PART
I - FINANCIAL INFORMATION
Item
1- Consolidated Financial Statements – Unaudited
PHI
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
|
|
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
85,031
|
|
|
$
|
38,369
|
|
Marketable securities
|
|
|
444,173
|
|
|
|
502,695
|
|
Accounts receivable
|
|
|
432,000
|
|
|
|
-
|
|
Other current assets
|
|
|
89,899
|
|
|
|
133,000
|
|
Total current assets
|
|
$
|
1,051,103
|
|
|
$
|
674,064
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Investments
|
|
|
25,005,000
|
|
|
|
0
|
|
Total other assets
|
|
$
|
25,005,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
26,056,103
|
|
|
$
|
674,064
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
144,455
|
|
|
$
|
159,875
|
|
Accrued expenses
|
|
|
559,605
|
|
|
|
384,929
|
|
Short-term notes payable - Net
|
|
|
881,511
|
|
|
|
873,008
|
|
Due to officers
|
|
|
264,292
|
|
|
|
592,141
|
|
Client deposits
|
|
|
-
|
|
|
|
780
|
|
Derivative liabilities - Net
|
|
|
683,901
|
|
|
|
454,756
|
|
Dividends payable - Preferred Stock
|
|
|
390,137
|
|
|
|
-
|
|
Other current payable
|
|
|
92,781
|
|
|
|
0
|
|
Total current liabilities
|
|
$
|
3,016,682
|
|
|
$
|
2,465,489
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Demand promissory note
|
|
|
4,939,500
|
|
|
$
|
-
|
|
Accrued expenses
|
|
|
1,456,816
|
|
|
|
1,462,836
|
|
Accrued interest
|
|
|
2,715,963
|
|
|
|
2,715,963
|
|
Advances from Customers
|
|
|
288,219
|
|
|
|
288,219
|
|
Liabilities from Discontinued Operations
|
|
|
1,255,037
|
|
|
|
1,255,037
|
|
Total Long-term Liabilities
|
|
$
|
10,655,536
|
|
|
$
|
5,722,056
|
|
Total Liabilities
|
|
$
|
13,672,217
|
|
|
$
|
8,187,545
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 100,000,000 shares authorized; none issued and outstanding as
of 06/30/2017; 4,000,000 shares issued and oustanding as of 12/31/2017.
|
|
|
4,000
|
|
|
|
-
|
|
Common stock, $.001 par value; 900,000,000 shares authorized; 69,679,914 issued and outstanding on 12/31/2017; 300,000,000 authorized and 16,109,036 issued and outstanding on 06/30/2017.
|
|
|
319,454
|
|
|
|
249,645
|
|
Treasury stock, $.001 par value, 484,767 and 321,569 shares as of 12/31/2017 and 6/30/2017.
|
|
|
(44,170
|
)
|
|
|
(40,908
|
)
|
Paid-in capital
|
|
|
52,305,355
|
|
|
|
31,424,061
|
|
Acc. other comprehensive gain (loss)
|
|
|
95,651
|
|
|
|
153,474
|
|
Accumulated deficit
|
|
|
(40,296,404
|
)
|
|
|
(39,299,754
|
)
|
Total stockholders’ equity (deficit)
|
|
$
|
12,383,886
|
|
|
$
|
(7,513,481
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
26,056,103
|
|
|
$
|
674,064
|
|
The
accompanying notes form an integral part of these unaudited consolidated financial statements
PHI
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
UNAUDITED
|
|
For the Three Months Ended
December 31
|
|
|
For the Six Months Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
432,000
|
|
|
$
|
40,000
|
|
|
$
|
460,500
|
|
|
$
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
52,500
|
|
|
|
52,500
|
|
|
|
104,500
|
|
|
|
104,500
|
|
Professional services, including non-cash compensation
|
|
|
35,172
|
|
|
|
33,951
|
|
|
|
73,503
|
|
|
|
185,250
|
|
General and administrative
|
|
|
47,500
|
|
|
|
26,466
|
|
|
|
91,463
|
|
|
|
63,112
|
|
Total operating expenses
|
|
$
|
135,172
|
|
|
$
|
112,916
|
|
|
$
|
269,466
|
|
|
$
|
352,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from operations
|
|
$
|
296,828
|
|
|
$
|
(72,916
|
)
|
|
$
|
191,034
|
|
|
$
|
(262,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
|
(295,045
|
)
|
|
|
(48,627
|
)
|
|
|
(512,617
|
)
|
|
|
(223,763
|
)
|
Net gain (loss) on sale of marketable securities
|
|
|
-
|
|
|
|
2,664
|
|
|
|
-
|
|
|
|
2,639
|
|
Gain (loss) on settlement of debts
|
|
|
(9,310
|
)
|
|
|
(131,818
|
)
|
|
|
(187,320
|
)
|
|
|
(131,818
|
)
|
Gain (loss) on sale of assest
|
|
|
-
|
|
|
|
(2,011
|
)
|
|
|
-
|
|
|
|
(20,011
|
)
|
Discounts on convertible notes
|
|
|
-
|
|
|
|
(18,307
|
)
|
|
|
-
|
|
|
|
(20,807
|
)
|
Dividends - Class A Series II Preferred Stock
|
|
|
(390,137
|
)
|
|
|
-
|
|
|
|
(390,137
|
)
|
|
|
-
|
|
Other income (expense)
|
|
|
(37,570
|
)
|
|
|
11,835
|
|
|
|
(487,748
|
)
|
|
|
3,910
|
|
Net other income (expenses)
|
|
|
(732,062
|
)
|
|
|
(204,265
|
)
|
|
|
(1,187,685
|
)
|
|
|
(389,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(435,234
|
)
|
|
$
|
(277,181
|
)
|
|
$
|
(996,650
|
)
|
|
$
|
(652,713
|
)
|
Other comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acc. Other comprehensive gain (loss)
|
|
$
|
95,651
|
|
|
$
|
284,045
|
|
|
$
|
95,651
|
|
|
$
|
284,045
|
|
Comprehensive income (loss)
|
|
|
(339,583
|
)
|
|
|
6,864
|
|
|
|
(900,999
|
)
|
|
|
(368,668
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,754,516
|
|
|
|
10,492,460
|
|
|
|
55,754,516
|
|
|
|
10,492,460
|
|
Diluted
|
|
|
55,754,516
|
|
|
|
10,492,460
|
|
|
|
55,754,516
|
|
|
|
10,492,460
|
|
The
accompanying notes form an integral part of these unaudited consolidated financial statements
PHI
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
UNAUDITED
|
|
For the Six Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
$
|
(996,650
|
)
|
|
$
|
(652,713
|
)
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets and prepaid expenses
|
|
|
(330,376
|
)
|
|
|
(249,746
|
)
|
Increase (decrease) in accounts payable and accrued expenses
|
|
|
551,192
|
|
|
|
(225,577
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(775,834
|
)
|
|
|
(1,128,036
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Land purchase
|
|
|
-
|
|
|
|
82,733
|
|
Deposit for acquisition Deposit for products/acquisition
|
|
|
-
|
|
|
|
(15,000
|
)
|
Investments in Aquarius Power Technology and Oregon gold properties
|
|
|
(25,005,000
|
)
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
|
(25,005,000
|
)
|
|
|
67,733
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Changes in Common Stock Common Stock and APIC
|
|
|
955,102
|
|
|
|
844,757
|
|
Preferred Stock and APIC
|
|
|
20,000,000
|
|
|
|
-
|
|
Change in other comprehensive loss Acc. Other Comprehensive Income (Loss)
|
|
|
(57,823
|
)
|
|
|
253,782
|
|
Changes in Treasury Stock
|
|
|
(3,262
|
)
|
|
|
(331
|
)
|
Demand Promissory Note
|
|
|
4,939,500
|
|
|
|
-
|
|
Decrease in minority interest Other Adjustment
|
|
|
(6,020
|
)
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
|
25,827,497
|
|
|
|
1,098,208
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
46,664
|
|
|
|
37,905
|
|
Cash and cash equivalents, beginning of period
|
|
|
38,369
|
|
|
|
2,482
|
|
Cash and cash equivalents, end of period
|
|
$
|
85,032
|
|
|
$
|
40,387
|
|
The
accompanying notes form an integral part of these unaudited consolidated financial statements
PHI
GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1
–
NATURE OF BUSINESS
INTRODUCTION
PHI
Group, Inc. (the “Company” or “PHI”) is engaged in mergers and acquisitions as a principal
(
www.phiglobal.com
)
and invests in several selective industries. The Company has adopted plans to acquire established operating businesses
in a number of industries and invest in various ventures that may potentially create significant long-term value for our shareholders.
In addition, we also provide corporate finance services, including merger and acquisition advisory and consulting services for
client companies through our wholly owned subsidiary PHI Capital Holdings, Inc. (
www.phicapitalholdings.com
)
.
No assurances can be made that the Company will be successful in achieving its plans.
BACKGROUND
Originally
incorporated on June 8, 1982 as JR Consulting, Inc., a Nevada corporation, the Company applied for a Certificate of Domestication
and filed Articles of Domestication to become a Wyoming corporation on September 20, 2017. In the beginning, the Company was foremost
engaged in mergers and acquisitions and had an operating subsidiary, Diva Entertainment, Inc., which operated two modeling agencies,
one in New York and one in California. Following the business combination with Providential Securities, Inc., a California-based
financial services company, the Company changed its name to Providential Securities, Inc., a Nevada corporation, in January 2000.
The Company then changed its name to Providential Holdings, Inc. in February 2000. In October 2000, Providential Securities withdrew
its securities brokerage membership and ceased its financial services business. Subsequently, in April 2009, the Company changed
its name to PHI Group, Inc. From October 2000 to October 2011, the Company and its subsidiaries were engaged in mergers and acquisitions
advisory and consulting services, real estate and hospitality development, mining, oil and gas, telecommunications, technology,
healthcare, private equity, and special situations. In October 2011, the Company discontinued the operations of Providential Vietnam
Ltd., Philand Ranch Limited, a United Kingdom corporation (together with its subsidiaries Philand Ranch - Singapore, Philand Corporation
- US, and Philand Vietnam Ltd. - Vietnam), PHI Gold Corporation (formerly PHI Mining Corporation, a Nevada corporation), and PHI
Energy Corporation (a Nevada corporation), and mainly focused on acquisition and development opportunities in energy and natural
resource businesses. At the present, the Company is engaged in mergers and acquisitions as a principal and investments in natural
resources, energy, agriculture, healthcare, pharmaceuticals, biotechnology and special situations. In addition, PHI Capital Holdings,
Inc., a wholly owned subsidiary of PHI, continues to provide corporate and project finance services, including merger and acquisition
(M&A) advisory and consulting services for other companies in a variety of industries.
NOTE
2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of PHI Group, Inc., its wholly owned subsidiaries PHI Capital Holdings,
Inc., Abundant Farms, Inc., American Pacific Resources, Inc., PHI EZ Water Tech, Inc., PHI Group EB-5 Regional Center, LLC. and
its discontinued operations Providential Securities, Inc., PHI Energy Corporation, PHI Gold Corp, Providential Vietnam Ltd. and
Philand Ranch Limited (including its 100% owned subsidiary Philand Corporation and Philand Vietnam Ltd) and Omni Resources, Inc.,
collectively referred to as the “Company.” All significant inter-company transactions have been eliminated in consolidation.
INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction
with the audited financial statements for the year ended June 30, 2017. In the opinion of management, all adjustments consisting
of normal reoccurring accruals have been made to the financial statements. The results of operation for the three and six months
ended December 31, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2018.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible
into cash to be cash equivalents.
MARKETABLE
SECURITIES
The
Company’s securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified
as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Typically,
each investment in marketable securities represents less than twenty percent (20%) of the outstanding common stock and stock equivalents
of the investee, and each security is quoted on either the OTC Markets or other public exchanges. As such, each investment is
accounted for in accordance with the provisions of SFAS No. 115.
Unrealized
holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of
stockholder’s equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings
based upon the adjusted cost of the specific security sold. On December 31, 2017, the marketable securities were recorded at $444,173,
based upon the fair value of the marketable securities at that time.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Fair
Value - Definition and Hierarchy
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. Assets and liabilities measured at fair value are categorized based on whether
or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial
assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement.
A
fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable inputs are to be used when available.
Valuation
techniques that are consistent with the market or income approach are used to measure fair value. The fair value hierarchy is
categorized into three levels based on the inputs as follows:
Level
1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the
ability to access.
Level
2 - Valuations based on inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly.
Level
3
- Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Fair
value is a market-based measure, based on assumptions of prices and inputs considered from the perspective of a market participant
that are current as of the measurement date, rather than an entity-specific measure. Therefore, even when market assumptions are
not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing
the asset or liability at the measurement date. The availability of valuation techniques and observable inputs can vary from investment
to investment and are affected by a wide variety of factors, including; type of investment, whether the investment is new and
not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.
To
the extent that valuation is based upon models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially
higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree
of judgment exercised by the Fund in determining fair value is greatest for investments categorized in Level 3. In certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in
the fair value hierarchy in which the fair value measurement falls in its entirety is determined based upon the lowest level input
that is significant to the fair value measurement.
Fair
Value - Valuation Techniques and Inputs
The
Company holds and may invest public securities traded on public exchanges or over-the-counter (OTC), private securities, real
estate, convertible securities, interest bearing securities and other types of securities and has adopted specific techniques
for their respective valuations.
Equity
Securities in Public Companies
Unrestricted
The
Company values investments in securities that are freely tradable and listed on major securities exchanges at their last reported
sales price as of the valuation date. To the extent these securities are actively traded and valuation adjustments are not applied,
they are categorized in Level 1 of the fair value hierarchy.
Securities
traded on inactive markets or valued by reference to similar instruments are generally categorized in Level 2 or 3 of the fair
value hierarchy.
Restricted
Securities
traded on public exchanges or over-the-counter (OTC) where there are formal restrictions that limit (i.e. Rule 144 holding periods
and underwriter’s lock-ups) their sale shall be valued at the closing price on the date of valuation less applicable discounts.
The Company may apply a discount to securities with Rule 144 restrictions. Additional discounts may be assessed if the Company
believes there are other mitigating factors which warrant the additional discounting. When determining potential additional discounts,
factors that will be taken into consideration include, but are not limited to; securities’ trading characteristics, volume,
length and overall impact of the restriction as well as other macro-economic factors. Valuations should be discounted appropriately
until the securities may be freely traded.
If
it has been determined that the exchange or OTC listed price does not accurately reflect fair market value, the Company may elect
to treat the security as a private company and apply an alternative valuation method.
Investments
in restricted securities of public companies may be included in Level 2 of the fair value hierarchy. However, to the extent that
significant inputs used to determine liquidity discounts are not observable, investments in restricted securities in public companies
may be categorized in Level 3 of the fair value hierarchy.
The
Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, marketable securities,
short-term notes payable, convertible notes, derivative liability and accounts payable.
As
of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying
values as presented on the balance sheet. This is primarily attributed to the short maturities of these instruments.
Effective
July 1, 2008, the Company adopted ASC 820 (previously SFAS 157),
Fair Value Measurements
and adopted this Statement for
the assets and liabilities shown in the table below. ASC 820 clarifies the definition of fair value, prescribes methods for measuring
fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the
use of fair value measurements. The adoption of ASC 820 did not have a material impact on our fair value measurements. ASC 820
permits the Company to defer the recognition and measurement of the nonfinancial assets and nonfinancial liabilities until January
1, 2010. At June 30, 2017, the Company did not have any nonfinancial assets or nonfinancial liabilities that are recognized or
disclosed at fair value. ASC 820 requires that financial assets and liabilities that are reported at fair value be categorized
as one of the types of investments based upon the methodology mentioned in Level 1, Level 2 and Level 3 above for determining
fair value.
Assets
measured at fair value on a recurring basis are summarized below. The Company also has convertible notes and derivative liabilities
as disclosed in this report that are measured at fair value on a regular basis until paid off or exercised.
Available-for-sale
securities
The
Company uses various approaches to measure fair value of available-for-sale securities, while applying the three-level valuation
hierarchy for disclosures, specified in ASC 820. Our Level 1 securities were measured using the quoted prices in active markets
for identical assets and liabilities.
The
company’s policy regarding the transfers in and/or out of Level 3 depends on the trading activity of the security, the volatility
of the security, and other observable units which clearly represents the fair value of the security. If a level 3 security can
be measured using a more fairly represented fair value, we will transfer these securities either into Level 1 or Level 2, depending
on the type of inputs.
ACCOUNTS
RECEIVABLE
Management
reviews the composition of accounts receivable and analyzes historical bad debts. As of December 31, 2017, the Company had an
account receivable in the amount of $432,000.
PROPERTIES
AND EQUIPMENT
Property
and equipment are carried at cost less accumulated depreciation. Depreciation is provided using the straight-line method over
the estimated useful life of the assets from three to five years. Expenditures for maintenance and repairs are charged to expense
as incurred.
REVENUE
RECOGNITION
The
Company’s revenue recognition policies are in compliance with ASC 13 (previously Staff accounting bulletin (SAB) 104). The
Company recognizes consulting and advisory fee revenues when the transaction is completed and the service fees are earned. Expenses
are recognized in the period in which the corresponding liability is incurred. Payments received before all of the relevant criteria
for revenue recognition are recorded as unearned revenue.
STOCK-BASED
COMPENSATION
Effective
July 1, 2006, the Company adopted ASC 718-10-25 (previously SFAS 123R) and accordingly has adopted the modified prospective application
method. Under this method, ASC 718-10-25 is applied to new awards and to awards modified, repurchased, or cancelled after the
effective date. Additionally, compensation cost for the portion of awards that are outstanding as of the date of adoption for
which the requisite service has not been rendered (such as unvested options) is recognized over a period of time as the remaining
requisite services are rendered.
RISKS
AND UNCERTAINTIES
In
the normal course of business, the Company is subject to certain risks and uncertainties. The Company provides its service and
receives marketable securities upon execution of transactions. Consequently, the value of the securities received from customers
can be affected by economic fluctuations and each customer’s business growth. The actual realized value of these securities
could be significantly different than recorded value.
RECENT
ACCOUNTING PRONOUNCEMENTS
Update
No. 2013-11—Income Taxes (Topic 740):
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
a Similar Tax Loss, or a Tax Credit Carryforward Exists
(a consensus of the FASB Emerging Issues Task Force)
[Download]
|
|
July
2013
|
|
Effective
for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption
is permitted.
|
|
|
|
|
|
Update
No. 2013-09—
Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic
Employee Benefit Plans in Update No. 2011-04
[Download]
|
|
July
2013
|
|
The
deferral in this amendment is effective upon issuance for financial statements that have not been issued.
|
|
|
|
|
|
Update
No. 2013-07—
Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting
[Download]
|
|
April
2013
|
|
Effective
for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013. Early
adoption is permitted.
|
|
|
|
|
|
Update
No. 2013-04—
Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which
the Total Amount of the Obligation Is Fixed at the Reporting Date
(a consensus of the FASB Emerging Issues Task Force)
[Download]
|
|
February
2013
|
|
Effective
for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments
are effective for fiscal years ending after December 15, 2014, and interim periods and annual periods thereafter.
|
|
|
|
|
|
Update
2013-02—
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income
[Download]
|
|
February
2013
|
|
For
public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic
entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption
is permitted.
|
|
|
|
|
|
Update
2013-01—
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
[Download]
|
|
January
2013
|
|
An
entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within
those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented.
The effective date is the same as the effective date of Update 2011-11.
|
T
h
e
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mp
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as
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i
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eva
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im
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s
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a
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a
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s
.
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ses,
m
a
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m
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nt
h
as
d
e
t
e
rmin
e
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t
h
a
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pr
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un
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m
e
n
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h
as
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lim
ited
o
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o
a
ppl
i
c
a
ti
o
n
t
o
th
e
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mp
a
n
y
a
nd
,
i
n
a
ll
c
ases, i
mpl
e
m
e
nt
a
ti
o
n
wo
uld
n
ot
h
ave
a
m
a
t
er
i
al
imp
ac
t
o
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t
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e
financi
a
l
s
t
a
te
m
e
nt
s
t
a
k
e
n
as
a
w
h
o
l
e.
NOTE
3
– MARKETABLE EQUITY SECURITIES AVAILABLE FOR SALE
The
Company’s marketable securities are classified as available-for-sale and, as such, are carried at fair value. All of the
securities are comprised of shares of common stock of the investee. Securities classified as available-for-sale may be sold in
response to changes in interest rates, liquidity needs, and for other purposes. These marketable securities are quoted on the
OTC Markets or other public exchanges and are accounted for in accordance with the provisions of SFAS No. 115.
Marketable
securities held by the Company and classified as available for sale as of December 31, 2017 consisted of 33,805,106 shares of
Myson Group, Inc., a public company quoted on the OTC Markets (Trading symbol “MYSN”) and 292,050,000 shares of Sports
Pouch Beverage Co., a public company quoted on the OTC Markets (Trading symbol “SPBV”). The fair value of the shares
recorded as of December 31, 2017 was $444,173.
Securities available for sale
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
December 31, 2017
|
|
None
|
|
$
|
152,123
|
|
|
$
|
292,050
|
|
|
$
|
444,173
|
|
June 30, 2017
|
|
None
|
|
$
|
210,646
|
|
|
$
|
292,050
|
|
|
$
|
502,696
|
|
NOTE
4
– PROPERTIES AND EQUIPMENT
The
Company did not have any properties or equipment as of December 31, 2017.
NOTE
5
– OTHER ASSETS
The
Other Assets comprise of the following: (1) As of December 31, 2017: $5,000 investment in Aquarius Power, Inc. and $25,000,000
investment in 51% of twenty-one mining claims over an area of approximately 400 acres situated five miles Northeast of the town
of Granite, Grant County, Oregon, U.S.A., near Granite Creek, within a precious metals belt 30-40 miles wide (N-S) and 100 miles
long (E-W); coincident with the core of the Blue Mountains, along the Snake River; (2) As of June 30, 2017: None.
|
|
12/31/2017
|
|
|
6/30/2017
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
25,005,000
|
|
|
$
|
-
|
|
Total Other Assets
|
|
$
|
25,005,5000
|
|
|
$
|
-
|
|
NOTE
6
– DISCONTINUED OPERATIONS
As
of June 30, 2012, the Company decided to recognize the businesses of PHI Gold Corp. (formerly PHI Mining Corporation), Providential
Vietnam Ltd., PHI Energy Corp., and Philand Ranch Ltd., a United Kingdom corporation, together with its wholly-owned subsidiaries
Philand Corporation (USA), Philand Ranch Ltd. (Singapore) and Philand Vietnam Ltd. as discontinued operations for practical business
and accounting purposes. As of June 30, 2013, the Company recorded a total of $2,234,327 for the liabilities and potential liability
contingencies and wrote off all non-performing assets associated with these discontinued operations. As of December 31, 2017,
the Company had a balance of $1,040,037 as Long-term Liabilities from Discontinued Operations.
NOTE
7
– CURRENT LIABILITIES
Current
liabilities of the Company consisted of the followings as of December 31, 2017 and June 30, 2017:
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
|
144,455
|
|
|
|
159,875
|
|
Accrued Expenses
|
|
|
559,605
|
|
|
|
384,929
|
|
Short-term Notes Payable - Net
|
|
|
881,511
|
|
|
|
873,008
|
|
Due to Officers
|
|
|
264,292
|
|
|
|
592,141
|
|
Client Deposits
|
|
|
-
|
|
|
|
780
|
|
Derivative Liabilities – Net
|
|
|
683,901
|
|
|
|
454,756
|
|
Other Current Payable
|
|
|
92,781
|
|
|
|
-
|
|
Total Current Liabilities:
|
|
$
|
3,016,682
|
|
|
$
|
2,465,489
|
|
NOTE
8
– LONG-TERM LIABILITIES
Long-term
liabilities of the Company consisted of the followings as of December 31, 2017 and June 30, 2017:
|
|
December
31, 2017
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
Demand promissory note
|
|
|
4,939,500
|
|
|
|
-
|
|
Accrued Expenses
|
|
|
1,456,816
|
|
|
|
1,462,836
|
|
Accrued Interest
|
|
|
2,715,963
|
|
|
|
2,715,963
|
|
Advances from Customers
|
|
|
288,219
|
|
|
|
288,219
|
|
Liabilities from Discontinued Operations
|
|
|
1,040,037
|
|
|
|
1,040,037
|
|
Preferred Stock Liabilities – Discontinued Operations
|
|
|
215,000
|
|
|
|
215,000
|
|
Total Long-term Liabilities:
|
|
$
|
10,655,536
|
|
|
$
|
5,722,056
|
|
DUE
TO PREFERRED STOCKHOLDERS
As
of June 30, 2017, the Company re-classified $215,000 of preferred stock subscribed as Long-term Liabilities payable to holders
of preferred stock of Providential Securities, Inc., a previous subsidiary of the Company that was discontinued in the year 2000.
In the early 2000’s, the Company had made an offer for these preferred stockholders to receive shares of common stock in
the Company in exchange for the preferred shares in the discontinued subsidiary but only a small number of the preferred shareholders
responded and accepted the offer. In more recent years, the Company has also attempted to contact these preferred shareholders
from time to time but have not received further response from them. The Company has continued to accrue imputed interest expenses
on the balance of $215,000 on a periodic basis. As of December 31, 2017 and June 30, 2017, $451,500 and $438,600 have been included
on the balance sheets as accrued interest in connection with preferred stock liabilities, respectively.
ADVANCES
FROM CUSTOMERS
As
of September 30, 2012, the Company reclassified the previously recorded Unearned Revenues as Advances from Customers because the
Company was not able to complete the consulting services for the related client due to its inability to provide GAAP-compliant
audited financial statements in order to file a registration statement with the Securities and Exchange Commission. As of December
31, 2017, the Company recorded $288,219 of Advances from Customers as a Long-term Liability.
During
the quarter ended September 30, 2017, the Company signed a Settlement Agreement and agreed to pay Thinh Hung Investment Co. a
total amount of $381,000 which includes the outstanding balance of $288,219 mentioned above and $92,781 in accrued interest that
is recorded as Other Current Liability in the balance sheets of the Company as of 12/31/2017.
According
to the Settlement Agreement, the Compapny would transfer or cause to be transferred at least 480,000 shares of Common Stock of
PHI Group, Inc. to an authorized represenatative of Thinh Hung. In the event Thinh Hung is unable to realize at least $381,000
from the sale of PHI Stock, PHI Group will either transfer additional Common Stock of PHI Group, Inc. or other marketable securities
to the authorized reprenesattive designated Thinh Hung or pay cash directly to Thinh Hung until the total amount of $381,000 is
reached. After the receipt of at least 480,000 shares of PHI Group Stock by the authorized representative of Thinh Hung, Thinh
Hung would deliver and transfer all the Vietnam Foods Corporation Stock to PHI Group, Inc. or its authorized representative. As
od December 31, 2017 no shares have been transferred to Thinh Hung or its authorized representative.
OTHER
LONG-TERM LIABILITIES
As
of December 31, 2017, the Company recorded the following items as other long-term liabilities: $1,456,816 of Accrued Expenses,
$2,715,963 of Accrued Interest, $1,040,037 of Liabilities from Discontinued Operations, and $4,939,500 of Demand Promissory Note
from American Pacific Resources, Inc., a wholly-owned subsidiary of the Company.
NOTE
9
– DUE TO OFFICERS
Due
to officers, represents advances made by officers of the Company and its subsidiaries, which are non-interest bearing, unsecured
and due on demand. During the quarter ended September 30, 2017, Henry Fahman converted $300,000 into 20,000,000 shares of restricted
common stock of the Company valued at $0.015 per share. As of December 31, 2017 and June 30, 2017, the balances were $264,292
and $592,141, respectively.
Officers/Directors
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
Henry Fahman
|
|
|
183,442
|
|
|
$
|
511,291
|
|
Tam Bui
|
|
|
63,350
|
|
|
$
|
63,350
|
|
Frank Hawkins
|
|
|
5,000
|
|
|
$
|
5,000
|
|
Lawrence Olson
|
|
|
12,500
|
|
|
|
12,500
|
|
Total
|
|
$
|
264,292
|
|
|
$
|
592,141
|
|
NOTE
10
– LOANS AND PROMISSORY NOTES
SHORT
TERM NOTES PAYABLE:
In
the course of its business, the Company has obtained short-term loans from individuals and institutional investors and from time
to time raised money by issuing restricted common stock of the Company under the auspices of Rule 144.
As
of December 31, 2017, the Company had short-term notes payable of $624,890 with accrued interest of $2,362,797. These notes bear
interest rates ranging from 0% to 36% per annum.
CONVERTIBLE
PROMISSORY NOTES:
On
February 2, 2017, the Company issued a convertible promissory note in the amount of $42,000 to JSJ Investments Inc. with an interest
rate of 10%, convertible to common stock at 45% discount. The maturity date of this note is 11/2/2017. On August 1, 2017, the
Company paid $31,462.60 to JSJ Investments for one half of the principal of the note, one half of the prepayment premium and one
half of the accrued and unpaid interest. As of November 27, 2017, the balance of this note was $0.00.
On
February 23, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $28,000, with an interest
rate of 8% and convertible to Common Stock of the Company at 45% discount. The maturity date of this note is 11/30/2017. On August
14, 2017, the Company paid a total of $43,024.88 to Power Up Lending Group, which amount included the principal, prepayment premium
and accrued interest. This note was paid off in full as of August 14, 2017.
On
March 3, 2017, the Company issued a new convertible promissory note to Auctus Fund, LLC for $75,000, with an interest rate of
10% and convertible to Common Stock of the Company at 50% discount. The maturity date of this note is 12/3/2017. On September
9, 2017, the Company paid Auctus Fund, LLC $39,308.22, which amount included one third of the principal, one third of prepayment
premium and one third of accrued interest. As of December 31, 2017, the principal balance of this note was $6,745.50.
On
April 4, 2017, the Company issued a new convertible promissory note to EMA Financial LLC for $50,000, with an interest rate of
10% and convertible to Common Stock of the Company at 50% discount. The maturity date of this note is 4/4/2018. As of December
31, 2017, the principal balance of this note was $18,552.50.
On
April 5, 2017, the Company issued a new convertible promissory note to JSJ Investments, Inc. for $40,000, with an interest rate
of 10% and convertible to Common Stock of the Company at 45% discount. The maturity date of this note is 1/5/2018. As of December
31, 2017, the amount of principal balance due remaining under this note was $11,499.78 after the Lender had converted a total
of $28,500.22 of principal into Common Stock of the Company.
On
April 12, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $33,500, with an interest rate
of 12% and convertible to Common Stock of the Company at 42% discount. The maturity date of this note is 1/25/2018. As of October
17, 2017, the balance of this note was $0.00 after Lender’s conversions of the principal amount and accrued interest into
Common Stock of the Company.
On
June 9, 2017, the Company issued a new convertible promissory note to Crown Bridge Partners LLC for $35,000, with an interest
rate of 5% and convertible to Common Stock of the Company at 50% discount. The maturity date of this note is June 9, 2018. As
of December 31, 2017, the amount of principal balance due remaining under this note was $27,450.00 after Lender’s conversion
of $7,550.00 of principal and $500.00 of fees under the note into 2,300,000 shares of Common Stock of the Company.
On
July 20, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $28,000, with an interest rate
of 8% and convertible to Common Stock of the Company at 42% discount. The maturity date of this note is 4/30/2018. The amount
of principal balance due under this note was $28,000.00 as of December 31, 2017. On January 18, 2018, the Company paid a total
of $43,610.96 to Power Up Lending Group, which amount included the principal, prepayment premium and accrued interest. This note
was paid off in full as of January 18, 2018.
On
August 3, 2017, the Company issued a new convertible promissory note to JSJ Investments, Inc. for $78,750, with an interest rate
of 10% and convertible to Common Stock of the Company at 45% discount. The maturity date of this note is 5/3/2018.
On
August 15, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $33,000, with an interest
rate of 10% and convertible to Common Stock of the Company at 42% discount. The maturity date of this note is 5/15/2018.
On
August 24, 2017, the Company issued a new convertible promissory note to LG Capital for $78,750, with an interest rate of 8% and
convertible to Common Stock of the Company at 50% discount. The maturity date of this note is 5/26/2018.
On
October 18, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $53,000, with an interest
rate of 8% and convertible to Common Stock of the Company at 42% discount to the average of the two lowest trading prices or closing
bids during the ten trading days immediately prior to the date of conversion. The maturity date of this note is 7/20/2018.
On
October 26, 2017, the Company issued a new convertible promissory note to Crown Bridge Partners, LLC for $35,000, with an interest
rate of 5% and convertible to Common Stock of the Company at 50% discount to the average of the two lowest trading prices or closing
bids during the twenty trading days immediately prior to the date of conversion. The maturity date of this note is 10/26/2018.
In connection with this note, the Company issued 87,500 warrants to Crown Bridge Partners, LLC for the purchase of Common Stock
of the Company at the exercise price of $0.40 per share. The exercise period commences on the issuance date and ends on the one-year
anniversary thereof.
On
November 24, 2017, the Company issued a new convertible promissory note to Einstein Investments LLC for $115,500, with an interest
rate of 10% and convertible to Common Stock of the Company at 50% discount to the average of the two lowest trading prices or closing
bids during the ten trading days immediately prior to the date of conversion. The maturity date of this note is 10/26/2018.
As
of December 31, 2017, the principal balance of the outstanding convertible notes was $453,634 and the value of net derivative
liabilities in connection with these notes was $683,901. The Company relies on a professional third-party valuation to record
the value of derivative liability, discount, and change in fair value of derivatives in connection with these convertible notes
and warrants, if any, that are related to the convertible notes. The Company intends and prefers to repay these notes in cash
as much as practical.
NOTE
11
– LITIGATION
LEGAL
PROCEEDING SETTLED AND UNPAID AS OF DECEMBER 31, 2017:
QUANG
VAN CAO AND NHAN THI NGUYEN CAO VS. PROVIDENTIAL SECURITIES, INC. ET AL.
This
case was originally submitted to Orange County Superior Court, CA on June 25, 1997, Case No. 781121, and subsequently moved to
NASD Dispute resolution for arbitration. On or about August 24, 2000, the Company’s legal counsel negotiated with the Claimant’s
counsel and unilaterally reached a settlement that had not been approved by the Company. While the Company was in the process
of re-negotiating the terms of said settlement, the Claimants filed a request for arbitration hearing before the National Association
of Securities Dealers on October 4, 2000, Case No. 99-03160. Thereafter, the Claimants filed a complaint with the Orange County
Superior Court, CA on October 31, 2000, Case No. 00CC13067 for alleged breach of contract for damages in the sum of $75,000 plus
pre-judgment interest, costs incurred in connection with the complaint, and other relief. Without admitting or denying any allegations,
the Company reached a settlement agreement with the Claimants whereby the Company would pay the Claimants a total of $62,500 plus
$4,500 in administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgment
for $79,000. In May 2011, the Claimants filed an application for and renewal of judgment for a total of $140,490.78. As of December
31, 2017 the Company accrued $172,091 for potential liabilities in connection with this case in the accompanying consolidated
financial statements.
WILLIAM
DAVIDSON VS. DOAN ET AL.
On
or about February 01, 2010, the company was notified of a suit that was filed with the Superior Court of the State of California
for the County of Los Angeles on November 24, 2009 by William Davidson, an individual against Martin Doan, Henry Fahman, Benjamin
Tran, HRCiti Corporation, and Providential Capital, Inc. (collectively referred to as “Defendants” - Case No. BC 426831).
Plaintiff demanded an amount of not less than $140,000.00 from Defendants for promissory notes outstanding between Plaintiff and
the company.
On
July 09, 2012 William Davidson and PHI Capital Holdings, Inc. (formerly Providential Capital, Inc.), a subsidiary of the Company,
reached a settlement agreement with respect to whereby PHI Capital agreed to pay William Davidson a total of $200,000 over a period
of nineteen months beginning September 1, 2012. Since November 30, 2012, William Davidson has converted portions of the total
amount into common stock of PHI Group, Inc. in lieu of cash payment. The Company has accrued $90,000 as the required liability
associated with the balance of these notes in the accompanying consolidated financial statements as of December 31, 2017.
NOTE
12
– PAYROLL LIABILITIES
The
payroll liabilities are accrued and recorded as accrued expenses in the consolidated balance sheet. During the quarter ended June
30, 2014, the Company paid $41,974.22 to the Internal Revenue Service and $ 19,289.94 to the State of California Employment Development
Department towards the balance of $118,399 of payroll tax, penalties and interest claimed by these agencies. The Company plans
to resolve the remaining balances with the Internal Revenue Service and the State of California Employment Department by June
30, 2018.
NOTE
13
– BASIC AND DILUTED NET PROFIT (LOSS) PER SHARE
Net
loss per share is calculated in accordance with SFAS No. 128, “Earnings per Share”. Under the provision of SFAS No.
128, basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares
outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the
period and common stock equivalents outstanding at the end of the period. Basic and diluted weighted average numbers of shares
for the period ended December 31, 2017 were the same since the inclusion of Common stock equivalents is anti-dilutive.
NOTE
14
–
STOCKHOLDER’S EQUITY
In
accordance with the Articles of Incorporation and Amendments to the Articles of Incorporation filed with the Nevada Secretary
of State, the total number of authorized capital stock of the Company is 1,000,000,000 shares with a par value of $0.001 per share,
consisting of 900,000,000 shares of voting Common Stock with a par value of $0.001 per share and 100,000,000 shares of Preferred
Stock with a par value of $0.001 per share. The rights and terms associated with the Preferred Stock will be determined by the
Board of Directors of the Company.
On
March 15, 2012, the Company effectuated a 1 for 1,500 reverse split of the Company’s Common Stock.
Treasury
Stock:
The
balance of treasury stock as of December 31, 2017 was 484,767 post-split shares valued at $44,170 according to cost method.
Common
Stock:
During
the quarter ended December 31, 2017, the Company issued the following amounts of its Common Stock:
On
October 17, 2017, the Company issued 434,783 shares of free–trading Common Stock of PHI Group, Inc. to Power Up Lending
Group Ltd., holder of a Convertible Promissory Note dated April 12, 2017 of the Company, for the conversion of $12,000.00 of the
principal amount of the Note.
On
October 19, 2017, the Company issued 371,057 shares of free–trading Common Stock of PHI Group, Inc. to JSJ Investments,
Inc., holder of a Convertible Promissory Note dated February 2, 2017 of the Company, for the conversion of $10,000.00 of the principal
balance of the Note.
On
October 23, 2017, the Company issued 622,407 shares of free–trading Common Stock of PHI Group, Inc. to Power Up Lending
Group Ltd., holder of a Convertible Promissory Note dated April 12, 2017 of the Company, for the conversion of $15,000.00 principal
balance of the Note.
On
October 24, 2017, the Company issued 250,000 shares of free–trading Common Stock of PHI Group, Inc. to EMA Financial LLC.,
holder of a Convertible Promissory Note dated April 04, 2017 of the Company, for the conversion of $3,587.50 of the principal
amount of the Note, less $750.00 of applicable fees under the Note.
On
October 31, 2017, the Company issued 419,212 shares of free–trading Common Stock of PHI Group, Inc. to Power Up Lending
Group Ltd., holder of a Convertible Promissory Note dated April 12, 2017 of the Company, for the conversion of $6,500.00 of the
remaining principal amount of the Note together with $2,010.00 of accrued and unpaid interest thereto, totaling $8,510.00.
On
November 7, 2017, the Company issued 600,000 shares of free–trading Common Stock of PHI Group, Inc. to EMA Financial LLC,
holder of a Convertible Promissory Note dated April 04, 2017 of the Company, for the conversion of $3,750.00 of the principal
balance of the Note, less $1,350.00 of applicable fees under the Note.
On
November 8, 2017, the Company issued 2,154,700 shares of free–trading Common Stock of PHI Group, Inc. to Auctus Fund, LLC,
holder of a Convertible Promissory Note dated March 3, 2017 of the Company, for the conversion of $17,852.43 of the principal
balance of the Note together with $3,356.17 of accrued and unpaid interest thereto and $500.00 applicable fee, totaling $21,708.60.
On
November 16, 2017, the Company issued 80,000 shares of restricted Common Stock of PHI Group, Inc. to Andreas Held, a current shareholder
of the Company, for $1,920 in cash under the auspices of Rule 144 pursuant to a Private Stock Purchase Agreement dated November
14, 2017.
On
November 21, 2017, the Company issued 1,000,000 shares of free–trading Common Stock of PHI Group, Inc. to EMA Financial
LLC, holder of a Convertible Promissory Note dated April 04, 2017 of the Company, for the conversion of $5,950.00 of the principal
balance of the Note, less $1,050.00 of applicable fees under the Note.
On
December 01, 2017, the Company issued 2,346,000 shares of free–trading Common Stock of PHI Group, Inc. to Auctus Fund, LLC,
holder of a Convertible Promissory Note dated March 3, 2017 of the Company, for the conversion of $15,062.55 of the principal
balance of the Note together with $202.57 of accrued and unpaid interest thereto and $500.00 applicable fee, totaling $15,765.12.
On
December 05, 2017, the Company issued 1,385,677 shares of free–trading Common Stock of PHI Group, Inc. to JSJ Investments,
Inc., holder of a Convertible Promissory Note dated February 2, 2017 of the Company, for the conversion of $11,000.00 of the principal
balance of the Note together with $1,651.23 of accrued and unpaid interest thereto, totaling $12,651.23.
On
December 12, 2017, the Company issued 2,000,000 shares of free–trading Common Stock of PHI Group, Inc. to EMA Financial
LLC, holder of a Convertible Promissory Note dated April 04, 2017 of the Company, for the conversion of $7,140.00 of the principal
balance of the Note, less $1,050.00 of applicable fees under the Note.
On
December 13, 2017, the Company issued 2,250,821 shares of free–trading Common Stock of PHI Group, Inc. to JSJ Investments,
Inc., holder of the $40,000 Convertible Promissory Note dated April 5, 2017 of the Company, for the conversion of $12,420.75 of
the principal balance of the Note.
On
December 14, 2017, the Company issued 2,744,300 shares of free–trading Common Stock of PHI Group, Inc. to Auctus Fund, LLC,
holder of a Convertible Promissory Note dated March 3, 2017 of the Company, for the conversion of $10,339.52 of the principal
balance of the Note together with $137.68 of accrued and unpaid interest thereto and $500.00 applicable fee, totaling $10,977.20.
On
December 14, 2017, the Company issued 1,724,138 shares of restricted Common Stock of PHI Group, Inc. to Steve Truong for $20,000
in cash under the auspices of Rule 144 pursuant to a Private Stock Purchase Agreement dated December 14, 2017.
On
December 19, 2017, the Company issued 2,500,000 shares of free–trading Common Stock of PHI Group, Inc. to EMA Financial
LLC, holder of a Convertible Promissory Note dated April 04, 2017 of the Company, for the conversion of $8,750.00 of the principal
balance of the Note, less $1,050.00 of applicable fees under the Note.
On
December 20, 2017, the Company issued 2,913,837 shares of free–trading Common Stock of PHI Group, Inc. to JSJ Investments,
Inc., holder of the $40,000 Convertible Promissory Note dated April 5, 2017 of the Company, for the conversion of $16,079.47 of
the principal balance of the Note.
On
December 29, 2017, the Company issued 2,300,000 shares of free–trading Common Stock of PHI Group, Inc. to Crown Bridge Partners,
LLC., holder of the $35,000.00 Convertible Promissory Note dated June 9, 2017 of the Company, for the conversion of $7,550.00
of the principal and $500.00 of fees under the Note totaling $8,050.00.
On
December 29, 2017, the Company issued 2,500,000 shares of free–trading Common Stock of PHI Group, Inc. to EMA Financial
LLC, holder of a Convertible Promissory Note dated April 04, 2017 of the Company, for the conversion of $8,750.00 of the principal
balance of the Note, less $1,050.00 of applicable fees under the Note.
As
of December 31, 2017, there were 69,679,914 shares of the Company’s common stock issued and outstanding, excluding 5,673,327
shares of common stock that have been set aside for a special dividend distribution.
Preferred
Stock:
On October 3, 2017, the Company issued 4,000,000 shares of Class A Series II Preferred Stock to Rush Gold Royalty,
Inc. at the agreed value of $20,000,000 for the purchase of 51% interest in the twenty one mining claims over an area of approximately
400 acres in Granite Mining District, Grant County, Oregon, U.S.A. pursuant to the Agreement of Purchase and Sale dated September
2, 2017 between American Pacific Resources, Inc., a wholly owned subsidiary of PHI Group, Inc., and Rush Gold Royalty, Inc., a
Wyoming corporation. The Company will reissue the same amount of Class A Series II Preferred Stock to Rush Gold Royalty, Inc.
under the jurisdiction of the State of Wyoming when PHI withdraws from the State of Nevada.
Class
A Preferred Stock as filed with the State of Nevada:
On April 2, 2015, the Company designated the first fifty million (50,000,000)
shares of the Company’s previously authorized 100,000,000 shares of Preferred Stock, with a par value of $0.001 per share,
as Class A Cumulative Convertible Redeemable Class A Preferred Stock (the “
Class A Preferred Stock”
) with
the following rights and terms:
1)
Dividends: Each holder of Class A Preferred Stock is entitled to receive twelve percent (12%) non-compounding cumulative
dividends per annum, payable semi-annually.
2)
Conversion: Each share of the Class A Preferred Stock shall be convertible into the Company’s Common Stock any time after one year from the date of issuance at a Variable Conversion Price (as defined herein) of the Common Stock. The “Variable Conversion Price” shall mean 75% multiplied by the Market Price (as defined herein) (representing a discount rate of 25%). “Market Price” means the average Trading Price for the Company’s Common Stock during the ten (10) trading-day period ending one trading day prior to the date the Conversion Notice is sent by the Holder of the Class A Preferred Stock to the Company via facsimile or email (the “Conversion Date”). “Trading Price” means, for any security as of any date, the closing price on the OTC Markets, OTCQB, NASDAQ Stock Markets, NYSE or applicable trading market as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to the Company and Holder of the Class A Preferred Stock.
3)
Redemption Rights: The Company, after a period of two years from the date of issuance, may at any time or from time to time
redeem the Class A Preferred Stock, in whole or in part, at the option of the Company’s Board of Directors, at a price
equal to one hundred twenty percent (120%) of the original purchase price of the Class A Preferred Stock or of a unit
consisting of any shares of Class A Preferred Stock and any warrants attached thereto, plus, in each case, accumulated and
unpaid dividends to the date fixed for redemption.
Domestication
in the State of Wyoming:
On
September 20, 2017, the Company applied for a Certificate of Domestication and filed Articles of Domestication with the office
of the Secretary of State of Wyoming to re-domicile the Company’s jurisdiction to the State of Wyoming.
On
September 20, 2017, the Company filed Articles of Amendment with the Wyoming Secretary of State to amend the authorized capital
of the Company as follows:
“The
total number of shares into which the authorized capital stock of the corporation is divided is one billion shares, consisting
of: nine hundred million shares of voting Common Stock with a par value of $0.001 per share; fifty million shares of non-voting
Class A Series I Preferred Stock with a par value of $5.00 per share; twenty-five million shares of non-voting Class A Series
II Preferred Stock with a par value of $5.00 per share; twenty million shares of non-voting Class A Series III Preferred Stock
with a par value of $5.00 per share and five million shares of voting Class A Series IV Preferred Stock with a par value of $5.00
per share. The relative rights, preferences, limitations and restrictions associated with the afore-mentioned shares of Class
A Preferred Stock will be determined by the Board of Directors of the corporation.”
NOTE
15
–
STOCK-BASED COMPENSATION PLAN
On
February March 18, 2015, the Company adopted an Employee Benefit Plan to set aside 1,000,000 shares of common stock for eligible
employees and independent contractors of the Company and its subsidiaries. As of December 31, 2017 the Company has not issued
any stock in lieu of cash under this plan.
On
September 23, 2016, the Company issued incentive stock options and nonqualified stock options to certain key employee(s) (Henry
Fahman – CEO/CFO) and directors (Tam Bui, Henry Fahman, and Frank Hawkins constitute the Board of Directors) as deferred
compensation. The options allow the holders to acquire the Company’s Common Stock at the fair exercise price of the Company’s
Common Stock on the grant date of each option at $0.24 per share, based on the 10-days’ volume-weighted average price prior
to the grant date. The number of options is equal to a total of 6,520,000. The options terminate seven years from the date of
grant and become vested and exercisable after one year from the grant date. The following assumptions were used in the Monte Carlo
analysis by Doty Scott Enterprises, Inc., an independent valuation firm, to determine the fair value of the stock options:
Risk-free interest rate
|
|
|
1.18
|
%
|
Expected life
|
|
|
7 years
|
|
Expected volatility
|
|
|
239.3
|
%
|
Vesting
is based on a one-year cliff from grant date.
|
|
|
|
|
Annual
attrition rates were used in the valuation since ongoing employment was condition for vesting the options.
The
fair value of the Company’s Stock Options as of issuance valuation date is as follows:
Holder
|
|
Issue Date
|
|
Maturity Date
|
|
Stock Options
|
|
|
Exercise Price
|
|
Fair Value at Issuance
|
|
Tam Bui
|
|
9/23/2016
|
|
9/23/2023
|
|
|
875,000
|
|
|
Fixed price: $0.24
|
|
$
|
219,464
|
|
Frank Hawkins
|
|
9/23/2016
|
|
9/23/2023
|
|
|
875,000
|
|
|
Fixed price: $0.24
|
|
$
|
219,464
|
|
Henry Fahman
|
|
9/23/2016
|
|
9/23/2023
|
|
|
4,770,000
|
|
|
Fixed price: $0.24
|
|
$
|
1,187,984
|
|
NOTE
16
–
RELATED PARTY TRANSACTIONS
The
Company accrued $52,500 in salaries for the President and the Secretary & Treasurer of the Company during the quarters ended
December 31, 2017 and December 31, 2016.
During
the quarter ended September 30, 2017, the Company received a fee in the amount of $25,000 from American Laser Healthcare Corp.
(“ALHC”), a Delaware corporation, in connection with consulting service provided by PHI Capital Holdings, Inc. to
assist ALHC to go public in the U.S. The Chairman and CEO of the Company also serves as the Interim Chief Executive Officer of
ALHC.
NOTE
17
–
CONTRACTS AND COMMITMENTS
On
January 26, 2017, the Company entered into a Memorandum of Agreement to acquire 51% of Hoang Minh Chau Hung Yen, LLC, (“HMC”)
a Vietnamese company specializing in growing and processing turmeric for food, cosmetic and medicinal usages. The Company intends
to apply HMC’s expertise and experience in turmeric cultivation and processing for its organic farming program in the U.S.
through its subsidiary Abundant Farms, Inc. The closing of this transaction is subject to further due diligence review and financial
audits of HMC.
On
January 28, 2017, the Company entered into a Business Cooperation Agreement with Nathan Trading Limited Co., (“NTC”)
a Thai company engaged in the promotion of the cultivation and processing of sacha inchi seeds for food, cosmetics and healthcare.
The Company will initially purchase NTC’s sacha inchi products from NTC for distribution in the U.S. and international markets
and cooperate with NTC to promote the planting for sacha inchi plants and secure raw material sources to increase production capacity
in the future.
AGREEMENT
AND RELINQUISHMENT OF A FARM PURCHASE IN HOLMES COUNTY, FLORIDA
On
March 3, 2017, the Company signed a Commercial Contract to acquire a 408-acre farm together with buildings, fixtures, and farming
systems and in Bonifay, Holmes County, Florida for a total purchase price of $1,500,000. The Purchase Agreement called for deposit
of $37,500, installment payments and the initial closing date of July 3, 2017. The closing was extended to a later date. However,
during the quarter ending December 31, 2017 the Company decided to relinquish the purchase of this farm together with the deposit
and began searching for other farmland that is closer to peat mine sources and other raw materials in order to build an organic
fertilizer plant in conjunction with Abundant Farms, Inc.’s organic farming program.
EQUITY
LINE FACILITY - INVESTMENT AGREEMENT WITH AZURE CAPITAL, INC.
On
March 6, 2017, PHI Group, Inc., a Nevada corporation (the “Company”) and Azure Capital, a Massachusetts Corporation
(the “Investor”) entered into an Investment Agreement (the “Investment Agreement”) and a Registration
Rights Agreement (the “Registration Rights Agreement”), each dated March 6, 2017 between the Company and the Investor.
Pursuant
to the Investment Agreement, the Investor committed to purchase, subject to certain restrictions and conditions, up to $10,000,000
worth of the Company’s common stock, over a period of 36 months from the effectiveness of the registration statement registering
the resale of shares purchased by the Investor pursuant to the Investment Agreement. The Company agreed to initially reserve 20,000,000
shares of its Common Stock for issuance to the Investor pursuant to the Investment Agreement. In the event the Company cannot
register a sufficient number of shares of its Common Stock for issuance pursuant to the Investment Agreement, the Company will
use its best efforts to authorize and reserve for issuance the number of shares required for the Company to perform its obligations
in connection with the Investment Agreement as soon as reasonable practical.
The
Company may in its discretion draw on the facility from time to time, as and when the Company determines appropriate in accordance
with the terms and conditions of the Investment Agreement. The maximum number of shares that the Company is entitled to put to
the Investor in any one draw down notice shall not exceed shares with a purchase price of $250,000 or 200% of the average daily
volume (U.S. market only) of the Company’s Common Stock for the three (3) Trading Days prior to the applicable put notice
date multiplied by the average of the three (3) daily closing prices immediately preceding the put date, calculated in accordance
with the Investment Agreement. The Company may deliver a notice for a subsequent put from time to time, after the pricing period
for the prior put has been completed.
The
purchase price shall be set at ninety-four percent (94%) of the lowest daily volume weighted average price (VWAP) of the Company’s
common stock during the five (5) consecutive trading days immediately following the put notice date. On each put notice submitted
to the Investor by the Company, the Company shall specify a suspension price for that put. In the event the price of Company’s
Common Stock falls below the suspension price, the put shall be temporarily suspended. The put shall resume at such time the price
of the Company’s Common Stock is above the suspension price, provided the dates for the pricing period for that particular
put are still valid. In the event the pricing period has been complete, any shares above the suspension price due to the Investor
shall be sold to the Investor by the Company at the suspension price under the terms of the Investment Agreement. The suspension
price for a put may not be changed by the Company once submitted to the Investor.
There
are put restrictions applied on days between the draw down notice date and the closing date with respect to that particular put.
During such time, the Company shall not be entitled to deliver another draw down notice. In addition, the Investor will not be
obligated to purchase shares if the Investor’s total number of shares beneficially held at that time would exceed 4.99%
of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-1(j) of the Securities Exchange
Act of 1934, as amended. In addition, the Company is not permitted to draw on the facility unless there is an effective registration
statement to cover the resale of the shares.
The
Investment Agreement also contains customary representations and warranties of each of the parties. The assertions embodied in
those representations and warranties were made for purposes of the Investment Agreement and are subject to qualifications and
limitations agreed to by the parties in connection with negotiating the terms of the Investment Agreement. The Investment Agreement
further provides that the Company and the Investor are each entitled to customary indemnification from the other for, among other
things, any losses or liabilities they may suffer as a result of any breach by the other party of any provisions of the Investment
Agreement or Registration Rights Agreement (as defined below). Investor should read the Investment Agreement together with the
other information concerning the Company that the Company publicly files in reports and statements with the Securities and Exchange
Commission (the “SEC”).
Pursuant
to the terms of the Registration Rights Agreement, the Company is obligated to file one or more registrations statements with
the SEC within twenty-one (21) days after the date of the Registration Rights Agreement to register the resale by the Investor
of the shares of common stock issued or issuable under the Investment Agreement. In addition, the Company is obligated to use
all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days after the
registration statement is filed.
This
Investment Agreement was amended on August 3, 2017 to allow for the reservation of 65,445,000 shares of the Company’s Common
Stock for issuance to the Investor pursuant to the corrected Investment Agreement.
The
Company has filed a S-1 Registration Statement with the Securities and Exchange Commission to include 7,936,600 shares of its
Common Stock for issuance in connection with the first tranche of the Equity Line Facility. The S-1 Registration Statement, as
amended, was declared effective by the Securities and Exchange Commission on January 11, 2018. The Company intends to access the
Equity Line Facility only when the Company’s stock prices reach levels that its management deems fairly-valued.
SETTLEMENT
AGREEMENT WITH THINH HUNG INVESTMENT CO.
On
August 3, 2017, the Company signed a Settlement Agreement and agreed to pay Thinh Hung Investment Co. a total amount of $381,000,
which includes the outstanding balance of $288,219 that is reclassified as Customer Advances in the Long-term Liability portion
of the attached balance sheet and accrued interest as agreed by the two parties.
According
to the Settlement Agreement, the Compapny will transfer or cause to be transferred at least 480,000 shares of Common Stock of
PHI Group, Inc. to an authorized represenatative of Thinh Hung. In the event Thinh Hung is unable to realize at least $381,000
from the sale of PHI Stock, PHI Group will either transfer additional Common Stock of PHI Group, Inc. or other marketable securities
to the authorized reprenesattive designated Thinh Hung or pay cash directly to Thinh Hung until the total amount of $381,000 is
reached. PHI Group, Inc. agreed to use its best efforst to pay off any outstanding balance by October 31, 2017. After the receipt
of at least 480,000 shares of PHI Group Stock by the authorized representative of Thinh Hung, Thinh Hung shall deliver and transfer
all the Vietnam Foods Corporation Stock to PHI Group, Inc. or its authorized representative. As of the day of this report, the
Company has not been able to transfer 480,000 shares of its Common Stock to Thinh Hung’s authorized representative.
BUSINESS
COOPERATION AGREEMENT WITH TNB VIETNAM JSC
On
August 7, 2017, the Company signed a Business Cooperation Agreement with TNB Vietnam JSC, a Vietnamese company located in the
Mekong Delta that specializes in cultivating and processing “forest” bitter melon (momordica charantia). According
to the agreement, TNB and PHI Group plan to facilitate mutual growth and expansion including but not limited to: (1)
Purchase
of finished forest bitter melon products from TNB for distribution and sale in the U.S., Europe, China and other select international
markets under PHI Group’s private labels; (2) Purchase of semi-processed ingredients from TNB in order to manufacture other
end products for export markets; (3) Strategic alliance by acquisition of equity interest in TNB and/or exchange of ownership
between TNB and PHI via stock swap; and (4) Co-developing and cultivating forest bitter melon as well as manufacturing and marketing
its products in the U.S. and other international markets with potential for long-term growth.
FORMATION
OF PHI EZ WATER TECH, INC. SUBSIDIARY
On
August 7, 2017, the Company incorporated PHI EZ Water Tech, Inc., a Wyoming corporation, as a subsidiary to manage and commercialize
the water treatment systems developed by Dr. Martin Nguyen, a Vietnamese-American scientist.
These
systems are among a series of products developed by Dr. Nguyen using quantum technology in a combination of disciplines including
applied physics, applied water science, biological system engineering and agricultural economics. Incorporating complex electromagnetic
force, advanced oxidation, electrocoagulation and ultrasound, they can reduce water consumption by up to 30% and fertilizer usage
by 30%-50% while boosting crop yields by 30%-50%. The water produced from these systems is also good for human health and able
to stabilize water environments to increase yields for aquatic and wet paddy farming.
As
of October 17, 2017, PHI EZ Water has completed the designs for water enhancement systems for both general agriculture and cannabis
crops (
www.phiezwater.com
).
MEMORANDUM
OF UNDERSTANDING WITH AQUARIUS POWER, INC.
On
August 9, 2017, the Company signed a
Memorandum
of Understanding (“MOU”) with Aquarius Power, Inc. (“AQP”), a Texas company, to provide renewable energy
technology to Vietnam. PHI has also made an investment to become a strategic shareholder of AQP.
PHI
and AQP will form a joint venture company which will have the exclusive right to sublicense, sell, build, own and/or operate the
AQP energy systems in Vietnam on an exclusive basis.
PHI
will be responsible for: Obtaining all necessary approvals to build, own and operate AQuarius Energy System; Securing a binding
and acceptable power purchase agreement (PPA) from the governmental authority; Providing the land for the Aquarius Energy System;
Providing the construction and civil engineering know-how to build the energy pools; Providing management, engineering and operational
manpower to build and operate the AQuarius Engineering System; and Providing the interconnection of the AQuarius Energy System
to the national grid.
AQP’s
responsibilities include: Support PHI in obtaining the Power Purchase Agreement; Conduct a site survey and provide blueprints
for a tailor made Energy System; Provide technical support for the construction and operation of the Energy System (Includes training
for construction, installation and operations); Build, Ship, the AQuarius Energy System(s); and Install and commission the AQuarius
Energy System as required.
AQuarius
Wave Energy System is a land-based wave energy system that uses a combination of gravity and “buoyancy” found within
the interaction between air and water to produce power that can be used to generate electricity and / or produce potable water.
AQuarius is a baseload zero carbon footprint that uses no consumables and can be installed virtually anywhere on the planet that
is cost effective against any fossil fuel alternatives. The system, which can be built turn-key within 6 months of obtaining permits,
has an operating life of over 60 years and is clean, scalable, reliable, and extremely flexible. Its operating cost is comparably
low as hydroelectric systems.
On
October 6, 2017,
the Company
signed a new
Memorandum of Understanding
(“MOU”) with AQuarius Power, Inc. to expand the scope of cooperation and provide the same renewable energy technology
to Eastern Europe and the European Region. For Eastern Europe the Company is in the process of planning to build a pilot unit
in Romania using AQP technology. PHI also intends to make additional investments in AQP. As of the date of this report, the Company
has made an investment of $5,000 in AQuarius Power, Inc. and intends to continue making additional investments via purchase of
AQP’s Common Stock.
MASTER
BUSINESS COOPERATION AGREEMENT WITH THO XUAN DUONG JOINT STOCK COMPANY
On
August 14, 2017, the Company signed a Master Business Cooperation Agreement with Tho Xuan Duong Joint Stock Company, a Vietnamese
traditional medicine company with 400 years of history, to cooperate with each other in the following areas: (1) PHI will assist
TXD to promote and advertise TXD’s brand and traditional medicinal products and treatments on a global basis; (2) PHI will
assist TXD to set up manufacturing facilities and/or establish strategic alliances with pharmaceutical production and distribution
companies in Europe, the United States, the Middle East, Central and South America, Africa and other selective geographical areas;
(3) PHI will assist TXD to access funding sources to implement TXD’s business plan; (4) PHI will discuss and negotiate with
TXD to consider an acquisition of equity interest in TXD and/or exchange of ownership between TNB and PHI by way of stock swap
to form a strategic alliance between the two companies; (5) PHI and TXD will further discuss the potential of taking TXD public
in the U.S. and/or European Stock Markets to provide long-term financing capabilities for TXD’s development and growth;
(6) PHI and TXD will cooperate to build and develop raw material areas, preliminary and full-scale processing facilities for herbal
medicines, and herbal medicine tourism area in Sapa, Lao Cai Province, Northern Vietnam; (7) PHI will assist TXD to obtain special
medical devices using Low Level Laser Light Therapy technologies developed by American Laser Healthcare Corp., a US company, and
cleared by the U.S. FDA for pain treatment, needles acupuncture, diabetes Type 2, and 18 devices, as well as access other medical
devices for TXD’s usage as needed; and (8) PHI and TXD may jointly develop, manufacture and market other products and/or
engage in other business activities that may be of mutual interest to both parties.
LETTER
OF INTENT TO ACQUIRE 80% OF MEDICAL CORP SRL, A ROMANIAN COMPANY
On
August 23, 2017, the Company signed a Letter of Intent to acquire eighty percent (80%) equity interest in Medical Corp SRL (“MDC”)
for the price of one million Euros. However, the final purchase price and payment schedule will be determined after an asset valuation
of MDC. Both companies intend to execute a Definite Agreement to consummate this transaction as soon as practical. As of the date
of this report, the Company has decided not to pursue this transaction further.
AGREEMENT
TO ACQUIRE 51% OWNERSHIP IN 400-ACRE MINING CLAIMS IN GRANT COUNTY, OREGON AND CLOSING OF TRANSACTION
On
September 2, 2017, American Pacific Resources, Inc., a Wyoming corporation (“APR”) and wholly owned subsidiary of
the Company, entered into an Agreement of Purchase and Sale with Rush Gold Royalty Inc, a Wyoming corporation, to acquire a 51%
ownership in twenty-one mining claims over an area of approximately 400 acres in Granite Mining District, Grant County, Oregon,
U.S.A., in exchange for a total purchase price of twenty-five million U.S. Dollars ($US 25,000,000) to be paid in a combination
of $20 million in PHI Group, Inc.’s Class A Series II Convertible Cumulative Redeemable Preferred Stock (“Preferred
Stock”), and $5 million in a combination of cash and a demand promissory note upon the closing of this contemplated transaction.
The
PHI Group’s Class A Series II Preferred Stock is priced at $5 per share (“Original Price per Share”), carrying
a cumulative dividend rate of 8%, redeemable at 120% premium to the Original Price per Share, and convertible to Common Stock
of PHI Group at 25% discount any time after two years commencing its issuance or to Common Stock of APR at 50% discount to the
market price when APR has become a fully-reporting company.
This
transaction was closed effective October 3, 2017.
TECHNICAL
ASSISTANCE AGREEMENT WITH AUBURN UNIVERSITY
On
September 25, 2017, the Company signed a Technical Assistance Agreement with Auburn University to conduct a research program in
order to determine the market segments related to supply and demand of medicinal and aromatic plants in the world, and then focus
more specifically on major production and consumption markets. The first four topics of the research program focus on the production,
medicinal applications, and market analysis of turmeric, saffron, bitter melon, and some major potential and aromatic plants.
The last topic covers the trends and solutions of switching from conventional farming to organic farming of these crops to meet
the future food and medicinal consumption. The research program began on October 1, 2017 and will end on September 30, 2018.
APPOINTMENT
OF CHIEF TECHNOLOGY OFFICER AND ORGANIC FERTILIZER PROGRAM
On
October 28, 2017, Abundant Farms, Inc., a wholly owned subsidiary of PHI Group, Inc., signed an Employment Agreement with Mr.
Lam Duong and appointed the same as Chief Technology Officer/Chief Operation Officer for Abundant Farms. After a trial period
of three months, the Employment Agreement will be effective for three years and may be renewed by mutual consent of both the Company
and the employee. Mr. Duong will be responsible for all technological aspects of Abundant Farms, including the development of
organic fertilizers and other agricultural and medicinal products.
Holding
a Master of Science in agriculture, Mr. Duong has held teaching and research positions at Nong Lam University, Vietnam, and Auburn
University, Alabama, U.S.A. during the last sixteen years. He has researched, developed and successfully produced organic fertilizer
with his proprietary formulations that has provided excellent results for a variety of crops. Mr. Duong will further enhance his
methodologies and start production of organic fertilizer for Abundant Farms in North America and Eastern Europe.
AGREEMENT
TO DEVELOP A 67,000-ACRE GOLD MINING PROJECT IN LAOS
On
November 4, 2017, American Pacific Resources, Inc. (“APR”) (
https://aprgold.com/
) signed a Business Cooperation
and Investment Agreement with Suda Lattana Co., a Lao company, to develop a 67,000-acre gold mining project in the Province of
Savannakhet, Laos.
According
to the Agreement, APR will be responsible for financing and operating the gold mining project and will share a majority of the
project’s net profits after accounting for the costs of capital and operating expenses. It is estimated that 3,527,000 ounces
of gold can be mined from this concession, subject to further professional study and verification. The Agreement is valid until
December 31, 2066. It has been reported that Sepon, another gold mine in Savannakhet operated by Lane Xang Minerals Ltd., a majority-owned
subsidiary of MMG Company (
http://www.mmg.com/en/
), has produced over 1.2 million ounces of gold through open pit mining
and conventional treatment of oxide gold ore during its operations.
AGREEMENT
TO SUPPLY PHARMACEUTICAL PRODUCTS, MEDICAL EQUIPMENT AND HEALTHCARE SUPPLIES TO LAOS.
On
November 4, 2017, Phivitae Corporation, a wholly owned subsidiary of the Company, signed a Business Cooperation Agreement with
Suda Lattana Co., a Lao company, to provide pharmaceutical products, medical equipment and healthcare supplies to Laos.
According
to the Agreement, Phivitae Corp. will be responsible for identifying and forming strategic alliance with reputable international
manufacturers and suppliers in North America, European Union and India to provide pharmaceutical products, medical equipment and
healthcare supplies that meet or exceed international required standards to Laos and its neighboring markets. The term of the
Agreement is for six years and may be renewed every five years thereafter by mutual consent of both parties.
BUSINESS
CONSULANCY AND STRUCTURING AGENCY AGREEMENT TO SET UP INSTITUTIONAL BANK FUNDS IN LUXEMBOURG
On
November 30, 2017, the Company signed an agreement with a structuring agent and legal experts to set up a bank fund in Luxembourg
in order to provide financing for the Company’s and its clients’ projects.
The
Reserved Alternative Investment Fund (RAIF) can be established under the form of common funds (“FCP”), investment
companies with variable capital (“SICAV”) or under the form that does not have to have the legal form of a SICAV or
an FCP. There will be no restriction in terms of eligible assets. RAIFs are free to introduce any kind of assets and financial
instruments in their investment policy. According to the Luxembourg Law of July 12, 2013, RAIFs must entrust their assets to a
Luxembourg custodian bank for safekeeping and must appoint an approved statutory auditor.
One
of the tremendous advantages of RAIF is that it may have various sub-funds, each corresponding to a distinct part of the assets
and liabilities of the RAIF. As such, sub-funds can be established under a RAIF umbrella to target different investment opportunities
in a variety of industries as desired.
PHI
Group intends to use its first sub-fund to focus on organic agriculture, including growing selective crops and medicinal plants
for healthcare supplements, producing proprietary organic fertilizers, manufacturing PHI EZ Water Tech (
http://phiezwater.com/
)
water treatment systems, and acquiring existing farms and farmland.
INVESTMENT
AGREEMENT WITH GRIDLINE COMMUNICATIONS, INC.
On
December 15, 2017, PHI Group, Inc. entered into an Investment Agreement with Gridline Communications, Inc. (“Gridline”)
to form a special purpose vehicle (“SPV”) under the name of Matrix Communications, Inc., as the holding company to
acquire all the stock of Gridline Communications and its sister company GridlineX as well as finance and implement Gridline’s
high-speed broadband communications business.
According
to the Investment Agreement, the Matrix Communications will acquire all ownership and rights of the Investee in connection with
high-speed broadband networks and related supporting assets to serve government, commercial and consumer telephony, data and video
needs in the Republic of Equatorial Guinea as the first point of entry into the African Continent. Matrix Communications’
authorized capital will include 600 million shares of Common Stock and 300 million shares of Preferred Stock. PHI Group will be
the sole holder of Common Stock in the SPV initially and will retain fifteen percent equity interest thereof following the capitalization
plan.
The
closing of this Investment Agreement is extended to April 15, 2018.
MEMORANDUM
OF UNDERSTANDING TO BUILD INDUSTRIAL PARK, GREENHOUSES, POWER PLANT AND WATER PARK IN TRANSYLVANIA, ROMANIA
On
December 18, 2017, PHI Group, Inc. (the “Company”), entered into a Memorandum of Understanding (“MOU”)
with SC Z.I.O.S. SRL, a Romanian company, to develop an industrial park in Transylvania, Romania.
According
to the MOU, PHI Group will cooperate with the owner of SC Z.I.O.S SRL to develop, build and operate a gas-fired power plant and
greenhouses over the ZIOS land parcel and water park adjacent to it.
The
Company is committed to investing or causing to be invested the required capital to finance the building of a minimum 10-MW gas-fired
power plant (renewable energy with steam processing plant), the building of a minimum 10-hectares of greenhouse and investing
20 million Euros in a water park and health retreat wellness resort taking advantage of the salt lakes adjacent to the ZIOS land
parcel.
Both
parties agree to accept the value of the ZIOS land parcel to be equivalent to seven (7) million Euros and acknowledge that ZIOS
currently has a debt of 1.4 million Euros on its books.
The
owner of SC Z.I.O.S. SRL agrees to contribute 3.5 million Euros from value of the ZIOS land parcel toward the total capitalization
to develop, build and operate the gas-fired power plant, the greenhouse and the water park and will hold a proportionate percentage
of ownership in the entity that owns these projects based on the total capitalization amount during the first two years.
PHI
Group agrees to pay or cause to be paid to owner of SC Z.I.O.S. SRL two (2) million Euros after the all required approvals and
permits are granted by the pertinent Romanian governmental authorities to build the gas-fired power plant, the greenhouse and
the water park. This sum of money and the payment of 1.4 million Euros to the Z.I.O.S. creditor will come from the structured
financing in connection with the capitalization for these projects, unless agreed otherwise by the pertinent parties afterwards.
In addition, the balance of 1.5 million Euros will be paid to the owner of SC Z.I.O.S. SRL over a period of 5 years based on cash
flow milestones from operations.
The
Company and SC Z.I.O.S. SRL will proceed towards the signing of a definitive agreement to consummate the transactions mentioned
herein between the two parties or as soon as practical.
NOTE
18
–
GOING CONCERN UNCERTAINTY
As
shown in the accompanying consolidated financial statements, the Company has accumulated deficit of $40,296,404 as of December
31, 2017. For the quarter ended December 31, 2017, the Company incurred a net loss from operations of $435,234 as compared to
a net loss from operations in the amount of $277,181 during the same period ended December 31, 2016. These factors as well as
the uncertain conditions that the Company faces in its day-to-day operations with respect to cash flows create an uncertainty
as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern. Management has taken action to strengthen the
Company’s working capital position and generate sufficient cash to meet its operating needs through June 30, 2018 and beyond.
In
the next twelve months the Company intends to continue pursuing its scope of business consisting of mergers and acquisitions,
investment in selective industries and providing advisory and consulting services through our wholly owned subsidiary PHI Capital
Holdings, Inc. In particular, we will seek and buy all or controlling interests in target companies of various industries, including
but not limited to energy, natural resources, agribusiness, technology, transportation, mining, oil & gas, financial services,
healthcare, and pharmaceuticals. In addition, we also plan to invest in special situations that may potentially generate significant
revenues and profitability for the Company both in the short term and the long term. Furthermore, we will continue to advise and
consult for international clients.
The Company
anticipates generating substantial amounts of revenues through the merger and acquisition program, investment in special situations,
and advisory services mentioned herein.
We will strive to build a critical
mass through acquisition and organic growth in order to uplist the Company’s stock to national exchange in the near future.
However, no assurances could be made that management would be successful in achieving its plan. The president and chairman
of the Company is committed to securing funding for the Company’s operations from various sources for the next 12 months.
NOTE
19 – SUBSEQUENT EVENT
These
financial statements were approved by management and available for issuance on February 19, 2017. Subsequent events have been
evaluated through this date.
MEMORANDUM
OF UNDERSTANDING WITH VIETNAM GREEN AGRICULTURE COMPANY LTD.
On
January 3, 2018, the Company signed a Memorandum of Understanding (“MOU”) with Vietnam Green Agriculture Company,
Ltd. (“VinaXanh”) to cooperate in the manufacture and sale of bio-organic fertilizer products developed by VinaXanh,
both in Vietnam and in international markets.
VinaXanh
has successfully formulated and tested proprietary bio-organic fertilizer and obtained the required governmental licenses to produce
about half a dozen products using amino acids, peptides, fulvic acid, organic chelates, and other organic ingredients. VinaXanh
fertilizer products have been effectively applied to numerous plants and crops in Vietnam, including black pepper, coffee, orange,
lime, tangerine, grapefruit, jackfruit, dragon fruit, red pepper, tea, rice, etc. and have been granted fifteen different awards
for excellence from 2015 to 2017. VinaXanh fertilizer has shown to be especially potent in combatting the deadly greening disease.
PHI
Group intends to work with VinaXanh to boost the production and sale of these bio-organic fertilizer products in Vietnam and also
integrate certain applicable aspects of VinaXanh’s methodologies into Abundant Farms, Inc.’s organic fertilizer program
in the U.S. and Romania. In addition, the Company plans to incorporate the special water treatment system by PHI EZ Water Tech,
Inc., a subsidiary of PHI Group, (
www.phiezwater.com
)
with VinaXanh’s products to optimize plant health and crop yields for farmers in Vietnam.
ISSUANCES
OF COMMON STOCK
On
January 8, 2018, the Company issued 1,835,795 shares of PHI Group, Inc.’s common stock to Auctus Fund, LLC for the conversion
of $6,745.50 principal amount of the convertible promissory note dated 3/3/2107, together with $97.68 of accrued and unpaid interest
and $500.00 conversion fee, totaling $7,343.18. The amount of principal balance due remaining under the note after this conversion
was $0.00.
On
January 9, 2018, the Company issued 2,601,957 shares of PHI Group, Inc.’s common stock to JSJ Investments, Inc. for the
conversion of $11,499.78 principal amount of the convertible promissory note dated 4/5/2107, together with $2,858.64 of accrued
and unpaid interest, totaling $14,358.43. The amount of principal balance due remaining under the note after this conversion was
$0.00.
On
January 11, 2018, the Company issued 2,900,000 shares of PHI Group, Inc.’s common stock to Crown Bridge Partners, LLC for
the conversion of $9,650.00 principal amount of the convertible promissory note dated 6/9/2107, together with $500.00 conversion
fee under the note, totaling $10,150.00. The amount of principal balance due remaining under the note after this conversion was
$17,800.00.
On
January 25, 2018, the Company issued 2,500,000 shares of PHI Group, Inc.’s common stock to EMA Financial, LLC for the conversion
of $9,625.00 principal amount of the convertible promissory note dated 4/4/2107, less $1,050.00 applicable fees under the note,
totaling $8,575.00. The amount of principal balance due remaining under the note after this conversion was $9,977.50.
On
January 29, 2018, the Company issued 2,500,000 shares of PHI Group, Inc.’s common stock to Crown Bridge Partners, LLC for
the conversion of $9,562.50 principal amount of the convertible promissory note dated 6/9/2107, together with $500.00 conversion
fee under the note, totaling $10,062.50. The amount of principal balance due remaining under the note after this conversion was
$8,237.50.
On
January 29, 2018, the Company issued 3,812,188 shares of PHI Group, Inc.’s common stock to EMA Financial, LLC for the conversion
of $9,977.50 principal amount of the convertible promissory note dated 4/4/2107, together with $
3,649.43
of accrued and unpaid interest and
$1,050.00 applicable fees under the note, totaling $14,676.93.
The amount of principal balance due remaining under the note after this conversion was $0.00.
On
January 30, 2018, the Company issued 100,000 shares of PHI Group, Inc.’s restricted common stock to Andreas Held, a long-term
shareholder of PHI Group, Inc.’s, for $981.00 in cash.
On
January 30, 2018, the Company issued 100,000 shares of PHI Group, Inc.’s restricted common stock to Cuong Tran, an independent
consultant, for technical consulting service.
ISSUANCE
OF CONVERTIBLE PROMISSORY NOTES
On
January 18, 2018, the Company issued a new convertible promissory note to Power Up Lending Group for $33,000, with an interest
rate of 8% and convertible to Common Stock of the Company at 42% discount to the average of the three lowest trading prices during
the previous ten trading days to the date of a conversion notice. The maturity date of this note is 10/30/2018.
On
January 18, 2018, the Company issued a new convertible promissory note to JSJ Investments, Inc. for $78,750, with an interest
rate of 10% and convertible to Common Stock of the Company at 45% discount to the average of the three lowest trading prices during
the previous twenty trading days to the date of a conversion notice. The maturity date of this note is January 18, 2019.
On
January 31, 2018, the Company issued a new convertible promissory note to Crown Bridge Partners, LLC for $50,000, with an interest
rate of 10% and convertible to Common Stock of the Company at 50% discount to the average of the lowest two trading prices during
the previous twenty trading days to the date of a conversion notice. The maturity date of this note is twelve months from the
issue date.
On
January 31, 2019, the Company issued two promissory notes to Equity Trust Company IRA Custodian Accounts in the amounts of $120,000.00
and $80,000.00, totaling $200,000.00. These notes carry simple interest of 12% per annum and mature six months from the date of
issue.
On
February 1, 2018, the Company issued a new convertible promissory note to Adar Mays, LLC for $60,000, with an interest rate of
6% and convertible to Common Stock of the Company at 52% discount to the average of the two lowest trading prices during the previous
twenty trading days to the date of a conversion notice. The maturity date of this note is February 1, 2019.
On
February 2, 2018, the Company issued a new convertible promissory note to Auctus Fund, LLC for $75,000, with an interest rate
of 12% and convertible to Common Stock of the Company at 50 % discount to the lowest trading price during the previous twenty-five
trading days to the date of a conversion notice. The maturity date of this note is November 2, 2019.
On
February 2, 2018, the Company issued a new convertible promissory note to EMA Financial, LLC for $50,000, with an interest rate
of 10% and convertible to Common Stock of the Company at 50% discount to the average of the two lowest trading prices during the
previous twenty five trading days to the date of a conversion notice. The maturity date of this note is February 2, 2019.
The
Company’s management has decided to issue the new convertible promissory notes mentioned herein to meet some important financial
and operating commitments and plans to repay these new notes and other outstanding convertible promissory notes with cash from
revenues and/or alternative financings with lower costs of capital. The company intends not to allow further conversion of these
notes into common stock of the Company.
PREPAYMENTS
OF CONVERTIBLE PROMISSORY NOTES
On
January 18, 2018, the Company paid a total of $43,610.96 to Power Up Lending Group, which amount included the principal, prepayment
premium and accrued interest. This note was paid off in full as of January 18, 2018.
On
January 30, 2018, the Company paid a total of $117,984.76 to JSJ Investments, Inc., which amount included the principal amount
of $78,750, prepayment premium of $35,437.50 and accrued and unpaid interest of $3,797.26. This note was paid off in full as of
January 30, 2018.
On
February 5, 2018, the Company paid a total of $51,300.99 to Power Up Lending Group, which amount included the principal, prepayment
premium and accrued interest for the convertible promissory note dated August 15, 2017. This note was paid off in full as of February
5, 2018.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except
for the audited historical information contained herein, this report specifies forward-looking statements of management of the
Company within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934
(“forward-looking statements”) including, without limitation, forward-looking statements regarding the Company’s
expectations, beliefs, intentions and future strategies. Forward-looking statements are statements that estimate the happening
of future events and are not based on historical facts. Forward- looking statements may be identified by the use of forward-looking
terminology, such as “could”, “may”, “will”, “expect”, “shall”, “estimate”,
“anticipate”, “probable”, “possible”, “should”, “continue”, “intend”
or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in this report
have been compiled by management of the Company on the basis of assumptions made by management and considered by management to
be reasonable. Future operating results of the Company, however, are impossible to predict and no representation, guaranty, or
warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements
specified in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic,
legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information
and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment.
To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results,
and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In addition, those forward-looking
statements have been compiled as of the date of this report and should be evaluated with consideration of any changes occurring
after the date of this report. No assurance can be given that any of the assumptions relating to the forward-looking statements
specified in this report are accurate and the Company assumes no obligation to update any such forward-looking statements.
INTRODUCTION
PHI
Group, Inc. (the “Company” or “PHI”) is a Nevada corporation engaged in mergers and acquisitions as a
principal (
www.phiglobal.com
). The Company has adopted plans to acquire established operating businesses in selective industries
and invest in various ventures that may potentially create significant long-term value for our shareholders. In addition, we also
provide corporate finance services, including merger and acquisition advisory and consulting services for client companies through
our wholly owned subsidiary PHI Capital Holdings, Inc. (
www.phicapitalholdings.com
). No assurances can be made that the
Company will be successful in achieving its plans.
BACKGROUND
Originally
incorporated in June 1982 as JR Consulting, Inc., the Company was foremost engaged in mergers and acquisitions and had an operating
subsidiary, Diva Entertainment, Inc., which operated two modeling agencies, one in New York and one in California. Following the
business combination with Providential Securities, Inc., a California-based financial services company, the Company changed its
name to Providential Securities, Inc. (Nevada) in January 2000. The Company then changed its name to Providential Holdings, Inc.
in February 2000. In October 2000, Providential Securities withdrew its securities brokerage membership and ceased its financial
services business. Subsequently, in April 2009, the Company changed its name to PHI Group, Inc. From October 2000 to October 2011,
the Company and its subsidiaries were engaged in mergers and acquisitions advisory and consulting services, real estate and hospitality
development, mining, oil and gas, telecommunications, technology, healthcare, private equity, and special situations. In October
2011, the Company discontinued the operations of Providential Vietnam Ltd., Philand Ranch Limited, a United Kingdom corporation
(together with its subsidiaries Philand Ranch - Singapore, Philand Corporation - US, and Philand Vietnam Ltd. - Vietnam), PHI
Gold Corporation (formerly PHI Mining Corporation, a Nevada corporation), and PHI Energy Corporation (a Nevada corporation), and
began to mainly focus on acquisition and development opportunities in energy and natural resource businesses. Starting July 2016,
the Company has engaged Milost Advisors, Inc., a New York-based investment-banking firm, as its buy-side advisor and begun to
seek acquisition opportunities in other industries besides energy and natural resources. In addition, PHI Capital Holdings, Inc.,
a wholly owned subsidiary of PHI, continues to provide corporate and project finance services, including merger and acquisition
(M&A) advisory and consulting services for other companies in a variety of industries.
BUSINESS
STRATEGY
PHI
Group Inc.’s strategy is to:
1.
Identify, build, acquire, commit and deploy valuable resources with distinctive competitive advantages;
2.
Identify, evaluate, acquire, participate and compete in attractive businesses that have large, growing market potential;
3.
Design and implement best-of-breed management systems; and
4.
Build an attractive investment that includes points of exit for investors through capital appreciation or spin-offs of business
units.
SUBSIDIARIES:
As
of December 31, 2017, the Company owns 100% of the following subsidiaries: PHI Capital Holdings, Inc., a Wyoming corporation,
American Pacific Resources, Inc., a Wyoming corporation, Abundant Farms, Inc., a Florida corporation, PHI Group EB-5 Regional
Center, LLC, a Florida limited liability company, PHIVITAE Corporation, a Wyoming corporation, and Constructii SA Group, Inc.,
a Delaware corporation. In addition, the Company owns 75% of PHI EZ Water Tech, Inc., a Wyoming corporation.
PHI
CAPITAL HOLDINGS, INC.
PHI
Capital Holdings, Inc., a wholly-owned subsidiary of the Company, was originally incorporated in 2004 as a Nevada corporation
under the name of “Providential Capital, Inc.” to provide merger and acquisition (M&A) advisory services, consulting
services, project financing, and capital market services to clients in North America and Asia. In May 2010, Providential Capital,
Inc. changed its name to PHI Capital Holdings, Inc. This subsidiary has successfully managed merger plans for several privately
held and publicly traded companies and continues to focus on serving the Pacific Rim markets in the foreseeable future.
On
September 20, 2017, PHI Capital Holdings, Inc. applied for a Certificate of Domestication and filed Articles of Domestication
with the office of the Secretary of State of Wyoming to re-domicile this subsidiary’s jurisdiction to the State of Wyoming.
On October 11, 2017 the Company dissolved PHI Capital Holdings, Inc. with the State of Nevada.
AMERICAN
PACIFIC RESOURCES, INC.
American
Pacific Resources, Inc. (“APR”) is a Wyoming corporation established in April 2016 with the intention to serve as
a holding company for various natural resource projects. On September 2, 2017, APR entered into an Agreement of Purchase and Sale
with Rush Gold Royalty, Inc., a Wyoming corporation, to acquire a 51% ownership in twenty-one mining claims over an area of approximately
400 acres in Granite Mining District, Grant County, Oregon, U.S.A., in exchange for a total purchase price of twenty-five million
U.S. Dollars ($US 25,000,000) to be paid in a combination $20 million in PHI Group, Inc.’s Class A Series II Convertible
Cumulative Redeemable Preferred Stock (“Preferred Stock”), and $5 million in cash and demand promissory note upon
the closing of this transaction. This transaction was closed effective October 3, 2017.
The
PHI Group’s Class A Series II Preferred Stock is priced at $5 per share (“Original Price per Share”),
carrying a cumulative dividend rate of 8%, redeemable at 120% premium to the Original Price per Share, and convertible to
Common Stock of PHI Group at 25% discount two years after issuance or to Common Stock of APR at 50% discount to the then
relevant market price when APR has become a fully-reporting company.
ABUNDANT
FARMS, INC.
Abundant
Farms, Inc., a Florida corporation formed on December 19, 2106, is engaged in organic farming activity. It seeks to acquire farmland,
form joint ventures with governments and other farmers, and lease arable land to grow select crops and medicinal plants that potentially
provide superior return on investment. It also plans to produce proprietary organic fertilizer and provides special water treatment
systems by PHI EZ Water Tech, Inc. for its own organic farming program and for sale to farmers worldwide.
PHI
GROUP REGIONAL CENTER, LLC
PHI
Group Regional Center, LLC was formed on March 23, 2017 with the intention to manage a new EB-5 Regional Center
in
connection with the Company’s organic farming program, Abundant Farms, Inc., and other potential business activities in
the State of Florida. On April 27, 2017,
an I-924 application was filed with the United
States Citizenship and Immigration Service (USCIS) for PHI Group Regional Center, LLC.
Under the EB-5 Program, created
by Congress to stimulate the U.S. economy through job creation and capital investment, foreign entrepreneurs (and their spouses
and unmarried children under 21) are eligible to apply for a Green Card (permanent residence) if they make the necessary investment
in a commercial enterprise in the United States that creates or preserves at least 10 permanent, full-time jobs for qualified
U.S. workers. The operation of this Regional Center is subject to the review and approval of
United
States Citizenship and Immigration Service.
PHI
EZ WATER TECH, INC.
PHI
EZ Water Tech, Inc., a Wyoming corporation, is a majority-owned subsidiary of PHI Group that manages, manufactures and markets
a portfolio of innovative water treatment systems and other products developed by Dr. Martin Nguyen for agriculture, healthcare
and human consumption. Website:
www.phiezwater.com
PHIVITAE
CORPORATION
PHIVITAE
CORPORATION, a Wyoming corporation, is a wholly-owned subsidiary of PHI Group set up with the intention to acquire a pharmaceutical
and medical equipment distribution company in Romania and to manage distribution of medical equipment and pharmaceutical products
to emerging markets.
CONSTRUCTII
SA GROUP, INC.
CONSTRUCTII
SA GROUP, INC., a Delaware corporation, is a wholly-owned subsidiary of PHI Group set up with the intention to acquire a construction
and manufacturing company in Romania.
DISCONTINUED
OPERATIONS:
The
Company has discontinued the operations of Providential Vietnam Ltd., Philand Ranch Limited – UK (together with its subsidiaries
Philand Ranch Ltd-Singapore, Philand Corporation-USA and Philand Vietnam Ltd.), PHI Gold Corporation (now known as NS International
Corp.), and PHI Energy Corporation since June 30, 2012.
Cornerstone
Biomass Corporation, a Florida corporation, was set up in January 2015 by the Company and the principals of AG Materials, LLC,
an Alabama company, to engage in biomass energy. The Company held 51% and the principals of AG Materials held 49% of equity ownership
in Cornerstone Biomass Corporation. This subsidiary’s plan was to develop and establish a 200,000 MT wood pellet plant adjacent
to Klausner Lumber Mill in Live Oak, Florida. In July 2015, the Company purchased a 10-acre parcel of land from Klausner Holding
USA Corporation in order to build the wood pellet plant. Due to subsequent changes in market conditions affecting industrial pellet
usage in Europe, Cornerstone Biomass Corp. decided not to pursue this project. The Company has written off its initial investment
in Cornerstone Biomass Corp. and sold the land parcel. Cornerstone Biomass Corporation was dissolved effective September 23, 2016.
SPUN-OFF
SUBSIDIARIES:
TANS
GLOBAL, INC. (Formerly PROVIMEX, INC.)
Provimex,
Inc. was originally formed on April 10, 2001 under the name “Providential Imex”, to focus on trade commerce with Vietnam.
This division changed its name to Provimex on July 5, 2001. Provimex began to generate revenues from its import and export activities
in August 2002 through the fiscal year ended June 30, 2005 and was incorporated as a Nevada corporation on September 23, 2004.
The Company distributed a 15% stock dividend of Provimex, Inc. to PHI Group, Inc.’s shareholders of record as of September
15, 2004.
On
June 3, 2011, Provimex, Inc. signed an agreement to acquire all the issued and
outstanding capital stock of Humex Medical Group Corp., a California corporation, (“Humex”) in exchange solely for
a certain amount of shares of Provimex’s common stock, par value 0.001, to engage in stem research and therapy in Southeast
Asia. On June 13, 2012 this transaction was rescinded in its entirety effective retroactively June 3, 2011. On June 19, 2012,
Provimex, Inc. changed its name to HP.ITA Corporation. On July 20, 2012, HP.ITA Corporation (“HPUS”) signed a Corporate
Combination Agreement to merge with HP.ITA Joint Stock Company (“HPVN”), a Vietnamese company, in order to go public
in the United States but the Corporate Combination Agreement was subsequently rescinded because HPVN was not able to implement
its business plan and complete financial audits according to the U.S. Generally Accepted Accounting Principals (“GAAP”).
On September 16, 2016 HP.ITA Corp. changed its name to Tans Global, Inc. with the intention to merge with an operating company
and file a registration statement with the Securities and Exchange Commission to become a fully reporting public company in the
U.S. PHI Group is expected to hold a small portion of stock in Tans Global, Inc. following the contemplated business combination.
This transaction is subject to further review by Tans Global, Inc. and the Company.
OMNI
RESOURCES, INC. (Formerly TOUCHLINK COMMUNICATIONS, INC.)
Touchlink
Communications was formed on July 7, 2003 as a division of the Company to provide point-of-sale (POS) terminals and prepaid calling
cards to retailers, convenient stores and non-profit organizations across the US. This subsidiary was later incorporated as a
Nevada corporation in February 2004 under the name of Touchlink Communications, Inc. as a wholly owned subsidiary of the Company
to provide long distance services to residential and business customers in the United States. The Company has declared a 15% stock
dividend of Touchlink Communications, Inc. to shareholders of record as of September 15, 2004. On November 03, 2008, this subsidiary
changed its name to Vietnam Media Group, Inc. with the intent to develop a multi-media business in Vietnam and subsequently resumed
the corporate name of Touchlink Communications, Inc. in February 2011. On April 4, 2014, this company changed its name to Asia
Green Corporation (“AGC”) and entered into a business combination agreement with Asia Green Limited Liability Company,
a Vietnam-based company, to become a holding company for agroforestry and afforestation business in Vietnam and Southeast Asia.
On July 28, 2014, AGC changed its corporate name to Omni Resources, Inc. The Company expects to hold about 10% equity interest
in Omni Resources, Inc. following Omni’s recapitalization. As of the date of this report Omni Resources, Inc. is inactive
and has not implemented any reorganization plan.
SOUTHEAST
ASIA CAPITAL GROUP, INC. (Formerly E-CHECK RECOVERY, INC.)
E-Check
Recovery, Inc. was formed in 2004 as a Nevada corporation to engage in financial services. This company has changed its name to
Southeast Asia Capital Group, Inc. and is being reorganized to engage in real estate development and investment as well as trading
of essential commodities. PHI Group, Inc. will hold minority shares in Southeast Asia Capital after the reorganization.
STOCK
OWNERSHIPS:
CATALYST
RESOURCE GROUP, INC. (formerly JEANTEX GROUP, INC.)
As
of December 31, 2017, the Company owned 22,535,714 shares of Catalyst Resource Group, Inc. common stock, a Florida corporation,
or equivalent to 2.56%. This company is currently inactive.
MYSON
GROUP, INC. (formerly VANGUARD MINING CORPORATION)
As
of December 31, 2017, PHI Group, Inc. and PHI Capital Holdings, Inc., a wholly owned subsidiary of the Company, together owned
33,805,106 shares of Common Stock of Myson Group, Inc., a Nevada corporation currently traded on the OTC markets under the symbol
“MYSN.”
SPORTS
POUCH BEVERAGE COMPANY, INC.
As
of September 30, 2017, the Company through PHI Capital Holdings, Inc. owned 292,050,000 shares of Sports Pouch Beverage Company,
Inc., a Nevada corporation traded on the OTC Markets under the symbol “SPBV”.
CRITICAL
ACCOUNTING POLICIES
The
Company’s financial statements and related public financial information are based on the application of accounting principles
generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported.
These estimates can also affect supplemental information contained in the external disclosures of the Company including information
regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere
to GAAP and are consistently and conservatively applied. Valuations based on estimates are reviewed by us for reasonableness and
conservatism on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject
to the use of estimates, assumptions and the application of judgment include acquisitions, valuation of long-lived and intangible
assets, recoverability of deferred tax and the valuation of shares issued for services. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially
from these estimates under different assumptions or conditions.
Valuation
of Long-Lived and Intangible Assets
The
recoverability of long-lived assets requires considerable judgment and is evaluated on an annual basis or more frequently if events
or circumstances indicate that the assets may be impaired. As it relates to definite life intangible assets, we apply the impairment
rules as required by SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of”
as amended by SFAS No. 144, which also requires significant judgment and assumptions related to the expected future cash flows
attributable to the intangible asset. The impact of modifying any of these assumptions can have a significant impact on the estimate
of fair value and, thus, the recoverability of the asset.
Income
Taxes
We
recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the
tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation
allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary
differences. As of December 31, 2017, we estimated the allowance on net deferred tax assets to be one hundred percent of the net
deferred tax assets.
RESULTS
OF OPERATIONS
The
following is a discussion and analysis of our results of operations for the three-month and six-month periods ended December 31,
2017 and 2016, our financial condition at December 31, 2017 and factors that we believe could affect our future financial condition
and results of operations. Historical results may not be indicative of future performance.
This
discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included
elsewhere in this Form 10-Q. Our consolidated financial statements are prepared in accordance with Generally Accepted Accounting
Principles in the United States (“GAAP”). All references to dollar amounts in this section are in United States dollars.
Three
months ended December 31, 2017 compared to the three months ended December 31, 2016
Total
Revenues:
The
Company had $432,000 in revenue for the quarter ended December 31, 2017 as compared to $40,000 in revenue for the quarter ended
December 31, 2016, an increase of $392,000 between the two periods. The reason for the increase in revenues between the two periods
was due to sales of goods by one of the Company’s subsidiaries during the current period versus revenue from consulting
services during the corresponding quarter last year.
Operating
Costs and Expenses:
Total
operating expenses were $135,172 and $112,916 for the three months ended December 31, 2017, and 2016, respectively. The increase
of $22,255 on total operating expenses between the two periods was mainly due to increases in R&D, travel expenses and advertising,
offset by decreases in contract labor, filings and office supplies.
Income
(Loss) from Operations:
Income
from operations for the quarter ended December 31, 2017 was $296,828, as compared to loss from operations of $72,916 for the previous
corresponding period ended December 31, 2016. A variance of $369,745 in the gain from operations of the current period and loss
from operations of the previous corresponding period was mainly due to the net changes in revenues and total operating expenses
between the two quarters.
Other
Income and Expenses:
Net
other expenses were $732,062 for the three months ended December 31, 2017, as compared to net other expenses of $204,265 for the
three months ended December 31, 2016. The increase in other expenses of $527,797 was mainly due to an increase of $246,418 in
net interest expenses, an increase of $390,137 in dividends from Preferred Stock, offset by a decrease of $122,508 from settlement
of debts and a decrease in discounts on convertible notes of $18,307 between the two periods.
Interest
expenses were $295,045 and $48,627 for the three months ended December 31, 2017 and 2016, respectively.
Net
Income (Loss):
Net
loss for the three months ended December 31, 2017 was $435,234, as compared to net loss of $204,265 for the same period in 2016,
which is equivalent to ($0.01) per share for the current period and ($0.03) per share for the corresponding period ended December
31, 2016, based on the weighted average number of basic and diluted shares outstanding at the end of each corresponding period.
Six
months ended December 31, 2017 compared to the six months ended December 31, 2016
Total
Revenues:
The
Company had $460,500 in revenues for the six months ended December 31, 2017, as compared to $90,000 in revenues for the six months
ended December 31, 2016, an increase of $370,500 between the two periods. The reason for the increase in revenues between the
two periods was due to sales of goods by one of the Company’s subsidiaries during the current period versus sheer revenues
from consulting services during the corresponding six-month last fiscal year.
Operating
Costs and Expenses:
Total
operating expenses were $269,466 and $352,862 for the six months ended December 31, 2017, and 2016, respectively. The decrease
of $122,948 on total operating expenses between the two periods was mainly due to increases in advertising expenses of $12,544,
office expenses of $1,060, transfer agent services of $2,525, R&D expenses of $15,247, and travel expenses of $3,430, offset
by decreases in contract labor of $3,000, filing fees of $2,498, and office supplies of $2,093.
Income
(Loss) from Operations:
Income
from operations for the six months ended December 31, 2017 was $191,034, as compared to loss from operations of $262,862 for the
previous corresponding period ended December 31, 2016. A variance of $453,896 in the gain from operations of the current period
and loss from operations of the previous corresponding period was mainly due to the net changes in revenues and total operating
expenses between the two quarters.
Other
Income and Expenses:
Net
other expenses were $1,187,685 for the six months ended December 31, 2017, as compared to net other expenses of $389,850 for the
six months ended December 31, 2016. The increase in other expenses of $797,834 was mainly due to an increase of $288,854 in net
interest expenses, an increase of $390,137 in dividends from Preferred Stock, an increase in loss on settlement of debts of $55,502,
offset by a decrease in loss on settlement of debts of 20,011 and a decrease in discounts on convertible notes of $20,807 between
the two periods.
Interest
expenses were $512,617 and $223,763 for the six months ended December 31, 2017 and 2016, respectively.
Net
Income (Loss):
Net
loss for the six months ended December 31, 2017 was $996,650, as compared to net loss of $652,713 for the same period in 2016,
which is equivalent to ($0.02) per share for the current period and ($0.06) per share for the corresponding period ended December
31, 2016, based on the weighted average number of basic and diluted shares outstanding at the end of each corresponding period.
CASH
FLOWS
The
Company’s cash and cash equivalents balance were $85,031 and $40,387 as of December 31, 2017 and September 30, 2016, respectively.
Net
cash used in the Company’s operating activities during the six-month period ended December 31, 2017 was $775,835, as compared
to net cash used in operating activities of $1,128,036 during the six-month period ended December 31, 2016. This represents a
variance of $352,202 in net cash used in operating activities between the two periods. The underlying reason for the variance
was primarily due to an increase of $330,376 from increases in accounts receivable and deferred financing costs and decreases
in other assets during the current period, coupled with a net increase of $551,192 in connection with accrued expenses, notes
payable, derivative liabilities and other payables during the current period.
Net
cash used in investing activities during the six-month period ended December 31, 2017 was $25,005,000, as compared to cash provided
by investing activities of $67,733 during the six-month period ended December 31, 2016, respectively. The variance was due to
investments in AQuarius Power Technology and Oregon gold claims during the current period.
Cash
provided by financing activities was $25,827,497 for the six-month period ended December 31, 2017, as compared to cash provided
by financing activities in the amount of $1,098,208 for the six-month period ended December 31, 2016. The primary underlying reasons
for an increase of $24,729,289 in cash provided by financing activities between the two six-month periods were primarily due to
an increase in common stock and paid-in capital in the amount $110,346, in Class A Series II Preferred Stock in the amount of
$20,000,000, in Demand Promissory Note of $4,939,500, offset by change in Treasury Stock of $2,932 and other adjustment in the
amount of $6,020.
HISTORICAL
FINANCING ARRANGEMENTS
SHORT
TERM NOTES PAYABLE AND ISSUANCE OF COMMON STOCK: In the course of its business, the Company has obtained short-term loans from
individuals and institutional investors and from time to time raised money by issuing restricted common stock of the Company under
the auspices of Rule 144. In the course of its business, the Company has obtained short-term loans from individuals and institutional
investors and from time to time raised money by issuing restricted common stock of the Company under the auspices of Rule 144.
As
of December 31, 2017, the Company had short-term notes payable of $624,890 and accrued interest of $2,362,797. These notes bear
interest rates ranging from 0% to 36% per annum.
CONVERTIBLE
PROMISSORY NOTES:
On
February 2, 2017, the Company issued a convertible promissory note in the amount of $42,000 to JSJ Investments Inc. with an interest
rate of 10%, convertible to common stock at 45% discount. The maturity date of this note is 11/2/2017. On August 1, 2017, the
Company paid $31,462.60 to JSJ Investments for one half of the principal of the note, one half of the prepayment premium and one
half of the accrued and unpaid interest. As of November 27, 2017, the balance of this note was $0.00.
On
February 23, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $28,000, with an interest
rate of 8% and convertible to Common Stock of the Company at 45% discount. The maturity date of this note is 11/30/2017. On August
14, 2017, the Company paid a total of $43,024.88 to Power Up Lending Group, which amount included the principal, prepayment premium
and accrued interest. This note was paid off in full as of August 14, 2017.
On
March 3, 2017, the Company issued a new convertible promissory note to Auctus Fund, LLC for $75,000, with an interest rate of
10% and convertible to Common Stock of the Company at 50% discount. The maturity date of this note is 12/3/2017. On September
9, 2017, the Company paid Auctus Fund, LLC $39,308.22, which amount included one third of the principal, one third of prepayment
premium and one third of accrued interest. As of December 31, 2017, the principal balance of this note was $6,745.50.
On
April 4, 2017, the Company issued a new convertible promissory note to EMA Financial LLC for $50,000, with an interest rate of
10% and convertible to Common Stock of the Company at 50% discount. The maturity date of this note is 4/4/2018. As of December
31, 2017, the principal balance of this note was $18,552.50.
On
April 5, 2017, the Company issued a new convertible promissory note to JSJ Investments, Inc. for $40,000, with an interest rate
of 10% and convertible to Common Stock of the Company at 45% discount. The maturity date of this note is 1/5/2018. As of December
31, 2017, the amount of principal balance due remaining under this note was $11,499.78 after the Lender had converted a total
of $28,500.22 of principal into Common Stock of the Company.
On
April 12, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $33,500, with an interest rate
of 12% and convertible to Common Stock of the Company at 42% discount. The maturity date of this note is 1/25/2018. As of October
17, 2017, the balance of this note was $0.00 after Lender’s conversions of the principal amount and accrued interest into
Common Stock of the Company.
On
June 9, 2017, the Company issued a new convertible promissory note to Crown Bridge Partners LLC for $35,000, with an interest
rate of 5% and convertible to Common Stock of the Company at 50% discount. The maturity date of this note is June 9, 2018. As
of December 31, 2017, the amount of principal balance due remaining under this note was $27,450.00 after Lender’s conversion
of $7,550.00 of principal and $500.00 of fees under the note into 2,300,000 shares of Common Stock of the Company.
On
July 20, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $28,000, with an interest rate
of 8% and convertible to Common Stock of the Company at 42% discount. The maturity date of this note is 4/30/2018. The amount
of principal balance due under this note was $28,000.00 as of December 31, 2017. On January 18, 2018, the Company paid a total
of $43,610.96 to Power Up Lending Group, which amount included the principal, prepayment premium and accrued interest. This note
was paid off in full as of January 18, 2018.
On
August 3, 2017, the Company issued a new convertible promissory note to JSJ Investments, Inc. for $78,750, with an interest rate
of 10% and convertible to Common Stock of the Company at 45% discount. The maturity date of this note is 5/3/2018.
On
August 15, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $33,000, with an interest
rate of 10% and convertible to Common Stock of the Company at 42% discount. The maturity date of this note is 5/15/2018.
On
August 24, 2017, the Company issued a new convertible promissory note to LG Capital for $78,750, with an interest rate of 8% and
convertible to Common Stock of the Company at 50% discount. The maturity date of this note is 5/26/2018.
On
October 18, 2017, the Company issued a new convertible promissory note to Power Up Lending Group for $53,000, with an interest
rate of 8% and convertible to Common Stock of the Company at 42% discount to the average of the two lowest trading prices or closing
bids during the ten trading days immediately prior to the date of conversion. The maturity date of this note is 7/20/2018.
On
October 26, 2017, the Company issued a new convertible promissory note to Crown Bridge Partners, LLC for $35,000, with an interest
rate of 5% and convertible to Common Stock of the Company at 50% discount to the average of the two lowest trading prices or closing
bids during the twenty trading days immediately prior to the date of conversion. The maturity date of this note is 10/26/2018.
In connection with this note, the Company issued 87,500 warrants to Crown Bridge Partners, LLC for the purchase of Common Stock
of the Company at the exercise price of $0.40 per share. The exercise period commences on the issuance date and ends on the one-year
anniversary thereof.
On
November 24, 2017, the Company issued a new convertible promissory note to Einstein Investments LLC for $115,500, with an interest
rate of 8% and convertible to Common Stock of the Company at 50% discount to the average of the two lowest trading prices or closing
bids during the ten trading days immediately prior to the date of conversion. The maturity date of this note is 10/26/2018.
As
of December 31, 2017, the principal balance of the outstanding convertible notes was $453,634 and the value of net derivative
liabilities in connection with these notes was $683,901. The Company relies on a professional third-party valuation to record
the value of derivative liability, discount, and change in fair value of derivatives in connection with these convertible notes
and warrants, if any, that are related to the convertible notes. The Company intends and prefers to repay these notes in cash
as much as practical.
EQUITY
LINE FACILITY WITH AZURE CAPITAL, INC.
On
March 6, 2017, PHI Group, Inc., a Nevada corporation (the “Company”) and Azure Capital, a Massachusetts Corporation
(the “Investor”) entered into an Investment Agreement (the “Investment Agreement”) and a Registration
Rights Agreement (the “Registration Rights Agreement”), each dated March 6, 2017 between the Company and the Investor.
The Investment Agreement and the Registration Rights Agreement were amended on August 3, 2017. Pursuant to the Investment Agreement,
the Investor committed to purchase, subject to certain restrictions and conditions, up to $10,000,000 worth of the Company’s
common stock, over a period of 36 months from the effectiveness of the registration statement registering the resale of shares
purchased by the Investor pursuant to the Investment Agreement. The Company agrees to reserve 65,445,000 shares of its Common
Stock for issuance to the Investor pursuant to the Investment Agreement. In the event the Company cannot register a sufficient
number of shares of its Common Stock for issuance pursuant to the Investment Agreement, the Company will use its best efforts
to authorize and reserve for issuance the number of shares required for the Company to perform its obligations in connection with
the Investment Agreement as soon as reasonable practical.
The
Company may in its discretion draw on the facility from time to time, as and when the Company determines appropriate in accordance
with the terms and conditions of the Investment Agreement. The maximum number of shares that the Company is entitled to put to
the Investor in any one draw down notice shall not exceed shares with a purchase price of $250,000 or 200% of the average daily
volume (U.S. market only) of the Company’s Common Stock for the three (3) Trading Days prior to the applicable put notice
date multiplied by the average of the three (3) daily closing prices immediately preceding the put date, calculated in accordance
with the Investment Agreement. The Company may deliver a notice for a subsequent put from time to time, after the pricing period
for the prior put has been completed.
The
purchase price shall be set at ninety-four percent (94%) of the lowest daily volume weighted average price (VWAP) of the Company’s
common stock during the five (5) consecutive trading days immediately following the put notice date. On each put notice submitted
to the Investor by the Company, the Company shall specify a suspension price for that put. In the event the price of Company’s
Common Stock falls below the suspension price, the put shall be temporarily suspended. The put shall resume at such time the price
of the Company’s Common Stock is above the suspension price, provided the dates for the pricing period for that particular
put are still valid. In the event the pricing period has been complete, any shares above the suspension price due to the Investor
shall be sold to the Investor by the Company at the suspension price under the terms of the Investment Agreement. The suspension
price for a put may not be changed by the Company once submitted to the Investor.
There
are put restrictions applied on days between the draw down notice date and the closing date with respect to that particular put.
During such time, the Company shall not be entitled to deliver another draw down notice. In addition, the Investor will not be
obligated to purchase shares if the Investor’s total number of shares beneficially held at that time would exceed 4.99%
of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-1(j) of the Securities Exchange
Act of 1934, as amended. In addition, the Company is not permitted to draw on the facility unless there is an effective registration
statement to cover the resale of the shares.
The
Investment Agreement also contains customary representations and warranties of each of the parties. The assertions embodied in
those representations and warranties were made for purposes of the Investment Agreement and are subject to qualifications and
limitations agreed to by the parties in connection with negotiating the terms of the Investment Agreement. The Investment Agreement
further provides that the Company and the Investor are each entitled to customary indemnification from the other for, among other
things, any losses or liabilities they may suffer as a result of any breach by the other party of any provisions of the Investment
Agreement or Registration Rights Agreement (as defined below). Investor should read the Investment Agreement together with the
other information concerning the Company that the Company publicly files in reports and statements with the Securities and Exchange
Commission (the “SEC”).
Pursuant
to the terms of the Registration Rights Agreement, the Company is obligated to file one or more registrations statements with
the SEC within twenty-one (21) days after the date of the Registration Rights Agreement to register the resale by the Investor
of the shares of common stock issued or issuable under the Investment Agreement. In addition, the Company is obligated to use
all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days after the
registration statement is filed.
The
Company filed an S-1 Registration Statement with the Securities and Exchange Commission on April 3, 2017 and a Withdrawal of Registration
Statement on August 7, 2017. Subsequently, a new S-1 Registration Statement filed on August 7, 2017, as amended, was declared
effective by the Securities and Exchange Commission on January 11, 2018. As of the date of this report, the Company has not drawn
on the equity line.
EB-5
IMMIGRATION INVESTOR PROGRAM
The
Company has filed an I-924 application with
the
United States Citizenship and Immigration Service (USCIS) for the PHI Group EB5 Regional Center, LLC
in
order to raise capital through the EB-5 Immigration Investor Program
in
connection with the Company’s organic farming program, Abundant Farms, Inc., a wholly owned subsidiary of the Company, and
other potential business activities in the State of Florida. Under the EB-5 Program, created by Congress to stimulate the U.S.
economy through job creation and capital investment, foreign entrepreneurs (and their spouses and unmarried children under 21)
are eligible to apply for a Green Card (permanent residence) if they make the necessary investment in a commercial enterprise
in the United States that creates or preserves at least 10 permanent, full-time jobs for qualified U.S. workers. The operation
of this Regional Center is subject to the review and approval of
United States Citizenship
and Immigration Service.
COMPANY’S
PLAN OF OPERATION FOR THE FOLLOWING 12 MONTHS
In
the next twelve months the Company intends to continue pursuing its merger and acquisition program by acquiring all or controlling
interests in target companies in a number of industries, including but not limited to energy, natural resources, agribusiness,
technology, transportation, education, distribution, mining, oil & gas, financial services, healthcare, and pharmaceuticals.
In addition, the Company also plans to invest in special situations that may potentially generate significant revenues and profitability
for the Company in the short term. We believe that by closing one or more of the contemplated acquisitions we will be able to
build a critical mass and uplist to the Nasdaq Stock Market or NYSE in the near future. Moreover, we will continue to provide
advisory and consulting services to international clients through our wholly owned subsidiary PHI Capital Holdings, Inc.
The
Company anticipates generating substantial amounts of revenues through the merger and acquisition program, investment in special
situations, and advisory services mentioned herein. However, no assurances could be made that management would be successful in
achieving its plan. The president and chairman of the Company has committed to funding the Company’s operations from various
sources for the next 12 months.
FINANCIAL
PLANS
MATERIAL
CASH REQUIREMENTS: We must raise substantial amounts of capital to fulfill our plan of acquiring energy-related and natural resource
assets as part of our scope of business. We intend to use equity, debt and project financing to meet our capital needs for acquisitions.
Management
has taken action and formulated plans to strengthen the Company’s working capital position and generate sufficient cash
to meet its operating needs through June 30, 2018 and beyond. The working capital cash requirements for the next 12 months are
expected to be generated from operations, sale of marketable securities and additional financing. The Company plans to generate
revenues from its consulting services, merger and acquisition advisory services, and acquisitions of target companies with cash
flows.
AVAILABLE
FUTURE FINANCING ARRANGEMENTS: The Company may use various sources of funds, including short-term loans, long-term debt, equity
capital, and project financing as may be necessary. The Company believes it will be able to secure the required capital to implement
its business plan; however, no assurances could be made that management would be successful in achieving its plan.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
following discussion about PHI Group Inc.’s market risk involves forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements.
Currency
Fluctuations and Foreign Currency Risk
Some
of our operations are conducted in other countries whose official currencies are not U.S. dollars. However, the effect of the
fluctuations of exchange rates is considered minimal to our business operations.
Interest
Rate Risk
We
do not have significant interest rate risk, as most of our debt obligations are primarily short-term in nature to individuals,
with fixed interest rates.
Valuation
of Securities Risk
Since
majority of our income is paid with the marketable securities, the value of our assets may fluctuate significantly depending on
the market value of the securities we hold.
ITEM
4.
Controls and Procedures
Disclosure
Controls and Procedures
As
required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management
carried out an evaluation, with the participation of our Chief Executive Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act), as of the period covered by this
report. Disclosure controls and procedures are defined as controls and other procedures that are designed to ensure that information
required to be disclosed by us in reports filed with the SEC under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s
management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure. Based upon their evaluation, our management (including our Chief Executive Officer) concluded that
our disclosure controls and procedures were not effective as of December 31, 2017, based on the material weaknesses defined below.
Internal
Control over Financial Reporting
Management’s
Report on Internal Control of Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive
and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
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pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of
our assets,
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provide
reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in
accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors, and
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provide
reasonable assurance regarding prevention or timely detection of authorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements.
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Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted
that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Under
the supervision and with the participation of management, including its principal executive officer and principal financial officer,
the Company’s management assessed the design and operating effectiveness of internal control over financial reporting as
of December 31, 2017 based on the framework set forth in
Internal Control—Integrated Framework (2013)
issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We
have identified material weaknesses in our internal control over financial reporting:
(i)
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inadequate
segregation of duties consistent with control objectives;
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(ii)
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ineffective
controls over period-end financial disclosure and reporting processes.
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If
we fail to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results in a timely manner, which may adversely affect investor confidence in our company.
Based
on this assessment, management concluded that the Company’s internal control over financial reporting was not effective
as of December 31, 2017.
Management’s
Remediation Plan
We
plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered
by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate
such weaknesses, we plan to implement the following changes in the future:
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(i)
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appoint
additional qualified personnel to address inadequate segregation of duties and ineffective risk
management; and
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(ii)
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adopt
sufficient written policies and procedures for accounting and financial reporting.
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The
remediation efforts set out in (i) are largely dependent upon our company securing additional financing to cover the costs of
implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected
in a material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management
believes that despite our material weaknesses set forth above, our consolidated financial statements for the quarterly report
ended December 31, 2017 are fairly stated, in all material respects, in accordance with US GAAP.
Attestation
Report of the Registered Accounting Firm
This
Quarterly Report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to Rule 308(b) of Regulation S-K, which permits the Company to provide only management’s
report in this Annual Report.
Changes
in Internal Control over Financial Reporting
No
changes in the Company’s internal control over financial reporting have come to management’s attention during the
fiscal quarter ended December 31, 2017 that have materially affected, or are likely to materially affect, the Company’s
internal control over financial reporting.