Notes
To Condensed Consolidated 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 six- and
three-month periods ended October 31, 2019, are not necessarily indicative of the results that may be expected for the fiscal
year ended April 30, 2020. For further information, refer to the audited financial statements and footnotes thereto in our Annual
Report on Form 10-K for the year ended April 30, 2019.
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, in prior years, the Company sustained losses from its continuing operations
and as of October 31, 2019, had negative working capital of $1,057,426 and an accumulated deficit of $2,500,207. In addition,
the Company may not be able 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 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 to pay down its debt obligations.
|
|
2.
|
Continue
to look for software niches and other digital products that can be sold via an Internet-based
store. Various acquisition opportunities may help us generate the additional revenues
we seek.
|
|
3.
|
Continue
to provide advisory services to companies seeking to raise capital and assist them with
capital raises.
|
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.
Note 3
– Revenue Recognition
Revenue Recognition under
ASC 606
The Company
recognizes service revenue from its consulting contracts and its game website using the five-step model as prescribed by ASC 606:
• Identification
of the contract, or contracts, with a customer;
• Identification
of the performance obligations in the contract;
• Determination
of the transaction price;
• Allocation
of the transaction price to the performance obligations in the contract; and
• Recognition
of revenue when or as the Company satisfies a performance obligation.
The Company
identifies performance obligations in contracts with customers, which primarily are professional services and subscription services.
The transaction price is determined based on the amount the Company expects to be entitled to receive in exchange for transferring
the promised services to the customer. The transaction price in the contract is allocated to each distinct performance obligation
in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance
obligation. Revenue is recognized when performance obligations are satisfied. The Company usually bills its customers before it
provides any services, and begins performing services after the first payment is received. Contracts are typically one year or
less. For larger contracts, in addition to the initial payment, the Company may allow for progress payments throughout the term
of the contract.
Judgments
and Estimates
The estimation
of variable consideration for each performance obligation requires the Company to make subjective judgments. The Company enters
into contracts with customers that regularly include promises to transfer multiple services, such as digital marketing, web-based
videos, offering statements, and professional services. For arrangements with multiple services, the Company evaluates whether
the individual services qualify as distinct performance obligations. In its assessment of whether a service is a distinct performance
obligation, the Company determines whether the customer can benefit from the service on its own or with other readily available
resources, and whether the service is separately identifiable from other services in the contract. This evaluation requires the
Company to assess the nature of each individual service offering and how the services are provided in the context of the contract,
including whether the services are significantly integrated, highly interrelated, or significantly modify each other, which may
require judgment based on the facts and circumstances of the contract.
When agreements
involve multiple distinct performance obligations, the Company allocates arrangement consideration to all performance obligations
at the inception of an arrangement based on the relative standalone selling prices (“SSP”) of each performance obligation.
Where the Company has standalone sales data for its performance obligations which are indicative of the price at which the Company
sells a promised service separately to a customer, such data is used to establish SSP. In instances where standalone sales data
is not available for a particular performance obligation, the Company estimates SSP by the use of observable market and cost-based
inputs. The Company continues to review the factors used to establish list price and will adjust standalone selling price methodologies
as necessary on a prospective basis.
Service
Revenue
Service revenue
from subscriptions to the Company's game website is recognized over time on a ratable basis over the contractual subscription
term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services
being rendered are recorded as a deferred revenue. Professional services revenue is recognized over time as the services are rendered.
When a contract
with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company
estimates the amount to reserve for uncollectible amounts based on the aging of the contract balance, current and historical customer
trends, and communications with its customers. These reserves are recorded as operating expenses against the contract asset (Accounts
Receivable).
Contract
Assets
Contract assets
are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed.
The revenue is recognized when the customer receives services. Contract assets are included in other current or non-current assets
in the consolidated balance sheets, depending on if their reduction will be recognized during the succeeding twelve-month period
or beyond.
Deferred
Revenue
Deferred revenues
represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances
consist primarily of annual plan subscription services and professional and training services not yet provided as of the balance
sheet date. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred
revenues in the consolidated balance sheets, with the remainder recorded as other non-current liabilities in the consolidated
balance sheets.
Costs
to Obtain a Customer Contract
Sales commissions
and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized
as other current or non-current assets and amortized on a straight-line basis over the life of the contract, which approximates
the benefit period. The benefit period was estimated by taking into consideration the length of customer contracts, technology
lifecycle, and other factors. All sales commissions are recorded as consulting fees within the Company's consolidated statement
of operations.
Remaining
Performance Obligations
The Company's
subscription terms are typically less than one year. All of the Company’s revenues in the six-month periods ended October
31, 2019 and 2018, which amounted to $835,725 and $160,640, respectively, and all of the Company’s revenues in the three-month
periods ended October 31, 2019 and 2018, which amounted to $716,993 and $68,722, respectively, are considered contract revenues.
Contract revenue as of October 31, 2019 and April 30, 2019, which has not yet been recognized, amounted to $667 and $15,711, respectively,
and is recorded on the balance sheet as deferred revenue. The Company expects to recognize revenue on all of its remaining performance
obligations over the next 12 months.
Note 4
– Earnings (Loss) Per Common Share
Earnings (loss)
per common share data was computed as follows:
|
|
Six Months Ended October 31, 2019
|
|
Six Months Ended October 31, 2018
|
|
Three Months Ended October 31, 2019
|
|
Three Months Ended October 31, 2018
|
Net income (loss) attributable to common stockholders – basic
|
|
$
|
566,926
|
|
|
$
|
(27,562
|
)
|
|
$
|
542,451
|
|
|
$
|
(20,355
|
)
|
Adjustments to net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) attributable to common stockholders – diluted
|
|
$
|
566,926
|
|
|
$
|
(27,562
|
)
|
|
$
|
542,451
|
|
|
$
|
(20,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
791,529,063
|
|
|
|
735,127,838
|
|
|
|
830,508,342
|
|
|
|
738,318,668
|
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average common shares outstanding – diluted
|
|
|
791,529,063
|
|
|
|
735,127,838
|
|
|
|
830,508,342
|
|
|
|
738,318,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share – basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Earnings (loss) per common share – diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
For the six-
and three-month periods ended October 31, 2019, the Company had no outstanding securities that were convertible into common stock.
For the six- and three-month periods ended October 31, 2018, the Company excluded 18,000,000 shares of common stock, issuable
upon the exercise of outstanding stock options from the calculation of net loss per share because the effect would be anti-dilutive.
Note 5
– Principal Financing Arrangements
The
following table summarizes components debt as of October 31, 2019 and April 30, 2019:
|
|
October
31,
2019
|
|
April
30, 2019
|
|
Interest
Rate
|
|
|
|
|
|
|
|
Secured
lender (affiliate)
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
|
1.25
|
%
|
Notes
payable – related parties
|
|
|
71,800
|
|
|
|
76,100
|
|
|
|
0.0 – 8.0
|
%
|
Demand
notes payable
|
|
|
7,860
|
|
|
|
7,860
|
|
|
|
0.0
|
%
|
Loan
payable – bank
|
|
|
34,324
|
|
|
|
34,324
|
|
|
|
5.5 – 7.0
|
%
|
Total
Debt
|
|
$
|
1,113,984
|
|
|
$
|
1,118,284
|
|
|
|
|
|
As of October
31, 2019 and April 30, 2019, the Company owed its principal lender (“Lender”) $1,000,000 under a loan and security
agreement (“Loan”) dated April 28, 2011, that was amended on July 26, 2014 and again on October 31, 2017. The Lender
is also the largest shareholder of the Company, owning 271,371,454 shares of common stock, or 32.7% of the 830,644,212 shares
issued and outstanding, as of October 31, 2019.
The Loan was
amended on October 31, 2017 to change the maturity date to October 31, 2020, reduce the interest rate from 8% to 1.25% per annum,
and reduce the default interest rate from 15% to 8% per annum (the “Amendments”). In conjunction with the Amendments,
the Lender also agreed to reduce the total debt and accrued interest payable by $453,031 to $1,000,000, in exchange for the Company
issuing to the Lender 44,198,246 shares of its common stock. Consequently, upon issuance of the 44,198,246 shares, the Company
recorded an increase of $44,198 in common stock and $408,833 in capital in excess of par value.
In connection
with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not
convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement,
dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur
any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged
to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business,
or make any material capital expenditures. To secure the payment of all obligations to the Lender, the Company granted to the
Lender a continuing security interest and first lien on all of the assets of the Company.
As of October
31, 2019 and April 30, 2019, the Company’s related-party unsecured notes payable totaled $71,800 and $76,100, respectively.
The Company also owes $34,324 as of October 31, 2019 and April 30, 2019 to Chase Bank. Currently, the Company pays no monthly
principal payments on the outstanding balance. The Company pays a variable monthly interest expense, which is calculated at a
rate of 7.0% per annum at October 31, 2019.
The debt to
Chase Bank was personally guaranteed by a former Chief Executive Officer and Chairman of the Board (the “Former CEO”).
The Former CEO sold shares of the Company to a third-party, and in addition to payments to the Former CEO, the contract of sale
required the third-party make monthly payments to Chase Bank to pay down the money owed to Chase Bank. Total payments received
from the third-party in the six and three months ended October 31, 2018 amounted to $4,600 and $1,900, respectively. These payments
were recorded as other income. No such payments were made in fiscal 2020.
Demand notes
payable totaled $7,860 at October 31, 2019 and April 30, 2019, and do not bear interest.
Note 6
– Income Taxes
At October
31, 2019 and April 30, 2019, the Company had net operating loss carryforwards for Federal income tax purposes of approximately
$1,300,000 expiring in the years of 2020 through 2035. 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.
The Tax Cuts
and Jobs Act ("Tax Act") was enacted on December 22, 2017. Among numerous provisions, the Tax Act reduces the U.S. federal
corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries
that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. As a result of the Tax Act, the
Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the
future, which is generally 21%.
Due to the
availability of a tax loss carryforward to offset any potential tax, for the six-and three-month periods ended October 31, 2019,
the Company recorded no income tax expense in either of these periods. Due to the loss for the six and three-month periods ended
October 31, 2018, the Company has recorded no income tax expense in either of these periods. The Company is currently open to
audit under the statute of limitations by the federal and state jurisdictions for the years ended April 30, 2017 through 2019.
Note 7
– Related Party Transactions
The Company’s
largest shareholder is also its principal lender. As of October 31, 2019 and April 30, 2019, the Company owed its largest shareholder,
under a secured lending agreement, $1,000,000. Under the existing loan agreement, as amended,
the maximum amount of the loan is $1,250,000, and the loan matures on October 31, 2020. The largest shareholder of the Company
owns 271,371,454 shares of common stock, or 32.7% of the 830,644,212 shares issued and outstanding.
Compensation
to officers in the six-month periods ended October 31, 2019 and 2018 consisted of common stock valued at $65,483 and $9,531 respectively,
and cash payments of $62,000 and $60,000, respectively. Compensation to officers in the three-month periods ended October 31,
2019 and 2018 consisted of common stock valued at $48,248 and $3,025 respectively, and cash payments of $32,000 and $30,000, respectively.
In
the six-month periods ended October 31, 2019 and 2018 the Company remitted cash payments to a related party consultant of $16,200
and $0, respectively, and cash payments of $9,000 and $0 for the three-month periods ended October 31, 2019 and 2018, respectively.
Stock-based compensation to this consultant was recorded at $11,476 for the six-and three-month periods ended October 31, 2019
and $0 for the six-and three-month periods ended October 31, 2018.
The
Company owes a director $16,680 as of October 31, 2019 and April 30, 2019, which is recorded as accounts payable, plus $15,000
in a non-interest bearing note payable.
The
Company owes a related party $56,800 and $61,100 as of October 31, 2019 and April 30, 2019, respectively, under a note payable
with interest at 8% per annum, which had a maturity date of November 18, 2017.
Accrued
interest payable on related party debt amounted to $32,224 and $24,102 at October 31, 2019 and April 30, 2019, respectively.
Note 8
– Stockholders’ Equity
The Company
is authorized to issue 900,000,000 shares of its common stock, par value $0.001. 830,644,212 and 752,519,212 shares were outstanding
as of October 31, 2019 and April 30, 2019, respectively.
In the quarter
ended July 31, 2019, the Company issued an aggregate of 2,812,500 shares of restricted stock to its Chief Executive Officer, Chief
Financial Officer and Chief Marketing Officer as compensation. The shares were valued at $19,688.
On September
9, 2019, the Company signed a stock-based compensation agreement, ending on July 31, 2021, with its Chief Executive Officer. The
Company issued 25 million shares of its common stock in conjunction with this agreement. The shares were valued at $305,000.
On September
9, 2019, the Company signed a stock-based compensation agreement with its Chief Financial Officer, ending on July 31, 2021. The
Company issued 25 million shares of its common stock in conjunction with this agreement. The shares were valued at $305,000.
On September
9, 2019, the Company signed stock-based compensation agreements with two consultants, ending on July 31, 2021. The Company issued
12,500,000 shares of its common stock to each consultant in conjunction with these agreements. The total number of shares issued
was valued at $305,000. One of the consultants is considered a related party and provides marketing and business development services
to the Company. The second consultant provides business services to public companies.
On October
31, 2019, the Company recorded the issuance of 312,500 shares of common stock to its Chief Marketing Officer. The shares were
valued at $2,344 and recorded as an expense in the quarter ended October 31, 2019.
In the quarter
ended July 31, 2018, the Company issued 200,000 restricted shares of stock in conjunction with the purchase of a virtual reality
game known as SpaceoutVR. The Company also issued 3,937,501 restricted shares of common stock as part of stock-based compensation
agreements. Shares issues for compensation amounted to 3,625,000 shares to Company officers, and 312,501 to a consultant.
In the quarter
that ended on October 31, 2018, the Company sold $5,000 of restricted common stock in a private placement and issued 2,800,000
shares of restricted stock. The Company also issued 8,262,501 restricted shares of common stock as part of stock-based compensation
agreements. Shares issued for compensation amounted to 2,750,000 shares to Company officers, and 5,512,501 to three consultants.
Note 9
– 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:
-
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.
Note
10 – Stock-Based Compensation Plans
The Company
entered various consulting agreements to issue common stock and options to purchase common stock, and recorded the applicable
non-cash expense in accordance with the authoritative guidance of the Financial Accounting Standards Board.
For the six
and three-month periods ended October 31, 2019, the Company recorded $108,531 and $80,021 respectively, in stock-based compensation
expense.
For the six
and three-month periods ended October 31, 2018, the Company recorded $36,547 and $21,031 respectively, in stock-based compensation
expense.
The components
of the stock-based compensation expense are presented in the following table:
Stock-based compensation expense
|
|
Six Months Ended October 31, 2019
|
|
Six Months Ended October 31, 2018
|
|
Three Months Ended October 31, 2019
|
|
Three Months Ended October 31, 2018
|
Chief Executive Officer
|
|
$
|
31,702
|
|
|
$
|
4,063
|
|
|
$
|
22,952
|
|
|
$
|
1,513
|
|
Chief Financial Officer
|
|
|
31,702
|
|
|
|
4,063
|
|
|
|
22,952
|
|
|
|
1,513
|
|
Chief Marketing Officer
|
|
|
4,531
|
|
|
|
1,063
|
|
|
|
2,343
|
|
|
|
—
|
|
Related party consultant
|
|
|
11,476
|
|
|
|
—
|
|
|
|
11,476
|
|
|
|
—
|
|
Sales consultants
|
|
|
—
|
|
|
|
9,714
|
|
|
|
—
|
|
|
|
9,183
|
|
Marketing consultant
|
|
|
17,644
|
|
|
|
17,644
|
|
|
|
8,822
|
|
|
|
8,822
|
|
Business consultant
|
|
|
11,476
|
|
|
|
—
|
|
|
|
11,476
|
|
|
|
—
|
|
Total stock-based compensation expense
|
|
$
|
108,531
|
|
|
$
|
36,547
|
|
|
$
|
80,021
|
|
|
$
|
21,031
|
|
At October
31, 2019, the total prepaid stock compensation amounted to $854,199, as follows:
Prepaid stock-based compensation
|
|
October 31, 2019
|
Chief Executive Officer
|
|
$
|
282,048
|
|
Chief Financial Officer
|
|
|
282,048
|
|
Related party consultant
|
|
|
141,024
|
|
Marketing consultant
|
|
|
8,055
|
|
Business consultant
|
|
|
141,024
|
|
Total prepaid stock-based compensation expense
|
|
$
|
854,199
|
|
As of October
31, 2019, there was $465,555 of current prepaid stock-based compensation expense and $388,644 in non-current prepaid stock compensation
expense for services that end on July 31, 2021.
Note
11 – Deposits and Commitments
The Company
utilizes office space in Boston, Massachusetts, under a month-to-month lease agreement that allows the company to end its lease
by providing 30-day written notice. The lease agreement includes a deposit of $6,300. Effective May
1, 2019, the Company adopted ASU No. 2016-02 (“ASU 2016-02”), Leases using the modified retrospective
transition approach utilizing the effective date as the date of initial application. The
adoption of the ASU had no impact on the Company’s financial statements due to the short-term nature of our lease agreement.
Note
12 – Concentrations
For the six-
and three-month periods ended October 31, 2019, the Company had one customer that constituted 65% and 75% of its revenues, respectively;
a second customer that constituted 18% and 8% of its revenues, respectively; and a third customer that constituted 11% and 13%
of its revenues, respectively;
For the six-
and three-month periods ended October 31, 2018, the Company had one customer that constituted 78% and 73% of its revenues, respectively.
Note 13
– Subsequent Events
The Company
evaluated subsequent events through December 16, 2019, the date these financial statements were available to be issued. There
were no other material subsequent events that required recognition or additional disclosure in these financial statements.