|
0.0004
|
|
The following table summarizes information relating to outstanding and exercisable warrants as of June 30, 2018:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Number of
|
|
|
Weighted Average
Remaining
|
|
|
Weighted
Average
|
|
|
Number of
|
|
|
Weighted
Average
|
|
Shares
|
|
|
Contractual life (in years)
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
5,000,000
|
|
|
|
1.38
|
|
|
$
|
0.03
|
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
193,181,818
|
|
|
|
4.29
|
|
|
$
|
0.0001
|
|
|
|
193,181,818
|
|
|
$
|
0.0001
|
|
394,735,000
|
|
|
|
2.99
|
|
|
$
|
0.0002
|
|
|
|
394,735,000
|
|
|
$
|
0.0002
|
|
592,916,818
|
|
|
|
3.40
|
|
|
$
|
0.0004
|
|
|
|
592,916,818
|
|
|
$
|
0.0004
|
|
6. CONVERTIBLE LOANS – RELATED PARTY
At June 30, 2018 and 2017, convertible loan – related party consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Convertible notes - related party -Issued in fiscal year 2018
|
|
|
8,333
|
|
|
|
-
|
|
Total convertible notes payable
|
|
|
8,333
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Accrued interest -related party
|
|
|
644
|
|
|
|
-
|
|
Less: Unamortized debt discount - related party
|
|
|
-
|
|
|
|
-
|
|
Total convertible notes
|
|
|
8,977
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes - related party
|
|
|
8,977
|
|
|
|
-
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the year ended June 30, 2018 and 2017, the Company recognized amortization of discount, included in interest expense, of $8,333 and $0, respectively.
Promissory Notes - Issued in fiscal year 2018
During the year ended June 30, 2018, the Company issued a total of $8,333 note with the following terms:
|
·
|
Terms of 6 months.
|
|
·
|
Annual interest rates of 8%.
|
|
·
|
Convertible at the option of the holders at issuance.
|
|
·
|
Conversion prices are typically based on the discounted (45% discount) average closing prices of the Company’s shares during 20 days prior to conversion.
|
The Company received cash of $8,333. Note is currently in default.
The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible, including the notes issued in prior years, during the nine months ended March 31, 2018 amounted to $9,371. $8,333 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,038 was recognized as a “day 1” derivative loss.
7. DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
Fair Value Assumptions Used in Accounting for Derivative Liabilities.
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.
For the year ended June 30, 2018 and 2017, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Expected term
|
|
0.04 - 5.00 years
|
|
|
0.38 - 2.38 years
|
|
Expected average volatility
|
|
147%-488%
|
|
|
235%-288%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
0.96%-2.73%
|
|
|
1.14%-1.38%
|
|
The following table summarizes the changes in the derivative liabilities during the year ended June 30, 2018 and 2017:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
|
|
|
|
Balance - June 30, 2016
|
|
$
|
1,452
|
|
Addition of new derivative recognized as debt discounts
|
|
|
90,000
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
241,959
|
|
Settled on issuance of common stock
|
|
|
(85,614
|
)
|
Gain on change in fair value of the derivative
|
|
|
(133,481
|
)
|
Balance - June 30, 2017
|
|
$
|
114,316
|
|
|
|
|
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
285,500
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
689,272
|
|
Settled on issuance of common stock
|
|
|
(295,541
|
)
|
Loss on change in fair value of the derivative
|
|
|
223,318
|
|
Balance - June 30, 2018
|
|
$
|
1,016,865
|
|
The aggregate loss on derivatives during the year ended June 30, 2018 and 2017 was $912,590 and $108,478, respectively.
9. COMMITMENTS AND CONTINGENCIES
Leases and Long term Contracts
The Company has not entered into any long-term leases, contracts or commitments.
Legal
To the best of the Company's knowledge and belief, no legal proceedings are currently pending or threatened.
During fiscal year 2017, the Company entered into discussions regarding a proposed merger with Decision Diagnostics Corporation (“DECN”) and entered into a Preliminary Agreement Leading to a Triangular Merger (“Merger Agreement”). The Company determined that the Merger Agreement was not in the best interest of its Shareholders and terminated the Merger Agreement. In order to resolve any potential disputes or claims, the Company entered into a Settlement Agreement and Release (“Settlement”).
DECN shall forever release and discharge, any and all claims or demands, of any type or description, whether known or unknown, that have been asserted or could have been asserted against the Company and shall further forever release and discharge the Company, from any and all claims, demands, causes of action, and liabilities of any kind whatsoever (upon any legal or equitable theory, whether contractual, common-law, statutory, federal, state, local, or otherwise) (collectively the “Claims”), arising by reason of any act, omission, transaction or occurrence which DECN ever had or now has against the Company existing on, after, or prior to the execution date of the Settlement Agreement. DECN further agrees to indemnify the Company to the fullest extent of the law with respect to any violation by DECN of the releases and discharges given hereunder.
According to the Settlement, the Company issued 75,000,000 shares of common stock in October 2017. During the year ended June 30, 2018, the Company recorded settlement expense of $67,500.
Agreements
In December 2016, the Company entered into a contract agreement with M Endeavors, LLC for marketing the services to Doctors office, clinic and hospitals for the term of 5 years. The Agreements shall automatically renew for successive 12-month periods unless otherwise terminated in accordance with the terms of this Agreement. The Company pays a monthly fee of $8,000 and expenses related to this contract. As of June 30, 2018, and 2017, the Company recorded accrued expenses of $75,000 and $7,900, respectively.
In December 2016, the Company entered into a contract agreement with Big Dreams ventures, LLC for marketing the services to Doctors office, clinic and hospitals for the term of 5 years. The Agreement shall automatically renew for successive 12-month periods unless otherwise terminated in accordance with the terms of this Agreement. The Company pays a monthly fee of $10,000 and expenses related to this contract. As of June 30, 2018, and 2017, the Company recorded accrued expenses of $--105,250 and $7,150, respectively.
On October 2, 2017, the Company entered into an agreement with Pacific Pain & Regenerative Medicine. The Company pays $3,000 per month for a collector in exchange for a minimum of 5 PGX tests per week or 20 per month. As of June 30, 2018, and 2017, the Company recorded accrued expense of $21,000 and $0, respectively.
On October 17, 2017, the Company entered into an agreement of the acquisition financing of up to $30,000,000 (“the “Placement’) with Wellington Shields $ Co. The Company shall pay (i) a success fee equal to 8% of the gross proceeds of the Placement, (ii) 3% of the total Company’s shares outstanding at the time of closing the placement, and (iii) pays $15,000 at the time of signing and $10,000 per month. This engagement agreement terminated at the close of business April 30, 2018. As of June 30, 2018, and 2017, the Company recorded accrued expense of $60,000 and $0, respectively.
Rent
As of January 30, 2013, the Company leases office space at $200 per month with three-month terms, which shall be automatically extended for successive three-month periods unless there is the notice to cancel. The lease can be cancelled at any time by either party with 30 days’ notice prior to expiration of an applicable term. For the years ended June 30, 2018 and 2017, the Company incurred $2,484 and $2,426, respectively.
10. SHAREHOLDERS' EQUITY
Amendment to Articles of Incorporation or Bylaws
On February 15, 2018, the Company filed a Certificate of Amendment with the state of South Dakota, to the Company’s Articles of Incorporation, to increase in the number of authorized shares of its common stock from 1,500,000,000 to 6,000,000,000, par value $0.0001 and to increase the number of authorized Series A Preferred Stock from 5,000,000 to 60,000,000, par value $0.0001.
Convertible Preferred Stock
The Company is authorized to issue 60,000,000 shares of convertible preferred stock at a par value of $0.0001.
Each convertible preferred share is convertible into 1,500 shares of common stock and has the voting rights of 1,000 shares of common stock.
As at June 30, 2018 and 2017, 5,000,000 shares of the Company's convertible preferred stock were issued and outstanding.
Common Stock
The Company is authorized to issue 6,000,000,000 shares of common stock at a par value of $0.0001.
During the year ended June 30, 2018, the Company issued common shares as follows;
|
·
|
an aggregate of 585,503,747 common shares were issued for the conversion of debt and accrued interest of $164,657, and released derivative liabilities of $295,541 to paid-in capital
|
|
·
|
30,000,000 common shares were issued for cash of $200 and reduction in common stock payable of $57,273
|
|
·
|
75,000,000 common shares were issued with a fair value of $67,500 according to the settlement (Note9).
|
|
·
|
30,000,000 common shares were issued with a fair value of $17,000 for consulting services
|
During the year ended June 30, 2017, an aggregate of 55,305,786 common shares were issued for the conversion of debt and accrued interest of $31,600 and released derivative liabilities of $85,614 to paid-in capital.
As at June 30, 2018 and 2017, 1,240,477,060 and 519,973,313 shares of the Company's common stock were issued and outstanding, respectively.
Stock payable
The Company had insufficient authorized shares as of June 30, 2017 and as a result, the Company had $105,000 in stock payable for which it is obligated to issue 55,000,000 shares of common stock for consulting services. During the year ended June 30, 2018 the company issued 30,000,000 common shares for cash of $200 and reduced common stock payable by $57,273.
As of June 30, 2018, the Company had $47,727 in stock payable for which it is obligated to issue 25,000,000 shares of common stock for consulting services.
On November 13, 2017, the Company entered into a consulting agreement with a third party for the term of 5 years with a consideration of an issuance of 40,000,000 shares of common stock valued at $20,000. The share shall be issued in two tranches with first tranche of 10,000,000 shares being due at signing of this agreement and an additional 30,000,000 shares are due on the 3 months anniversary of this agreement. During the year ended June 30, 2018, the Company issued 10,000,000 shares with a fair value of $5,000. As of June 30, 2018, the Company had $15,000 in stock payable for which it is obligated to issue 30,000,000 shares of common stock for consulting services.
11. RELATED PARTY TRANSACTIONS
In March 2016, the Company appointed current CEO and approved a base compensation package of $8,000 per month for CEO. The President of the Company provided management and office premises to the Company for no compensation in 2015. As of June 30, 2018, and 2017, the Company recorded accrued salary of $224,000 and $128,000, respectively.
During the year ended June 30, 2018 and 2017, the Company borrowed a total amount of $21,098 and $98,517 from Evergreen Venture Partners LLC (“EVP”), which the CEO is the majority owner, and repaid $6,618 and $24,909, respectively. This loan is a non-interest bearing and due on demand. As of June 30, 2018 and 2017, the Company owed EVP, a related party $88,087 and $73,608, respectively.
On November 15, 2017, the Company entered into a distribution agreement with Cedar Creek Labs Series Two LLC (“LLC”) for the term of 1 year. The agreement shall be automatically extended for successive 1 year unless there is the notice to terminate. The Company shall use best efforts to market the Products for the LLC and will receive compensation ranging from 15% to 40% of profit. The Company owns membership interests of 5% in LLC and the transactions between the Company and LLC which is an equity method investee are deemed to be between related parties. During the year ended June 30, 2018, the Company recorded revenue – related party of $2,900 and collected accounts receivable – related party of $2,900.
12. INCOME TAXES
The Company follows ASC 740. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has completed the accounting for the effects of the Act during the year ended June 30, 2018. The Company’s financial statements for the year ended June 30, 2018 reflect certain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes.
The provision for refundable federal income tax at 35% consists of the following for the periods ending:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Federal income tax benefit attributed to:
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
219,755
|
|
|
$
|
160,587
|
|
Valuation
|
|
|
(219,755
|
)
|
|
|
(160,587
|
)
|
Net benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
The cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax attributed:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
556,689
|
|
|
$
|
336,934
|
|
Effect of change in the statutory rate
|
|
|
(222,676
|
)
|
|
|
-
|
|
Less: change in valuation allowance
|
|
|
(334,013
|
)
|
|
|
(336,934
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As at June 30, 2018, the Company had an unused net operating loss (“NOL”) carry-forward of approximating $1,590,540 that is available to offset future taxable income; the loss carry-forward will start to expire in 2033. The utilization of these NOLs may become subject to limitations based on past and future changes in ownership of the Company pursuant to Internal Revenue Code Section 382.
Income taxes for the years ended 2012 through 2018, remain subject to examination.