Notes To Condensed Financial Statements
(Unaudited)
Note 1– Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with generally accepted accounting principles for interim financial information and
in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports
on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the nine and three-month periods ended March 31, 2018,
are not necessarily indicative of the results that may be expected for the year ended June 30, 2018. For further information, refer
to the audited financial statements and footnotes thereto in our Annual Report on Form 10-K for the year ended June 30, 2017.
Note 2 – Going Concern Matters and
Realization of Assets
The accompanying financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
ordinary course of business. However, the Company has sustained recurring losses from its continuing operations and as of March
31, 2018, had negative working capital of $6,417,149 and a stockholders’ deficit of $5,749,149. In addition, the Company
is unable to meet its obligations as they become due and sustain its operations. The Company believes that its existing cash resources
are not sufficient to fund its continuing operating losses, capital expenditures, lease and debt payments and working capital requirements.
The Company may not be able to raise sufficient
additional debt, equity or other cash on acceptable terms, if at all. Failure to generate sufficient revenues, achieve certain
other business plan objectives or raise additional funds could have a material adverse effect on the Company’s results of
operations, cash flows and financial position, including its ability to continue as a going concern, and may require it to significantly
reduce, reorganize, discontinue or shut down its operations.
In view of the matters described above, recoverability
of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations
of the Company which, in turn, is dependent upon the Company’s ability to meet its financing requirements on a continuing
basis, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company
be unable to continue in its existence.
Management’s plans include:
|
1.
|
Seek to raise debt or equity for working capital purposes and to
pay off existing debt balances. With sufficient additional cash available to the Company, it can begin to make marketing expenditures
and hire people to generate more revenues, and consequently cut monthly operating losses.
|
|
2.
|
Continue to create new business opportunities in a cannabis-related
field. The Company has secured two purchase contracts to acquire greenhouses in California and to work with a licensed cannabis
entity.
|
|
3.
|
Renegotiate loan agreements with existing debt holders.
|
Management has determined, based on its recent
history and its liquidity issues that it is not probable that management’s plan will sufficiently alleviate or mitigate,
to a sufficient level, the relevant conditions or events noted above. Accordingly, the management of the Company has concluded
that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance
date of these financial statements.
There can be no assurance that the Company
will be able to achieve its business plan objectives or be able to achieve or maintain cash-flow-positive operating results. If
the Company is unable to generate adequate funds from operations or raise sufficient additional funds, the Company may not be able
to repay its existing debt, continue to operate its business network, respond to competitive pressures or fund its operations.
As a result, the Company may be required to significantly reduce, reorganize, discontinue or shut down its operations. The financial
statements do not include any adjustments that might result from this uncertainty.
6
Note 3 – Earnings (Loss) Per Common
Share
Loss per share data was
computed as follows:
|
|
Nine Months Ended March 31, 2018
|
|
Nine Months Ended March 31, 2017
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended March 31, 2017
|
Net loss - basic
|
|
$
|
(5,128,628
|
)
|
|
$
|
(39,818,525
|
)
|
|
$
|
(2,713,037
|
)
|
|
$
|
(39,591,941
|
)
|
Adjustments to net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss – diluted
|
|
$
|
(5,128,628
|
)
|
|
$
|
(39,818,525
|
)
|
|
$
|
(2,713,037
|
)
|
|
$
|
(39,591,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
5,552,753
|
|
|
|
1,520,087
|
|
|
|
13,592,689
|
|
|
|
1,532,785
|
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average common shares outstanding – diluted
|
|
|
5,552,753
|
|
|
|
1,520,087
|
|
|
|
13,592,689
|
|
|
|
1,532,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share – basic
|
|
$
|
(0.92
|
)
|
|
$
|
(26.19
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(25.83
|
)
|
Loss per common share – diluted
|
|
$
|
(0.92
|
)
|
|
$
|
(26.19
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(25.83
|
)
|
For the nine and three-month period ended March
31, 2018, the Company excluded 42,155,073 shares of common stock issuable upon the exercise of outstanding convertible debt from
the calculation of net loss per share because the effect would be anti-dilutive. For the nine and three-month periods ended March
31, 2017, the Company excluded 1,013,790,769 shares of common stock issuable upon the exercise of outstanding convertible debt
from the calculation of net loss per share because the effect would be anti-dilutive.
Note 4 – Principal Financing Arrangements
The following table summarizes components of
debt as of March 31, 2018 and June 30, 2017:
|
|
March 31, 2018
|
|
June 30, 2017
|
|
|
|
|
|
Convertible debt due to various lenders
|
|
$
|
507,215
|
|
|
$
|
436,715
|
|
Less: discount on debt
|
|
|
73,564
|
|
|
|
—
|
|
Total debt, net of discounts
|
|
$
|
433,651
|
|
|
$
|
436,715
|
|
On February 6, 2014, the Company entered into
a securities purchase agreement to issue an unsecured convertible promissory note with a principal amount of $16,500. This promissory
note bears interest at an annual rate of 8%, and a default rate of 18%, which was to be paid with principal in full on the maturity
date of November 10, 2014. The principal amount of the note together with interest may be converted into shares of common stock,
par value of $0.0001 (“Common Stock”) at the option of the lender at a conversion price equal to thirty five percent
at the market price, calculated as the average of the lowest three trading prices during the 10 trading days prior to the conversion.
As the note was not repaid on November 10, 2014, a penalty of $5,473 has been added to the principal balance of the note. As of
June 30, 2015, conversions totaling $14,325 have been recorded and 4,359 shares of the Company’s Common Stock have been issued
as a result of the conversion. For the year ended June 30, 2016, additional conversions of $6,790 were recorded, resulting in the
issuance of 10,545 shares of Common Stock. At March 31, 2018 and June 30, 2017, the remaining debt balance is $860.
On April 7, 2014, the Company entered into
a securities purchase agreement to issue an unsecured convertible promissory note with a principal amount of $32,500. This promissory
note bears interest at an annual rate of 8%, and a default rate of 18%, which was to be paid with principal in full and interest
on the maturity date of January 9, 2015. The principal amount of the note together with interest may be converted into shares of
Common Stock, at the option of the lender at a conversion price equal to forty one percent at the market price, which is the average
of the lowest three trading prices during the 10 days prior to the conversion. The note has matured unpaid. As a result, a penalty
of $16,250 has been added to the principal balance of the note. No debt conversions have been recorded, and at March 31, 2018 and
June 30, 2017, the debt balance remains at $48,750.
7
On April 9, 2014, the
Company entered into a securities purchase agreement to issue an unsecured convertible promissory note with a principal amount
of $42,000. This promissory note bears interest at an annual rate of 8%, with a default rate of 16%, which is to be paid with principal
in full on the maturity date of April 9, 2015. The principal amount of the note together with interest may be converted into shares
of Common Stock at the option of the lender at a conversion price equal to fifty percent of the lowest closing price bid during
the 18 days prior to the conversion. As the note was not repaid on April 9, 2015, a penalty of $4,240 has been added to the principal
balance of the note. As of June 30, 2015, conversions totaling $8,810 have been recorded and 2,515 shares of the Company’s
Common Stock have been issued as a result of the conversion. For the year ended June 30, 2016, additional conversions of $21,615
were recorded, resulting in the issuance of 259,010 shares of Common Stock. At March 31, 2018 and June 30, 2017, the remaining
debt balance is $15,815.
On May 27, 2014, the
Company entered into a securities purchase agreement to issue an unsecured convertible promissory note with a principal amount
of $25,000. These promissory note bears interest at an annual rate of 8% which is to be paid with principal and interest on the
maturity date of May 27, 2015. The principal amount of the note together with interest may be converted into shares of Common Stock
at the option of the lender at a conversion price equal to fifty percent of the lowest closing price bid during the 18 days prior
to the conversion. As of June 30, 2016, conversions totaling $2,423 were recorded, resulting in the issuance of 991 shares of Common
Stock. At September 30 and June 30, 2017, the remaining debt balance is $22,577.
On February 20, 2015,
the Company issued a convertible debenture for the gross proceed of $25,000. The debenture matured on February 20, 2016. The terms
of the debenture require the Company to pay the debenture investor a principal sum of $37,500 with 8% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock at fifty percent of the
lowest market price during the 20 days prior to the conversion. At March 31, 2018 and June 30, 2017 the debt balance is $37,500.
On March 16, 2015, the Company issued a convertible
debenture for the gross proceed of $15,000. The debenture matured on March 16, 2016. The terms of the debenture require the Company
to pay the debenture investor a principal sum of $22,500 with 8% annual interest upon maturity. The principal amount of the debenture
together with interest may be converted into shares of Common Stock at fifty percent of the lowest market price during the 20 days
prior to the conversion
.
At March 31, 2018 and June 30, 2017 the debt balance is $22,500.
On August 20, 2015, the
Company issued a convertible debenture of $25,000 as a result of a partial transfer of the August 1, 2014 note to a new holder.
The debenture matures on August 20, 2016. The terms of the debenture require the Company to pay the debenture investor a principal
sum of $25,000 with 8% annual interest upon maturity. The principal amount of the note together with interest may be converted
into shares of Common Stock at the lower of fifty percent of the lowest market price during the 20 days prior to the conversion.
As of June 30, 2016, conversions totaling $16,913 have been recorded and 208,269 shares of the Company’s Common Stock have
been issued as a result of the conversion. The note balance at March 31, 2018 and June 30, 2017 is $8,087.
On November 5, 2015,
the Company issued a convertible debenture for gross proceeds of $30,000. The debenture matured on June 5, 2016. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $40,000 with 5% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest closing price during the 40 days prior to the conversion. One debt conversion occurred on August 2, 2016, resulting
in the issuance of 72,222 shares of common stock to retire $6,500 on debt. On February 1, 2018, $17,000 in principal and $3,000
in accrued interest payable was assigned to a third party. The note balance was $16,500 at March 31, 2018 and $33,500 at June 30,
2017.
On December 2, 2015,
the Company issued a convertible debenture for the gross proceeds of $20,000. The debenture matured on June 2, 2016. The terms
of the debenture require the Company to pay the debenture investor a principal sum of $25,000 with 5% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock equal to thirty percent
of the lowest closing price during the 30 days prior to the conversion. No debt conversions have occurred and the note balance
at March 31, 2018 and June 30, 2017 is $25,000.
8
On December 3, 2015,
the Company issued a convertible debenture of $19,500 as a result of a partial transfer of the August 1, 2014 note to a new holder.
The debenture matured on June 3, 2016. The terms of the debenture require the Company to pay the debenture investor a principal
sum of $19,500 with 5% annual interest upon maturity. The principal amount of the note together with interest may be converted
into shares of Common Stock at thirty percent of the lowest market price during the 30 days prior to the conversion. As of June
30, 2016, conversions totaling $3,000 have been recorded and 55,556 shares of the Company’s Common Stock have been issued
as a result of the conversion. The note balance at March 31, 2018 and June 30, 2017 is $16,500.
On December 3, 2015,
the Company issued a convertible debenture of $105,000 as a result of a transfer of the August 1, 2014 note to a new holder. The
debenture matures on July 3, 2016. The terms of the debenture require the Company to pay the debenture investor a principal sum
of $105,000 with 5% annual interest upon maturity. The principal amount of the note together with interest may be converted into
shares of Common Stock at fifty percent of the lowest market price during the 40 days prior to the conversion. As of June 30, 2016,
conversions totaling $7,500 have been recorded and 83,333 shares of the Company’s Common Stock have been issued as a result
of the conversion. The note holder assigned $6,000 of the note to another note holder, and the remaining balance of this note at
March 31, 2018 and June 30, 2017 is $91,500.
On December 30, 2015,
the Company issued a convertible debenture for gross proceeds of $5,000. The debenture matures on June 30, 2016. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $7,500 with 5% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest closing price during the 40 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2017 is $7,500.
On December 31, 2015,
the Company issued a convertible debenture for gross proceeds of $10,000. The debenture matures on July 1, 2016. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $13,000 with 5% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest closing price during the 30 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2017 is $13,000.
On January 5, 2016, the
Company issued a convertible debenture of $19,618 as a result of a transfer of the November 8, 2014 note to a new holder. The debenture
matures on July 5, 2016. The terms of the debenture require the Company to pay the debenture investor a principal sum of $19,618
with 5% annual interest upon maturity. The principal amount of the note together with interest may be converted into shares of
Common Stock at fifty percent of the lowest market price during the 30 days prior to the conversion. As of June 30, 2016, conversions
totaling $3,992 have been recorded and 221,778 shares of the Company’s Common Stock have been issued as a result of the conversion.
The note balance at March 31, 2018 and June 30, 2017 is $15,626.
On January 13, 2016,
the Company issued a convertible debenture for gross proceeds of $20,000. The debenture matures on January 13, 2017. The terms
of the debenture require the Company to pay the debenture investor a principal sum of $26,000 with 5% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock equal to forty-five percent
of the lowest closing price during the 30 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2017 is
$26,000.
On January 19, 2016,
the Company issued a convertible debenture for gross proceeds of $2,500. The debenture matures on January 19, 2017. The terms of
the debenture require the Company to pay the debenture investor a principal sum of $4,000 with 5% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock equal to forty-five percent
of the lowest closing price during the 30 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2017 is
$4,000.
On February 25, 2016,
the Company issued a convertible debenture for gross proceeds of $19,500. The debenture matures on July 3, 2016. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $33,500 with 5% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest closing price during the 30 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2017 is $33,500.
9
On February 23, 2016,
the Company issued a convertible debenture of $2,500 as a result of a partial transfer of the December 3, 2015 note to a new holder.
The debenture matures on July 3, 2016. The terms of the debenture require the Company to pay the debenture investor a principal
sum of $2,500 with 5% annual interest upon maturity. The principal amount of the note together with interest may be converted into
shares of Common Stock at fifty percent of the lowest market price during the 40 days prior to the conversion. The note balance
at March 31, 2018 and June 30, 2017 is $2,500.
On March 13, 2016, the
Company issued a convertible debenture of $3,500 as a result of a partial transfer of the December 3, 2015 note to a new holder.
The debenture matures on July 3, 2016. The terms of the debenture require the Company to pay the debenture investor a principal
sum of $3,500 with 5% annual interest upon maturity. The principal amount of the note together with interest may be converted into
shares of Common Stock at fifty percent of the lowest market price during the 40 days prior to the conversion. The note balance
at March 31, 2018 and June 30, 2017 is $3,500.
On July 11, 2016, the
Company issued a convertible debenture for gross proceeds of $1,200. The debenture matures on January 11 2017. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $2,500 with 5% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest closing price during the 30 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2017 is $2,500.
On July 20, 2016, the
Company issued a convertible debenture for gross proceeds of $5,500. The debenture matures on January 20, 2017. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $6,000 with 5% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest closing price during the 30 days prior to the conversion. The note balance at March 31, 2018 and June 30, 2016 is $6,000.
On February 1, 2018,
the Company issued a convertible debenture for gross proceeds of $35,000. The debenture matures on February 1, 2019. The terms
of the debenture require the Company to pay the debenture investor a principal sum of $45,000 with 12% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent
of the lowest trading price during the 30 days prior to the conversion. The note balance at March 31, 2018 is $45,000.
On February 1, 2018,
the Company issued a convertible debenture for gross proceeds of $10,000. The debenture matures on August 1, 2018. The terms of
the debenture require the Company to pay the debenture investor a principal sum of $15,000 with 8% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent
of the lowest trading price during the 30 days prior to the conversion. The note balance at March 31, 2018 is $15,000.
On February 1, 2018,
the Company issued a convertible debenture in exchange for a reduction in principal payable of $17,000 and interest payable of
$3,000 on a convertible debenture that was originally issued on November 5, 2015. The new debenture matures on February 1, 2019.
The terms of the debenture require the Company to pay the debenture investor a principal sum of $20,000 with 12% annual interest
upon maturity. The principal amount of the debenture together with interest may be converted into shares of Common Stock at a conversion
price equal to the lower of $0.0023 per share or fifty percent of the lowest trading price during the 40 days prior to the conversion.
The note balance at March 31, 2018 is $20,000.
On March 1, 2018, the
Company issued a convertible debenture for gross proceeds of $4,000. The debenture matures on September 1, 2018. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $7,500 with 8% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest trading price during the 30 days prior to the conversion. The note balance at March 31, 2018 is $7,500.
The conversion price
of the notes issued in is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option
as defined under FASB ASC Topic No. 815 - 40. The fair value of the notes was recognized as a derivative instrument at the issuance
date and is measured at fair value at each reporting period. For convertible debentures issued in the first nine months of fiscal
2018, the Company determined that the aggregate fair value of the conversion features was $558,083 at the issuance dates. Debt
discount was recorded up to the $100,000 face amount of the notes and is amortized to interest expense over the term of the notes.
The fair value of the conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $458,083
was expensed immediately as additional interest expense.
For convertible debentures
issued in the first nine months of fiscal 2017, the Company determined that the aggregate fair value of the conversion features
was $16,514 at the issuance dates. Debt discount was recorded up to the $8,500 face amount of the note and is amortized to interest
expense over the term of the note. The fair value of the conversion feature in excess of the principal amount allocated to the
notes in the aggregate amount of $8,014 was expensed immediately as additional interest expense.
All convertible debentures, except for those
issued in the current fiscal quarter, are in default. A portion of the convertible debentures contain default penalties and default
interest rates that go into effect upon receipt of a default notice from the holder. In the instances where a holder has declared
a default, in conjunction with the provisions of the individual convertible debenture, the Company has accrued the default interest
rate. Accrued interest payable on the convertible notes amounted to $97,305 at March 31, 2018 and $74,821 at June 30, 2017.
10
Note 5 – Income Taxes
At March 31, 2018, the Company had net operating
loss carryforwards for federal income tax purposes of approximately $1,700,000 that expire in the years 2017 through 2032. The
Company has provided an allowance for the full value of the related deferred tax asset since it is more likely than not that none
of such benefit will be realized. Utilization of the net operating losses may be subject to annual limitations provided by Section
382 of the Internal Revenue Code and similar state provisions.
Due to the loss for the nine-month and three-month
periods ended March 31, 2018 and 2017, the Company has recorded no income tax expense in either of these nine and three-month periods.
.
Note 6 – Related Party Transactions
The Company
owes its Chief Executive Officer unpaid salary of $64,631 and $358,027 as of March 31, 2018 and June 30, 2017, respectively. On
March 1, 2018, the Company issued 15 million shares of its common stock to its Chief Executive Officer in exchange for a reduction
of $501,000 in payables to the Chief Executive Officer. The common stock was valued at its market price on the date of issuance
and no gain or loss was recognized as a result of the transaction.
The Company
owes its Chief Operating Officer unpaid salary of $3,927 and $0 as of March 31, 2018 and June 30, 2017, respectively
Note 7 – Stockholders’ Deficit
At the opening of trading on September 16,
2016, the Company effected a reverse split of its common stock at a ratio of 1:1800. As a result of the reverse stock split, each
of the Company’s 1,800 pre-split shares of common stock outstanding automatically combined into one new share of common stock
without any action on the part of the respective holders, and the number of outstanding shares of common stock was reduced from
approximately 27.6 billion shares to 1,532,785 shares. The reverse stock split also applied to shares of common stock issuable
upon the conversion of outstanding convertible securities.
The Company is authorized to issue 4,500,000,000
shares of its common stock, par value $0.0001. The Company is authorized to issue 250,000,000 shares of preferred stock, par value
$1.00
In the third quarter of fiscal 2018, the Company
issued 415,983 shares of common stock for a one-year consulting and marketing agreement (the “Consulting Agreement”)
with a third party. The shares were valued at $16,639. This issuance has resulted in stock compensation expense of $866 in the
nine- and three- month periods ended March 31, 2018, and a prepaid expense balance of $15,773 at March 31, 2018. The Consulting
Agreement also includes a commitment for the Company to issue additional shares of common stock, if needed, so that the third party
owns 1% of the outstanding shares of common stock on the one-year anniversary date of the Consulting Agreement, in March 2019.
On February 28, 2018,
the Company entered into two asset purchase agreements with a non-affiliated individual (the “Seller”), pursuant to
which it contemporaneously acquired certain assets which will allow the Company, subject to the Company applying for and being
issued the required licenses, to establish a legal medicinal and recreational marijuana grow operation in California. The Company
hired the Seller to be the Company’s Chief Operating Officer on March 3, 2018. The assets purchased include a state-of-the-art
indoor hydroponics facility, eleven greenhouses, various permits and additional fixtures, equipment and supplies. The purchase
price for the assets consisted of 20,000,000 shares of our common stock issued to the Seller and $15,000,000 in cash payable in
installments over a two-year period. The common stock was issued on March 1, 2018, and valued at $0.0334 per share. The assets
purchased are recorded on the balance sheet as $668,000 in fixed assets, and the fixed assets have not yet been placed in service.
In July 2018, the Company and the Seller amended the purchase agreements to reduce the amount of assets purchased and to reduce
the promissory note component of the purchase price to $7,000,000. The promissory note will not be issued until the cannabis licenses
are acquired by the Company. The 20,000,000 shares of common stock were issued immediately.
In the first quarter of fiscal 2017, the Company
issued 72,222 shares of stock to a convertible note holder to retire $6,500 in debt.
In conjunction with the issuance of a $45,000
convertible debenture on February 1, 2018, the Company also issued a three-year warrant with an exercise price of $0.01 per share.
Based upon a Black Scholes model valuation of the warrant, with a risk-free interest rate of 1%, volatility of 848% and a stock
price of $0.0282 on the date of issuance, the warrant was recorded as additional interest expense and paid-in capital of $126,900.
Note 8 – Fair Value
The Fair Value Measurements Topic of the FASB
Accounting Standards Codification establishes a fair value hierarchy that prioritizes the inputs to valuation techniques 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 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy are as follows:
11
-
Level 1: inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the company has the ability to access at the measurement date.
-
Level 2: inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly or indirectly.
-
Level 3: inputs are unobservable inputs for the asset or
liability.
Under the Fair Value Measurements Topic of
the FASB Accounting Standards Codification, we base fair value on 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. It is our policy to maximize
the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance
with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market
data and, therefore, are based primarily upon management’s own estimates, are often calculated based on current pricing policy,
the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the
results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows that could significantly affect the results of current or future value.
Following is a description of valuation methodologies
used for assets and liabilities recorded at fair value and for estimating fair value where it is practicable to do so for financial
instruments not recorded at fair value (disclosures required by the Fair Value Measurements Topic of the FASB Accounting Standards
Codification).
Cash and cash equivalents, accounts receivable, and accounts
payable
In general, carrying amounts approximate fair value because of the
short maturity of these instruments.
Debt
At March 31, 2018 and June 30, 2017, debt was
carried at its face value plus accrued interest due to the fact that the debt is fully callable by the lender. Based
on the financial condition of the Company, it is impracticable for the Company to estimate the fair value of the short and long-term
debt.
Liabilities Measured and Recognized at Fair Value on a Recurring
Basis
The following table presents the amounts of liabilities measured
at fair value on a recurring basis as of March 31, 2018 and June 30, 2017.
Derivative Liability
The fair value of the derivatives that are traded in less active
over-the counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity
index levels. These measurements are classified as Level 3 within the fair value of hierarchy.
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
5,673,049
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
5,673,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
909,586
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
909,586
|
|
The Company has no instruments with significant off balance sheet
risk.
12
Note 9 – Subsequent Events
On April 1, 2018, the
Company issued a convertible debenture for gross proceeds of $8,500. The debenture matures on October 1, 2018. The terms of the
debenture require the Company to pay the debenture investor a principal sum of $12,500 with 8% annual interest upon maturity. The
principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent of
the lowest trading price during the 30 days prior to the conversion.
On April 1, 2018, the
Company sold 150,000 shares of its Common Stock for $10,500.
On June 1, 2018, the
Company sold 150,000 shares of its Common Stock for $10,500.
On July 2, 2018, the
Company sold 160,000 shares of its Common Stock for $4,000.
On September 11, 2018,
the Securities and Exchange Commission (the “SEC”) issued an order of suspension of trading of the common stock of
the Company because of a lack of current and accurate information concerning the securities of the Company. The Company has been
in contact with the SEC to lift the suspension. The filing of this Quarterly Report on Form 10-Q and the subsequent filings of
two quarterly reports on Form 10-Q and an Annual Report on Form 10-K for the year ended June 30, 2018 would satisfy the delinquency.
The Company is making efforts to be current with its filings and to have the suspension order removed.
On September 26, 2018,
the Company issued a convertible debenture for gross proceeds of $20,000. The debenture matures on September 26, 2019. The terms
of the debenture require the Company to pay the debenture investor a principal sum of $25,000 with 12% annual interest upon maturity.
The principal amount of the debenture together with interest may be converted into shares of Common Stock equal to fifty percent
of the lowest trading price during the 30 days prior to the conversion. In conjunction with the debenture, the Company also issued
a three-year warrant to purchase up to 2,500,000 shares of the Company’s common stock at a price of $0.01 per share.
13