NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION
Golden Matrix Group, Inc. (“GMGI” or the “Company”), a Nevada corporation, formed on June 4, 2008, under the name Ibex Resources Corp., has a global presence with offices in Las Vegas Nevada and Sydney Australia. GMGI’s sophisticated social gaming software supports multiple languages including English and Chinese.
The accompanying consolidated financial statements of GMGI include the accounts of GMGI and its wholly-owned subsidiary, companies IRC Exploration Ltd., (‘IRC”) a company incorporated in Alberta, Canada on August 1, 2008; Northern Bonanza Inc., (‘NBI”) a company incorporated in Ontario, Canada on June 30, 2010; Source Bonanza LLC, (“SB”) a Limited Liability Company incorporated in Nevada, USA on June 18, 2010; and Vulture Gold LLC (“Vulture”), a Nevada Limited Liability Company which was acquired on August 7, 2010, and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. All intercompany balances have been eliminated.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements of GMGI have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses from operations and had a net working capital deficit of $1,341,303 at July 31, 2018. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for GMGI to continue as a going concern. GMGI’s management plans on raising cash from public or private debt or equity financing, on an as needed basis, and in the longer term, revenues from the gambling business. GMGI’s ability to continue as a going concern is dependent on these additional cash financings, and ultimately upon achieving profitable operations through the development of its online gaming business.
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of July 31, 2018 and 2017, there were no allowances for doubtful accounts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Derivative Instruments
We review the terms of the common stock, warrants and convertible debt we issue to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any are then allocated to the host instruments themselves, usually resulting in those instruments being recorded as a discount from their face value.
Derivatives are measured at their fair value on the balance sheet. Changes in fair value are recorded in the statement of operation.
Intangible Assets
Intangible assets consist of expenditures for domain names and certain intellectual properties acquired for an online horse racing product the Company is developing. The intangible assets are recorded at cost and amortized over its estimated useful life of 3 years.
Contingent Liabilities
We record contingent liabilities when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions quarterly and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Long Lived
Assets
Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.
Debt Discount
Debt discount is amortized over the term of the related debt using the effective interest rate method.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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·
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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·
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.
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Our financial instruments include cash, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term nature. The derivative liabilities are stated at their fair value as a level 3 measurement. The Company used a Black-Scholes model to determine the fair values of these derivative liabilities.
Stock-Based Compensation
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is typically the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Earnings (Loss) Per Common Share
Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.
The following is a reconciliation of basic and diluted earnings (loss) per common share for 2018 and 2017:
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For the Years Ended
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July 31,
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2018
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2017
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Basic earnings (loss) per common share
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Numerator:
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Net income (loss) available to common shareholders
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$
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(1,318,373
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)
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$
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1,801,080
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Denominator:
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Weighted average common shares outstanding
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1,159,457,924
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49,825,902
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Basic earnings (loss) per common share
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$
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(0.00
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)
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$
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0.04
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Diluted earnings (loss) per common share
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Numerator:
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Net income (loss) available to common shareholders
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$
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(1,318,373
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)
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$
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1,801,080
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Denominator:
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Weighted average common shares outstanding
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1,159,457,924
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49,825,902
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Preferred shares
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-
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1,000
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Convertible Debt
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-
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1,752,202,561
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Adjusted weighted average common shares outstanding
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1,159,457,924
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1,802,029,463
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Diluted earnings (loss) per common share
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$
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(0.00
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)
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$
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0.00
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For the year ended July 31, 2018 the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Revenues
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable, which is in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605,
Revenue Recognition
. According to Topic 605,
Revenue Recognition
, our company recognize revenue with the following steps:
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1.
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Step 1: Identify the contract with a customer.
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2.
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Step 2: Identify the separate performance obligations in the contract.
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3.
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Step 3: Determine the transaction price.
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4.
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Step 4: Allocate the transaction price to the separate performance obligations in the contract.
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5.
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Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
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Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Subsequent Events
GMGI evaluated subsequent events through the date these financial statements were issued for disclosure purposes.
Recently Issued Accounting Standards
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the updates is permitted. Management is currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.
In July 2017, the FASB issued Accounting Standards update (“ASU”) 2017-11, Earning Per share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II, of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception.
On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB’s Emerging Issues Force (the “Task Force”). The new standard requires that the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. AUS No. 2016-18 is effective for public business entities for fiscal years beginning after December 15, 2017. The Company does not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 4 - ACCOUNTS RECEIVABLE-RELATED PARTY
Accounts receivable-related party are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The company has account receivable-related party, $262,288 and $62,500 in year 2018 and 2017 respectively.
NOTE 5 - INTANGIBLE ASSETS
On February 22, 2016 the Company entered into a Know-How and Asset Purchase Agreement with Luxor Capital, LLC, whereby the Company acquired Gaming IP and know-how. The purchase price for these assets consisted of a convertible note in the amount of $ 2,874,712, included $2,374,712 payable to Luxor Capital, LLC and 1,666,667 shares of the Company’s common stock. During the year ended July 31, 2016, management evaluated the carrying value on the intellectual property and recorded an impairment of $2,874,712 due to uncertain recoverability.
NOTE 6 - NOTES PAYABLE
Convertible notes payable
Convertible notes payable at July 31, 2018 and 2017 consisted of the following:
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July 31,
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July 31,
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2018
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2017
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Convertible Note #2
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30,000
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30,000
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Convertible Note #31- in default
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-
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9,550
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Convertible Note #42 - in default
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-
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430
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Convertible Note #44 - in default
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-
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4,400
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Convertible Note #45 - in default
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-
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28,285
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Convertible Note #46 - in default
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1,930
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33,000
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Convertible Note #59 - in default
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10,000
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10,000
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Convertible Note #68 - Related party - in default
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495,712
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795,712
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Convertible Note #69
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-
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33,810
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Convertible Note #69
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-
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-
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Notes payable, principal
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$
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537,642
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$
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945,187
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Debt discount
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-
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(12,035
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)
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Total notes payable, net of discount
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$
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30,000
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$
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51,775
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Total notes payable, net of discount - in default
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$
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507,642
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$
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881,377
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Convertible Note #2
On March 19, 2012, the Company received $30,000 cash from the issuance of a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand. As of July 31, 2018 and 2017, principal of this note was $30,000 and $30,000, respectively.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 2,000 common shares of the Company.
The Company determined that this Promissory note should be accounted for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion Features". The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (per share being $0.08), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. As of July 31, 2018, debt discount balance $0 was recorded.
Convertible Note #31
On March 17, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $26,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 17, 2015. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $42,734 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on March 17, 2015.
During the year ended July 31, 2018, the Company issued 71,464,540 shares of common stock for the conversion of this note in the amount of $9,550. As of July 31, 2018 and 2017, principal of this note was $0 and $9,550, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $9,550, respectively. As of July 31, 2018, the note has been fully converted.
Convertible Note #42
On June 6, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 6, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 60% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $33,550 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on June 6, 2015.
On October 24, 2017, the Company agreed to settle a dispute regarding a claim by the note holder that GMGI was liable for damages and penalty interest. In this settlement the Company agreed to issue 19,166,672 shares and remit $5,000 in final settlement of all interest and any damages claimed. The Company recorded a gain on extinguishment of debt $814. This includes the settlement of Promissory Note #44, below.
During the year ended July 31, 2018, the Company issued 19,166,672 common shares upon the settlement agreement. As of July 31, 2018 and 2017, principal balance of this note was $0 and $286, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $25,119, respectively. As of July 31, 2018, the note has been fully converted.
Convertible Note #44
On July 2, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $25,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 6, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 60% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $40,725 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on June 6, 2015.
On October 24, 2017, the Company agreed to settle a dispute regarding a claim by the note holder that GMGI was liable for damages and penalty interest. In this settlement the Company agreed to issue 19,166,672 shares and remit $5,000 in final settlement of all interest and any damages claimed. The Company recorded a gain on extinguishment of debt $814. The Company recorded a gain on extinguishment of debt $814.
During the year ended July 31, 2018, the Company issued 49,667,010 common shares upon the conversion of $10,399 in principal and $2,686 in interest.. As of July 31, 2018 and 2017, principal balance of this note was $0 and $4,400, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $44,999, respectively. As of July 31, 2018, the note has been fully converted.
Convertible Note #45
On July 9, 2014, the Company arranged a debt swap under which Syndication Capital Note #20 for $75,000 was transferred to LG Capital Funding, LLC. The promissory note is unsecured, bears interest at 8% per annum and matures on July 9, 2015. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $202,937 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on July 9, 2015.
On May 24, 2018, the Company entered into Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with LG Capital Funding LLC (“LG”) whereby the parties agreed to release each other from any, and all liabilities relating to the Convertible Promissory Note. In this Settlement Agreement, the Company agreed to pay out the remaining balance of the note totaling $48,604.
As of July 31, 2018 and 2017, principal balance of this note was $0 and $28,285, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $50,912, respectively. As of July 31, 2018, settlement payable on this note was $9,302.
Convertible Note #46
On July 9, 2014, the Company received funding pursuant to a convertible promissory note in the amount of $33,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 9, 2015. Any principal amount not paid by the maturity date bears interest at 16% per annum. The holder has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing prices during the ten trading days prior to the conversion date.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $130,556 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. Debt discount of the note was amortized to $0 on July 9, 2015.
As of July 31, 2018 and 2017 the company issued 418,804,867 common shares upon the conversion of $31,070 in principle and $15,058 in interest. The principal balance of this note was $1,930 and $33,000, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $1,930 and $59,400, respectively. This note is currently in default and has a default interest rate of 16% per annum.
Convertible Note #59
On July 31, 2015 the Company entered into a Convertible Promissory Note with Direct Capital Group, Inc. in the sum of $240,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 31, 2016. Any principal amount not paid by the maturity date bears interest at 22% per annum.
On April 26, 2016, $50,000 was reassigned to Blackbridge Capital, LLC (“Blackbridge”). Blackbridge failed to meet terms of the Assignment and Assumption and were therefore in default of their obligations. The Company took legal advice regarding the breach of Blackbridge Capital LLC’s obligations. On the June 2, 2016, the Company’s legal counsel, wrote to Blackbridge Capital advising them of the breach and also that the Company had cancelled the remaining balance on the note. The Company recorded a gain on extinguishment of debt $47,151.
On July 21, 2016, $25,000 was reassigned to Istvan Elek. At any time the note may be converted at the option of the holder into Common stock of the Company. The conversion price is 50% of the market price, where market price is defined as “the lowest closing price on any day with a fifteen day look back”.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
On July 31, 2015, interest expense relating to the beneficial conversion feature of this convertible note of $0 was recorded in the financial statements, with a corresponding increase to additional paid in capital.
On September 22, 2016, the Company entered into a Cancellation and Release Agreement with Direct Capital Group, Inc. (“Direct”). In terms of Cancellation and Release Agreement Direct agreed to cancel the convertible promissory note with the Company totaling $183,157. In consideration for the cancellation of the convertible promissory notes and in terms of the Asset Purchase Agreement dated February 22, 2016, the Company has agreed to transfer ownership of mining claims held in the Company’s name. It was also agreed by both the Company and Direct that Direct shall release all future claims to subsequent conversions of the Notes and the Company will have no further obligation to Direct under those Convertible Notes and Direct shall be forever barred from seeking further conversions or claiming obligations of the Company under the Convertible Notes. The Company recorded a gain on extinguishment of debt of $165,000 related to the agreement.
As of July 31, 2018 and 2017, derivative liability of this note was $10,000 and $20,000, respectively. As of July 31, 2018 and 2017, principal balance of this note was $10,000 and $10,000, respectively.
Convertible Note #68
On March 1, 2016 the Company entered into a convertible promissory note with Luxor Capital, LLC (“Luxor”) in the amount of $2,374,712. The promissory note is unsecured, bears interest at 6% per annum, and matures on March 1, 2017, and this note is currently in default.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $1,662,243 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the year ended July 31, 2017, $277,799 amortization of debt discount expense on this note was recorded. As of July 31 2018 and 2017, debt discount of this note was $0 and $277,799, respectively.
During the year ended July 31, 2018, the Company issued 250,000,000 common shares upon the conversion of $300,000 in principal. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $0, respectively. As of July 31, 2018 and 2017, principal balance of this note was $495,712 and $795,712, respectively. This note is currently in default. The default had no effect on the note’s interest rate.
Convertible Note #69
On January 11, 2017 the Company entered into a convertible promissory note with Power Up Lending Group Ltd (“Power Up”) in the amount of $38,000. The promissory note bears interest at 8% per annum, and matures on October 28, 2017. Any principal amount not paid by the maturity date bears interest at 22% per annum.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $61,883 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the year ended July 31, 2017, $25,965 amortization of debt discount expense was recorded on this note. As of July 2018 and 2017, debt discount of this note was $0 and $12,035, respectively.
During the year ended July 31, 2018, the Company issued 138,259,443 common shares upon the conversion of $33,810 in principal, $1,906 in interest and $1,600 in stock payable. As of July 31, 2018 and 2017, principal balance of this note was $0 and $33,810, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $42,124, respectively.
Convertible Note #70
On September 7, 2017 the Company entered into a convertible promissory note with Power Up Lending Group Ltd (“Power Up”) in the amount of $38,000. The promissory note bears interest at 8% per annum, and matures on June 15, 2018. Any principal amount not paid by the maturity date bears interest at 22% per annum.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $67,041 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. During the year ended July 31, 2018, $38,000 amortization expense of debt discount was recorded on this note. As of July 31, 2018, debt discount of this note was $0.
During the year ended July 31, 2018, the Company issued 368,050,596 common shares upon the conversion of $38,000 in principal, $1,520 in interest. As of July 31, 2018 and 2017, principal balance of this note was $0 and $0, respectively. As of July 31, 2018 and 2017, derivative liability of this note was $0 and $0, respectively. As of July 31, 2018, this note has been fully converted.
Debt Discount
The table below presents the changes of the debt discount during the years ended July 31, 2018 and 2017:
|
|
Amount
2018
|
|
|
Amount
2017
|
|
|
|
|
|
|
|
|
July 31,
|
|
$
|
12,034
|
|
|
$
|
277,798
|
|
Additions
|
|
|
66,227
|
|
|
|
38,000
|
|
Amortization
|
|
|
(78,261
|
)
|
|
|
(303,764
|
)
|
July 31,
|
|
$
|
-
|
|
|
|
12,034
|
|
Loans from shareholders
During the year ended July 31, 2016 and, the Company received a loan of $1,000 from its officer to open a new bank account. As of July 31, 2018, the balance of the loan was $1,000. The loan form the officers are due on demand, unsecured with no interest.
NOTE 7 - DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE
Due to the conversion features contained in the convertible notes issued, the actual number of shares of common stock that would be required if a conversion of the notes as further described in Note 6 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.
During the year July 31, 2018 and 2017, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $95,266 and $61,883 respectively. The Company remeasured the fair value of the instruments as of July 31, 2018 and 2017, and recorded an unrealized loss of $165,514 and a gain of $1,611,153 for the years ended July 31, 2018 and 2017, respectively. The Company recorded a loss on settlement of derivative liability of $160,440 and $0 as of July 31, 2018 and 2017, respectively. As of July 31, 2018 and 2017, the derivative liability associated with the note conversion features were $11,930 and $136,177, respectively.
These derivative liabilities have been measured in accordance with fair value measurements, as defined by ASC 820. The valuation assumptions are classified within Level 1 and Level 2 inputs. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:
|
|
2018
|
|
|
2017
|
|
Fair value at July 31,
|
|
|
136,177
|
|
|
|
1,939,753
|
|
Initial recognition of derivative liability
|
|
|
95,266
|
|
|
|
61,883
|
|
Conversion of derivative liability
|
|
|
(224,587
|
)
|
|
|
(254,306
|
)
|
Market-to-Market adjustment to fair value
|
|
|
165,514
|
|
|
|
(1,611,153
|
)
|
Loss on settlement agreement
|
|
|
(160,440
|
)
|
|
|
-
|
|
Fair value at July 31,
|
|
$
|
11,930
|
|
|
|
136,177
|
|
NOTE 8 - RELATED PARTY TRANSACTIONS
All related party transactions have been recorded at the exchange value which was the amount of consideration established and agreed to by the related parties.
On February 22, 2016, the Company entered into an Asset Purchase Agreement with Luxor Capital, LLC, which is wholly owned by Anthony Goodman, CEO of the Company. The Company purchased a Certain Gaming IP, along with the “know how” of that Gaming IP from Luxor. Pursuant to the Asset Purchase Agreement, 11,112 shares of common stock have been issued to Luxor Capital, LLC and its designed party.
On February 22, 2016, the Company entered into a Consulting Service Agreement with its Chief Executive Officer, Anthony Goodman. Pursuant to the Agreement, the consulting fee could be settled in shares. During the year ended July 31, 2018, the Company issued 102,780,659 shares of common stock to settle account payable of $60,000 to Mr. Goodman. As of July 31, 2018, the Company has a $61,903 payable to Mr. Goodman.
On February 22, 2016, the Company entered into a Consulting Service Agreement with its Financial Executive Officer, Weiting Feng. Pursuant to the Agreement, the consulting fee could be settled in shares. During the year ended July 31, 2018, the Company issued 102,780,659 shares of common stock to settle account payable of $60,000 to Ms. Feng. As of July 31, 2018, the Company has a $72,300 payable to Ms. Feng.
On April 1, 2016, the Company entered into a Services Agreement with Articulate Pty Ltd, which is wholly owned by Anthony Goodman CEO of the Company, for consulting services. Pursuant to the agreement Articulated would receive $4,500 per month ending for services rendered plus reimbursement of the Company's expenses. On January 1, 2018, the Company amended the Back Office Agreement, in which Articulate discontinued to provided services, however the term of the Back Office Agreement will continue for a further 12 months for with regard to further co-operation. During the year ended July 31, 2018 and 2017, general and administrative expense related to this service was $209,100 and $250,217, respectively. As of July 31, 2018, the Company has a $220,148 payable to Articulate Pty Ltd.
On June 1, 2016, the Company entered a distribution usage rights agreement with Globaltech Software Services LLC. (“Globaltech”), a company in which Anthony Goodman the Chief Executive Officer has an interest, the Company agreed to provide certain proprietary technology in the form of a Credit Management system, Social Gaming system and other Marketing and Gaming Technology. This agreement not only brings operating revenue to the Company, but also solidifies the Company’s expertise in the social gaming market. During the year ended July 31, 2018 and 2017, revenue from Globaltech was $120,000 and $120,000, respectively. As of July 31, 2018, the Company had a $80,500 accounts receivable to Globaltech.
On February 28, 2018, the Company entered into an Asset Purchase Agreement with Luxor Capital, LLC(“ Luxor”), which is wholly owned by Company’s Chief Executive Officer Anthony Goodman. Pursuant to the Asset Purchase Agreement, the Company purchased certain Intellectual Property and Know-how (the "GM2 Asset"), in exchange, the Company issued 625,000,000 shares of common stock valued at $187,500 on the date of issuance, and an Earnout Note Payable calculated at 50% of the revenues generated by the GM2 Asset during the 12-month period of March 1, 2018 to February 28, 2019 to Luxor. The Earnout Note lead to a contingent liability of $1,055,312 as of July 31, 2018. The GM2 Asset is expected to lead to new clients and incremental revenues by allowing the Company to offer unique IP to Social Gaming Clientele.
On March 1 2018, the Company entered into a License Agreement (the “License Agreement”) with Articulate Pty Ltd. (“Articulate”), which is wholly owned by Anthony Goodman. Articulate received a license from the Company to use the GM2 Asset technology. Articulate would pay the Company a usage fee calculated as a certain percentage of the monthly content and software usage within the GM2 Asset system. During the year ended July 31, 2018, revenue from Articulate was $780,804. As of July 31, 2018, the Company had a $281,788 accounts receivable to Articulate.
NOTE 9 - EQUITY
Preferred Stock
The Company is authorized to issue 20,000,000 shares of it $0.00001 par value preferred stock.
On August 10, 2015, the Company's Board of Directors authorized the creation of 1,000 shares of Series B Voting Preferred Stock. The holder of the shares of the Series B Voting Preferred Stock has the right to vote those shares of the Series B Voting Preferred Stock regarding any matter or action that is required to be submitted to the shareholders of the Company for approval. The vote of each share of the Series B Voting Preferred Stock is equal to and counted as 4 times the votes of all of the shares of the Company's (i) common stock, and (ii) other voting preferred stock issued and outstanding on the date of each and every vote or consent of the shareholders of the Company regarding each and every matter submitted to the shareholders of the Company for approval.
On August 10, 2015, the Company filed a Certificate of Designation with the Nevada Secretary of State creating the 1,000 shares of Series B Voting Preferred Stock
On August 14, 2015, the Company issued 1,000 shares of Series B Voting Preferred Stock to Santa Rosa Resources, representing 100% of the total issued and outstanding shares of the Company's Series B Voting Preferred Stock.
On April 3, 2016, the Company cancelled 1,000 shares of Series B Voting Preferred Stock to Santa Rosa Resources and a new certificate issued in the name of Luxor Capital LLC in the amount of 1000 Series B shares.
As of July 31, 2018 and 2017, 19,999,000 Series A preferred shares and 1,000 Series B preferred shares of par value $0.00001 were authorized, of which 0 Series A shares were issued and outstanding, 1,000 Series B shares were issued and outstanding.
Common Stock
The Company is authorized to issue 6,000,000,000 shares of its $0.00001 par value common stock.
During the year ended July 31, 2018, the Company issued 1,046,246,456 shares of common stock for the conversion of notes payable and accrued interest of $122,769 and $27,607, respectively.
During the year ended July 31, 2018, the Company issued 250,000,000 shares of common stock for the conversion of notes payable held by a related party of $300,000.
During the year ended July 31, 2018, the Company issued 300,000,000 shares of common stock for the subscription agreements with 8 investors, valued at $120,000.
During the year ended July 31, 2018, the Company issued 205,561,318 shares of common stock to settle accounts payable of $120,000 with Mr. Goodman and Ms. Feng.
On February 28, the Company issued 625,000,000 shares of common stock for certain Intellectual Property and Know-how (the "GM2 Asset") to Luxor Capital LLC according to the Asset Purchase Agreement, valued at $187,500 based on closing market price on the date of the agreement.
On March 12, 2018, the Company entered into a Corporate Communication and Investor Relations Program (the “ Agreement”) with James Caplan, d/b/a Marker Maker, pursuant to the Agreement, 50,000,000 shares of common stock were granted to Market Maker or in such names designated by James Caplan. The shares were valued at $45,000.
On April 26, 2018 , the Company entered into a Consulting Agreement with Joshua Ramsdell of J Ramsdell Consulting Services Agreement ( the “Agreement”) for a period of one month. Pursuant to the agreement, 2,000,000 shares of common stock were issued for the relations management services. The shares were valued at $1,200.
On June 7, 2018, the Company entered into a Consulting Agreement with Joshua Ramsdell of J Ramsdell Consulting Services Agreement ( the “Agreement”) for a period of six months. Pursuant to the agreement, 6,000,000 shares of common stock shall be issued for the relations management services. As of July 31, 2018, 3,000,000 shares were delivered to the consultant. The shares were valued at $3,000.
During the year end July 31, 2017, the Company issued additional 4,100 shares were issued due to no fractional shares used as a result of per reverse stock split.
During the year ended July 31, 2017, the Company issued 144,896,078 common shares upon the conversion of $362,420 in principal and $31,265 interest of promissory notes into common stock. As of July 31, 2017, stock payable balance was $1,600, for which 6,400,000 common shares upon the conversion. As of July 31, 2017, the Company issued 22,700,000 common shares upon settlement agreement with Rockwell.
As of July 31, 2018, 6,000,000,000 common shares of par value $0.00001 were authorized, of which 2,622,904,757 shares were issued and outstanding.
Stock Option Plan
On January 3, 2018, the Company granted a stock option plan: the 2018 Equity Incentive Plan. The stock option was granted at the fair value of the grant date using the Black-Scholes option pricing model, and revalued at each reporting period end and amortized at the greater value of vested or straight-line amortization. The compensation expense will be charged to operations through the vesting period.
The Company granted stock options to 9 external consultants, each of them was granted to purchase 30,000,000 shares of common stock of the Company at exercise price of $0.0004 with exercise period of three years, vesting 33% each anniversary for three years. The fair value of the stock option was $108,000 in total on the grant date. As of July 31, 2018, two of the external consultant has resigned, their option were forfeited.
The Company granted stock options to its Chief Financial Officer to purchase 210,000,000 shares of common stock of the Company at exercise price of $0.00044 with exercise period of one and a half years to an officer, vesting 33% each half year. The fair value of the stock option was $83,808 on the grant date.
The Company granted stock options to its Chief Executive Officer to purchase 810,000,000 shares of common stock of the Company at exercise price of $0.00044 with exercise period of one and a half years to an officer, vesting 1/3 each half year for one and a half years. The fair value of the stock option was $323,225 on the grant date.
On March 15, 2018, the Company granted stock options to an external consultants, James Young. The consultant was granted to purchase 210,000,000 shares of common stock of the Company at exercise price of $0.0004 with exercise period of three years, vesting 33% each anniversary for three years. The fair value of the stock option was $82,943 on the grant date.
On May 8, 2018, the Company granted stock options to an external consultants, Siu Kei Ho. The consultant was granted to purchase 75,000,000 shares of common stock of the Company at exercise price of $0.0004 with exercise period of three years, vesting 33% each anniversary for three years. The fair value of the stock option was $28,516 on the grant date.
As of July 31, 2018, none of the stock options were vested; $201,112 amortization expense was recorded related to the 2018 Equity Incentive Plan.
NOTE 10 - INCOME TAXES
A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:
|
|
2018
|
|
|
2017
|
|
Operating loss for the years ended July 31
|
|
$
|
(1,318,373
|
)
|
|
$
|
1,801,080
|
|
Average statutory tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Deferred tax Liability (asset) attributable to net operating loss carry-forwards
|
|
$
|
(448,247
|
)
|
|
$
|
612,367
|
|
Significant components of the Company’s deferred tax assets and liabilities as at July 31,2018 after applying enacted corporate tax rates, are as follows:
|
|
2018
|
|
Deferred tax asset attributable to net operating loss carry-forwards
|
|
$
|
448,247
|
|
Less: valuation allowance
|
|
$
|
(448,247
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
The Company has net operating losses carried forward of approximately $448,247 for tax purpose which may be recognized in future periods, not to exceed 20 years.
NOTE 11 - CONCENTRATIONS
The Company’s major revenues for the year ended July 31, 2018 were from two related parties. As of July 31, 2018, the aggregate amount of revenue due from the two customers was $915,804, which included $362,288 receivable for expenses paid on behalf of the two customers. Pursuant to the company’s strategic partnership agreement to gain revenue from technical service usage fee, the agreement remains in full force indefinitely since 2016. In addition, the new license agreement with Articulate Pty Ltd, in 1
st
March, will also help the company to gain constant revenue.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims brought to such legal counsel’s attention as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
NOTE 13 - ACQUISITION OF BUSINESS
On February 28, 2018, the company entered into an Asset Purchase Agreement with Luxor Capital, LLC. Pursuant to the agreement the company purchased certain Intellectual Property and Know-how (the “GM2 Asset”), which were valued at $0 due to the fact that this was a related party acquisition and the prior entity’s cost basis was $0 in the assets. In exchange for the GM2 asset, the company issued 625,000,000 shares of common stock valued at $187,500 based on closing market price on the date of the agreement as well as an earn-out payment which states that the Company, on or before April 30, 2019, will issue an earn-out note calculated at 50% of the revenues generated by the GM2 Asset system during the 12-month period of March 1, 2018 to February 28, 2019.
Related to the earn-out note, the Company recorded a contingent liability of $1,055,312 for the potential liability due to Luxor; see Note 14. A description of the manner by which the earn-out note was valued is set forth at Note 3.
The acquisition was accounted for as a business combination. Based upon its analysis of the above facts, the Company determined that the acquisition of the GM2 System was also a related party transaction. Accordingly, the asset acquired was recorded on the cost basis at the time of the acquisition with the total cost being recorded to compensation expense.
The assets acquired and liabilities assumed were comprised of the following:
Cash and cash equivalents
|
|
$
|
-
|
|
Total assets acquired
|
|
|
-
|
|
|
|
|
|
|
Contingent liability
|
|
|
1,055,312
|
|
Common stock issued for acquisition
|
|
|
187,500
|
|
Total liabilities assumed and common shares issued
|
|
|
1,242,812
|
|
|
|
|
|
|
Net compensation expense - related party
|
|
$
|
1,242,812
|
|
As the predecessor company was not using the assets in the same manner as the Company, no proforma financials are presented.
NOTE 14 - CONTINGENT LIABILITY
The Company recorded a contingent liability to reflect the earn-out note calculated at 50% of the revenues generated by the GM2 Asset system starting from March 1, 2018 till February 28, 2019. The estimated potential obligation with this agreement was recorded at a fair value of $1,055,312, as of July 31, 2018, based upon the actual and projected revenues from these assets. However, it is not possible for our company to estimate the potential future payments exactly until after February 28, 2019; therefore, this amount will be adjusted quarterly to ensure that the value is as accurate as possible until the final amount is known.
NOTE 15 - SUBSEQUENT EVENTS
On September 10, 2018, the Company entered into Settlement Agreement with Luxor Capital LLC (“Luxor”) whereby the parties agreed to release each other from any, and all liabilities relating to the Convertible Promissory Note issued by the Company in favor of Luxor which was dated March 1, 2016 and in the original principal amount of $2,874,712. Pursuant to the Settlement Agreement, the Company agreed to pay out the remaining balance of the said note totaling $649,414 by converting $209,414 into common stock at a conversion price $0.001, by making a payment of $150,000 and by entering into an interest free loan for the balance of $290,000, such loan to be repaid in two equal installments of $145,000 on the 10th September 2019 and 10th September 2020. On September 10, 2018, 209,414,000 shares of common stock were issued for the conversion of $209,414.
On August 28, 2018, the Company entered into Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with LG Capital Funding LLC (“LG”) whereby the parties agreed to release each other from any, and all liabilities relating to the Convertible Promissory Note (Note 46). In this Settlement Agreement, the Company agreed to pay out the remaining balance of the note Principal $1,930, Accrued Interest $154.40, Default Interest and Penalty $6,033.20 totaling $8,117.60. As of August 28, 2018 the balance of this Note was $0.
On October 1, 2018, 3,000,000 shares for services to Joshua Ramsdell pursuant to a Consulting Agreement entered on June 7, 2018.