Notes to Consolidated
Financial Statements
1.
Nature of Business
Sugarmade, Inc. (hereinafter referred
to as ’‘we’’, ’‘us” or “the/our Company’’) is a publicly traded company
incorporated in the state of Delaware. Our previous legal name was Diversified Opportunities, Inc. Our Company, Sugarmade, Inc.
operates much of its business activities through our subsidiary, SWC Group, Inc., a California corporation (“SWC’’).
Sugarmade, Inc. was founded in 2010.
In 2014, CarryOutSupplies.com was acquired by Sugarmade, Inc., creating the Company as it is today. As of the end of the reporting
period, June 30, 2019, we were involved in two businesses including the supply of products to the quick service restaurant sub-sector
of the restaurant industry and as an importer, distributor and marketer of hydroponic supplies to various agricultural sectors.
We had previously been a marketer of culinary seasoning products Seasoning Stix and Sriracha Seasoning Stix and a marketer of tree-free
paper products. These products were discontinued during 2018 in order to focus the majority of our corporate resources on the marketing
of hydroponic supplies.
The marketplace in which we plan to
be mainly engaged is generally referred to as hydroponic agricultural supplies. While some of our customers are engaged in the
legal cultivation, processing and/or distribution of cannabis or cannabis containing products, our Company neither sells any products
containing cannabis nor do we handle, process, or distribute any products containing cannabis.
Our legacy business operation, CarryOutSupplies.com,
is a producer and wholesaler of custom printed and generic supplies servicing more than 2,000 quick service restaurants. Our products
include double poly paper cups for cold beverage; disposable, clear, plastic cold cups, paper coffee cups, yogurt cups, ice cream
cups, cup lids, cup sleeves, food containers, soup containers, plastic spoons and many other similar products for this market sector.
CarryOutSupplies.com was founded in 2009 when the founders gained first-hand experience within the restaurant industry of the difficulty
for restaurant owners to acquire custom printed supplies at a reasonable cost. Many quick service restaurants wish to acquire custom
printed products, such as those embossed with logos, but the minimum order size for such customization had been cost prohibitive.
With that in mind, carry out supplies was founded to provide products to this underserved section of the market. Since that time,
the company has become a key supplier to many popular U.S. franchises, particularly in the frozen dessert segments.
In December 2017, we announced a Master
Marketing Agreement with BizRight, LLC where the Company would market BizRight’s products. The Company also gained an option
to acquire all of BizRight’s operations. As of the date of this report, the Company had exercised the option to purchase
100% of BZRTH, the assignee and operating entity of BizRight. See Note 4 below for further details.
During October 2018, the Company signed
a Letter of Intent to acquire Sky Unlimited, LLC doing business as Athena United, a Southern California-based, supplier of hydroponic
cultivation supplies to the wholesale sector and to large commercial cultivators. Athena United operates its ecommerce website
at www.AthenaUnited.com. Under the terms of the Agreement, which contains
both binding and non-binding elements, Sugarmade will acquire all of the outstanding capital stock and the business operations
for a combination of cash and common shares of Sugarmade. Athena United, and its associated operations, is believed to be one of
the larger operators in this market sector and is producing revenues of approximately $40 million per year, is profitable, and
cash flow positive. Should the Company be successful in its acquisition efforts, the operation would be integrated under the Sugarmade
corporate umbrella with Sugarmade assuming all operations and recognizing all revenues and profits.
During
January of 2019, the Company announced its intention to acquire a retail location of Washington State-based Hydro4Less. The operation
is expected to produce approximately $5 million in revenues and to be profitable during calendar 2019. Additionally, via the pending
transaction, Sugarmade will gain an option to purchase two additional Hydro4Less retail operations, which are currently producing
in excess of $20 million annually. Should all three Hydro4Less acquisitions close, Sugarmade will increase its annual revenues
by approximately $25 million per year.
2.
Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of consolidation
The consolidated financial
statements include the accounts of our Company and its wholly-owned subsidiary, SWC Group Inc. All significant intercompany transactions
and balances have been eliminated in consolidation.
Going concern
The Company’s continuation as a going
concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has
not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
Our consolidated financial statements
have been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of
liabilities that may result should the Company be unable to continue as a going concern.
Management is endeavoring to increase
revenue-generating operations. While priority is on generating cash from operations through the sale of the Company’s products,
management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s
equity and/or debt securities, which may not be available on commercially reasonable terms to our Company, or which may not be
available at all. If such financing is not available on satisfactory terms, we may be unable to continue our business as desired
and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects
on us and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of
operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional
funds, the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences
or privileges senior to those of the current holders of our common stock.
Use of estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires our 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 period. Actual results
could differ significantly from those estimates.
Revenue recognition
We recognize revenue in accordance with
Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC’’) No. 606, Revenue Recognition. Sugarmade
applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with
a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating
the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation
is satisfied.
Substantially
all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
Cash
Cash and cash equivalents consist of
amounts held as bank deposits and highly liquid debt instruments purchased with an original maturity of three months or less.
From time to time, we may maintain bank
balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit Insurance Corporation
for interest bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts). We have not
experienced any losses with respect to cash. Management believes our Company is not exposed to any significant credit risk with
respect to its cash.
Accounts receivable
Accounts receivable are carried at their
estimated collectible amounts, net of any estimated allowances for doubtful accounts. We grant unsecured credit to our customer’s
deemed credit worthy. Ongoing credit evaluations are performed and potential credit losses estimated by management are charged
to operations on a regular basis. At the time, any particular account receivable is deemed uncollectible, the balance is charged
to the allowance for doubtful accounts. The Company had accounts receivable, net of allowance, of $218,145 and 453,623 as of June
30, 2019 and 2018, respectively; and allowance for doubtful accounts of $412,666 and $126,262 as of June 30, 2019 and 2018, respectively.
Inventory
Inventory consists of finished goods
paper and paper-based products such as paper cups and food containers ready for sale and is stated at the lower of cost or market.
We value our inventory using the weighted average costing method. Our Company’s policy is to include as a part of inventory any
freight incurred to ship the product from our contract manufacturers to our warehouses. Outbound freights costs related to shipping
costs to our customers are considered period costs and reflected in selling, general and administrative expenses. We regularly
review inventory and consider forecasts of future demand, market conditions and product obsolescence. The total inbound freight
costs are $247,263 & $271,343 as of June 30, 2019 & 2018 respectively.
If the estimated realizable value of
our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated market value. On a consolidated
basis, as of June 30, 2019 and June 30, 2018, the balance for the inventory totaled $356,285 and $531,249, respectively. $14,548
were reserved for obsolescent inventory for the year ended June 30, 2019, and $120,486 were reserved for obsolescent inventory
for the year ended June 30, 2018.
Impairment of Long-Lived Assets
Long-lived assets, which include property,
plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets
to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is
generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on
its review, the Company believes that, as of June 30, 2019, there was no significant impairment of its long-lived assets.
Income taxes
We account for income taxes under the
asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
As a result of the implementation of
certain provisions of ASC 740, Income Taxes (“ASC 740’’), which clarifies the accounting and disclosure for uncertainty in
tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspect of the recognition and
measurement related to accounting for income taxes.
We adopted the provisions of ASC 740
as of October 2, 2008 and have analyzed filing positions in each of the federal and state jurisdictions where we are required to
file income tax returns, as well as open tax years in these jurisdictions. We have identified the U.S. federal and California as
our ’‘major’’ tax jurisdictions and generally, we remain subject to Internal Revenue Service examination after our 2013 U.S. federal
income tax returns. However, we have certain tax attribute carryforwards, which will remain subject to review and adjustment by
the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.
We believe that our income tax filing
positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change
to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In
addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest
and penalties associated with income-based tax audits is to record such items as a component of income taxes. We have not
taken any uncertain positions that would necessitate recording of tax related liability as of June 30, 2019 and 2018.
Stock based compensation
Stock based compensation cost to employees
is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense
over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee
stock options granted using the Binomial Option Pricing Model. Key assumptions used to estimate the fair value of stock options
will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term,
the risk-free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common
stock. We use our company’s own data among other information to estimate the expected price volatility and the expected forfeiture
rate. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Loss per share
We calculate basic earnings per share
(“EPS”) by dividing our net loss by the weighted average number of common shares outstanding for the period, without
considering common stock equivalents. Diluted BPS is computed by dividing net income or net loss by the weighted average number
of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options
and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.
Fair value of financial instruments
ASC Topic 820 defines fair value, establishes
a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and
enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1- observable inputs that reflect
quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - include other inputs that
are directly or indirectly observable in the marketplace.
Level 3 - unobservable inputs which
are supported by little or no market activity.
The Company used Level 2 inputs for
its valuation methodology for the derivative liabilities for conversion feature of the convertible notes and warrants in determining
the fair value using Lattice Binomial model with the following assumption inputs:
Derivative instruments
The fair value of derivative instruments
is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated
statement of operations under non-operating income (expense).
Our Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.
For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes- Merton option-pricing model
to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument could be required within 12months of the balance sheet date.
Segment Reporting
FASB ASC Topic 280, “Segment Reporting’’,
requires use of the ’‘management approach” model for segment reporting. The management approach model is based on the way
a company’s management organizes segments within the Company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure, management structure, or any other manner in which management
disaggregates a company.
FASB ASC Topic 280 has no effect on
the Company’s financial statements as substantially all of its operations are conducted in one industry segment -paper and paper-based
products such as paper cups, cup lids, food containers, etc.
New accounting pronouncements not
yet adopted
In February 2016, the FASB issued ASU
No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to
record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified
as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new
standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company will adopt this ASU on the consolidated financial statements in the quarter ended September 30, 2019.
Prior period reclassification
Certain prior period balance sheet accounts
have been reclassified in conformity with current period presentation including reclassification of $4,000 from derivative liability
to warrant liability. The reclassification had no effect to the company’s consolidated statement of operations, statement of cash
flow or statement of shareholder’s equity.
3.
Concentration
Customer
For the year ended June 30, 2019, our
Company earned net revenues of $4,637,644. The company does not have any concentration of revenue with any customer that represent
over 10% of overall revenue. The highest revenue from (2) customers accounted for 7.90% and 7.69% respectively, as percentage of
overall revenue for the year ended June 30, 2019.
For the year ended June 30, 2018, our
Company earned net revenues of $4,439,324. The vast majority of these revenues for the periods were derived from a large number
of customers, with no customers accounted for over 10% of the Company’s total revenues in either period. The highest revenue from
(2) customers accounted for 8.51% and 6.96% respectively, as percentage of overall revenue for the year ended June 30, 2018.
Suppliers
For the year ended June 30, 2019, we
purchased products for sale by the company’s subsidiaries from several contract manufacturers located in Asia and the U.S. A substantial
portion of the Company’s inventory is purchased from two (2) suppliers. The two (2) suppliers accounted as follows: Two suppliers
accounted for 31.21% and 17.80% of the Company’s total inventory purchase for the year ended June 30, 2019, respectively.
For the year ended June 30, 2018, two
suppliers accounted for 36% and 17.50% of the Company’s total inventory purchase for the year ended June 30, 2018, respectively.
4.
Equity Transaction – Exclusive License Rights
On December 13, 2017, we entered into a Master
Marketing Agreement with BizRight, LLC (“BizRight”), a leading marketer and manufacturer of hydroponic growth supplies,
which offers a range of hydroponics-related products including: HPS grow lights, electronic ballasts, HPS Bulbs, nutrient
mixes, environmental control products, pH measurement and calibration solutions and other grow and storage products. BizRight operates
the ZenHydro.com website and other e-commerce properties, and sells various products to distributors and retailers.
Under the terms of the Master Marketing Agreement,
all products procured, developed and imported by BizRight will be sold by the Company. The expected term of the exclusive license
rights is 20 years. BizRight and its owners will be compensated via a combination of cash and common shares in Sugarmade. Effective
the contract date, Bizright will be compensated Two hundred million (200,000,000) common shares. Sugarmade will compensate BizRight
and its owners six million dollars ($6,000,000) in cash. The amount due will be divided over 3 payments equally and are contingent
upon the filing of the S-1 and significant funding.
We began recognizing revenues under this marketing
agreement during April 2018 and stopped recognizing the revenue early 2019 upon exercise of the purchase option under the agreement.
As of June 30, 2019, BizRight had assigned the marketing agreement to its operating entity, BZRTH and the Company had exercised
the option to purchase 100% equity ownership of BZRTH.
As of June 30, 2019, cash of $870,000 and 200
million shares of the Company’s common stock had been paid and issued in connection with the acquisition.
5.
Litigation
From time to time and in the course
of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate
liability, if any, from such claims cannot be determined. As of June 30, 2019, there were no legal claims pending or threatened
against the Company; the opinion of our management would be likely to have a material adverse effect on our financial position,
results of operations or cash flows. However, as of the date of this filing, we were involved in the following legal proceedings.
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The Company had originally filed a lawsuit in Contra Costa County, California, against Diversified Products Group, Inc. (DPG), including its former employees and chairman of the Company. The named defendants had filed a counterclaim against the Company. As of June 30, 2019, all parties have agreed to settlement terms and are awaiting for defendants’ counsel to file the formal dismissal.
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On December 11, 2013, the Company was served with a complaint from two Convertible Note Holders and investors in the Company. On February 21, 2017, the Company signed a settlement agreement with the plaintiffs. Under the terms of the settlement agreement, the Company agreed to pay the plaintiffs $227,000 to settle all claims against the Company, which included the payoff of the two notes outstanding within one (1) week. Upon receipt of all payments, plaintiffs will surrender for cancellation 230,000 of the Company’s shares within ten (10) days. The parties agreed that all claims against the Company would be satisfied through such payments and that the matter would be fully resolved. Thus far, third-parties had purchased two (2) notes of approximately $80,000, reducing the Company’s exposure. As of the date of this filing, there is a remaining balance of $227,000, plus accrued interest.
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On August 13, 2019, a lawsuit was filed against the Company for
unpaid legal fees of $50,000.00, which originates from the Company’s former chairman and CEO. The Company was served in or
around September 2019. The Company plans to amicably resolve this matter and anticipates that it will be settled and dismissed.
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There can be no assurances the ultimate
liability relative to these lawsuits will not exceed what is outlined above.
As of June 30, 2019 and 2018, other current assets consisted
of the following:
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For the years ended June 30,
|
|
|
2019
|
|
2018
|
Prepaid Deposit
|
|
$
|
2,145,000
|
|
|
$
|
355,500
|
|
Prepaid Inventory
|
|
|
172,045
|
|
|
|
92,737
|
|
Employees Advance
|
|
|
16,052
|
|
|
|
41,303
|
|
Prepaid Expenses
|
|
|
358,702
|
|
|
|
246,260
|
|
Others
|
|
|
28,075
|
|
|
|
20,765
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Total
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$
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2,719,875
|
|
|
$
|
756,565
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7.
Intangible Asset
On April 1, 2017, the Company entered
into a distribution and intellectual property assignment agreement with Wagner Bartosch, Inc. (“Wagner’’) for use of their
Divider’™ used in frozen desserts and other related uses. In lieu of cash payment under the agreement, the Company was obliged
to issue common shares of the Company valued at $75,000 for acquiring the use right of the distribution and intellectual property.
The Company amortized this use right as intangible asset over ten years, and recorded $0 and $67,850 amortization expense for the
years ended June 30, 2019 and 2018, respectively.
8.
Convertible Notes
As of June 30, 2019 and June 30, 2018, the
balance owing on convertible notes, net of debt discount, with terms as described below was $1,046,909 and $2,399,941, respectively.
Convertible notes issued prior to the year
ended June 30, 2017 were as follows:
Convertible note 1: On August 24, 2012, the
Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months
with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion
date. As of June 30, 2019, the note is in default.
Convertible note 2: On September 18, 2012,
the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6)
months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the
conversion date. As of June 30, 2019, the note is in default.
Convertible note 3: On December 21, 2012, the
Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of six (6) months
with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion
date. As of June 30, 2019, the note is in default.
Convertible note 4: On December 19, 2016, the
Company entered into a convertible promissory note with an accredited investor for $20,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount. As of June 30, 2019, the note has been fully
converted.
Convertible note 5: On January 17, 2017, the
Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares. As
of June 30, 2019, the note has been fully converted.
Convertible note 6: On January 20, 2017, the
Company entered into a convertible promissory note with an accredited investor for $80,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares.
As of June 30, 2019, the note has been fully converted.
Convertible note 7: On February 8, 2017, the
Company entered into a convertible promissory note with an accredited investor for $50,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares.
As of June 30, 2019, the note has been fully converted.
Convertible note 8: On February 24, 2017, the
Company entered into a convertible promissory note with an accredited investor for $66,023. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares.
As of June 30, 2019, the note has been fully converted.
Convertible note 9: On February 9, 2017, the
Company entered into a convertible promissory note with an accredited investor for $50,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares.
As of June 30, 2019, the note has been fully converted.
Convertible note 10: On February 28, 2017,
the Company entered into a convertible promissory note with an accredited investor for $75,000. The note has a term of six (6)
months with an interest rate of 8% and is convertible to common shares at a 40% discount. As of June 30, 2019, the note has been
fully converted.
Convertible note 11: On March 1, 2017, the
Company entered into a convertible promissory note with an accredited investor for $100,000. The note has been purchased by other
investor in total amount of $156,067 with a term of nine (9) months with an interest rate of 10% and is convertible to common shares
at a 45% discount to the then current market price of our shares. As of June 30, 2019, the Company converted $63,567 and the remaining
balance of note was $60,751.
Convertible note 12: On March 23, 2017, the
Company entered into a convertible promissory note with an accredited investor for $70,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares.
As of June 30, 2019, the note has been fully converted.
Convertible note 13: On February 16, 2017,
the Company entered into a convertible promissory note with an accredited investor for $30,000. The note has a term of six (6)
months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our
shares. As of June 30, 2019, the note has been fully converted.
Convertible note 14: On March 31, 2017, the
Company entered into a convertible promissory note with an accredited investor for $200,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market price of our shares.
As of June 30, 2019, the note has been fully converted.
Convertible note 15 & 16: On May 17, 2017,
the Company entered a convertible promissory note with an investor for a total amount of $1,375,000 (after $10,000 legal and due
diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. The note is due 12 months after
each funding date and bears an interest rate of 10%. The conversion price for the note is 55% of the lowest closing bid for the
20 consecutive trading days prior to the conversion date. In connection with the note, the investor will also receive warrants
and is calculated based on 15% of the maturity amount. The warrants have a life of four years with exercise price of $0.15 per
share and have cashless exercise option. The Company had outstanding balance of $921,004 as of the year ended June 30, 2018. The
fair value of the warrants was $40,400 as of June 30, 2018. During the year ended June 30, 2019, the principal balance has been
fully converted, the remaining default charge balance of the note was $250,000 as of June 30, 2019 and the fair value of the warrant
liability was $5,555. As of June 30, 2019, the note is in default and bears a default interest rate of 22% per annum.
Convertible notes issued during the year
ended June 30, 2018 were as follows:
Convertible note 17: On July 17, 2017, the
Company entered into a convertible promissory note with an accredited investor for $164,900. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.025. As of June 30, 2019, the note
has been fully converted.
Convertible note 18: On August 3, 2017, the
Company entered into a convertible promissory note with an accredited investor for $150,000. The note has a term of six (6) months
with an interest rate of 10% and is convertible to common shares at a 45% discount to average of 3 lowest trading price during
last 20 trading days. As of June 30, 2019, the note has been fully converted.
Convertible note 19: On August 22, 2017, the
Company entered into a convertible promissory note with an accredited investor for $35,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount of average two lowest price of last 20 trading
days prices. As of June 30, 2019, the note has been fully converted.
Convertible note 20: On September 15, 2017,
the Company entered into a convertible promissory note with an accredited investor for $150,000. The note has a term of six (6)
months with an interest rate of 10% and is convertible to common shares at a 45% discount to average of 3 lowest trading price
during last 20 trading days. As of June 30, 2019, the note has been fully converted.
Convertible note 21: On September 26, 2017,
the Company entered into a convertible promissory note with an accredited investor for $15,000. The note has a term of six (6)
months with an interest rate of 8% and is convertible to common shares at a 40% discount of average two lowest price of last 20
trading days prices. As of June 30, 2019, the note has been fully converted.
Convertible note 22: On December 7, 2017, the
Company entered into a convertible promissory note with an accredited investor for $50,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.05. As of June 30, 2019, the note
has been fully converted.
Convertible notes issued during the year
ended June 30, 2019 were as follows:
Convertible note 23: On September 20, 2018,
the Company entered a convertible promissory note with an accredited investor for a total amount of $267,500 (includes $5,000 legal
fee and an OID of $12,500). The note is due 360 days and bears an interest rate of 8%. The conversion price for the note is 55%
of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. During the year ended June 30, 2019,
the principal balance of 205,000 has been converted into the Company’s common stock, and the remaining balance of the note
was $62,500 as of June 30, 2019.
Convertible note 24: On October 5, 2018, the
Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $5,000 OID).
The note is due 360 days and bears an interest rate of 8%. The conversion price for the note is 45% of average three lowest closing
bid for the 20 consecutive trading days prior to the conversion date. As of June 30, 2019, the note has been fully converted.
Convertible note 25: On November 1, 2018, the
Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07.
Convertible note 26: On November 16, 2018,
the Company entered into a convertible promissory note with an accredited investor for $80,000. The note has a term of one year
with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07.
Convertible note 27: On November 16, 2018,
the Company entered into a convertible promissory note with an accredited investor for $40,000. The note has a term of one year
with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07.
Convertible note 28: On December 3, 2018, the
Company entered into a convertible promissory note with an accredited investor for $35,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07.
Convertible note 29: On December 26, 2018,
the Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $5,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 45% of average three lowest closing
bid for the 20 consecutive trading days prior to the conversion date. During the year ended June 30, 2019, the principal balance
of 100,000 has been converted into the Company’s common stock, and the remaining balance of the note was $150,000 as of June
30, 2019.
Convertible note 30: On January 8, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $105,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is 35% of average two lowest closing bid for the 20 consecutive
trading days prior to the conversion date.
Convertible note 31: On January 22, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is 42% of average three lowest closing bid for the 20 consecutive
trading days prior to the conversion date.
Convertible note 32: On January 24, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $53,000. The note is due 360 days
and bear an interest rate of 8%. The conversion price for the note is 35% of average two lowest closing bid for the 20 consecutive
trading days prior to the conversion date.
Convertible note 33: On February 26, 2019,
the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360
days and bear an interest rate of 8%. The conversion price for the note is 42% of average three lowest closing bid for the 20 consecutive
trading days prior to the conversion date.
Convertible note 34: On March 4, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $7,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 35: On April 2, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $2,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing
bid for the 10 consecutive trading days prior to the conversion date.
Convertible note 36: On April 4, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $2,000 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 37: On May 2, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note
is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for
the 10 consecutive trading days prior to the conversion date.
Convertible note 38: On May 7, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,500 OID). The note
is due 360 days and bear an interest rate of
8%. The conversion price for the note is 58%
of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible note 39: On May 29, 2019, the Company
entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note
is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for
the 10 consecutive trading days prior to the conversion date.
Convertible note 40: On June 12, 2019, the
Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,500 OID).
The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing
bid for the 20 consecutive trading days prior to the conversion date.
As of the year ended June 30, 2019,
the Company’s convertible notes consisted of following:
Balance at 06.30.2018
|
|
Addition/(Repayment)
|
|
Conversion in principal
|
|
# of Shares Issued
|
|
Balance at 6.30.2019
|
|
Due Date
|
|
Interest Rate
|
|
Conversion Terms
|
$
|
25,000.00
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
25,000.00
|
|
|
2/24/2013
|
|
|
14
|
%
|
|
75% of the average of 30 days prior to the conversion date.
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
3/18/2013
|
|
|
14
|
%
|
|
75% of the average of 30 days prior to the conversion date.
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
6/21/2013
|
|
|
14
|
%
|
|
75% of the average of 30 days prior to the conversion date.
|
|
20,000
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
1,160,391
|
|
|
|
—
|
|
|
7/17/2017
|
|
|
10
|
%
|
|
40% discount of average price of last 20 trading days prices
|
|
25,000
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
1,426,674
|
|
|
|
—
|
|
|
7/17/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
2,931,188
|
|
|
|
—
|
|
|
8/8/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
80,000
|
|
|
|
—
|
|
|
|
80,000
|
|
|
|
4,530,846
|
|
|
|
—
|
|
|
7/20/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
66,023
|
|
|
|
—
|
|
|
|
66,023
|
|
|
|
3,712,324
|
|
|
|
—
|
|
|
8/24/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
2,390,805
|
|
|
|
—
|
|
|
8/9/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
75,000
|
|
|
|
—
|
|
|
|
75,000
|
|
|
|
4,378,547
|
|
|
|
—
|
|
|
7/31/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
124,318
|
|
|
|
—
|
|
|
|
63,567
|
|
|
|
3,919,404
|
|
|
|
60,751
|
|
|
12/1/2017
|
|
|
10
|
%
|
|
45% discount of lowest price of last 20 trading days prices
|
|
70,000
|
|
|
|
—
|
|
|
|
70,000
|
|
|
|
4,067,072
|
|
|
|
—
|
|
|
9/23/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
30,000
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
1,500,010
|
|
|
|
—
|
|
|
8/16/2017
|
|
|
8
|
%
|
|
Greater of 40% discount to average of 3 lowest trading price during last 20 trading days or $.05
|
|
200,000
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
11,557,652
|
|
|
|
—
|
|
|
9/30/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
921,004
|
|
|
|
—
|
|
|
|
671,004
|
|
|
|
31,483,740
|
|
|
|
250,000
|
|
|
5/12/2018
|
|
|
22
|
%
|
|
45% discount of lowest price of last 20 trading days prices
|
|
150,000
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
3,745,330
|
|
|
|
—
|
|
|
5/3/2018
|
|
|
10
|
%
|
|
45% discount to average of 3 lowest trading price during last 20 trading days
|
|
150,000
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
3,744,005
|
|
|
|
—
|
|
|
6/15/2018
|
|
|
10
|
%
|
|
42% discount to average of 3 lowest trading price during last 20 trading days
|
|
164,900
|
|
|
|
—
|
|
|
|
164,900
|
|
|
|
6,596,000
|
|
|
|
—
|
|
|
7/17/2018
|
|
|
8
|
%
|
|
The conversion price shall be $0.025 per share
|
|
35,000
|
|
|
|
—
|
|
|
|
35,000
|
|
|
|
691,184
|
|
|
|
—
|
|
|
8/22/2018
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
15,000
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
294,114
|
|
|
|
—
|
|
|
9/26/2018
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days prices
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
1,000,000
|
|
|
|
—
|
|
|
12/7/2018
|
|
|
8
|
%
|
|
The conversion price shall be $0.05 per share
|
|
—
|
|
|
|
267,500
|
|
|
|
205,000
|
|
|
|
10,785,299
|
|
|
|
62,500
|
|
|
9/15/2019
|
|
|
8
|
%
|
|
55% discount of lowest price of last 20 trading days prices
|
|
—
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
13,453,675
|
|
|
|
—
|
|
|
10/5/2019
|
|
|
8
|
%
|
|
45% discount of average three lowest price of last 20 trading days prices
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
100,000
|
|
|
10/31/2019
|
|
|
8
|
%
|
|
The conversion price shall be $0.07 per share
|
|
—
|
|
|
|
80,000
|
|
|
|
—
|
|
|
|
|
|
|
|
80,000
|
|
|
11/15/2019
|
|
|
8
|
%
|
|
The conversion price shall be $0.07 per share
|
|
—
|
|
|
|
40,000
|
|
|
|
—
|
|
|
|
|
|
|
|
40,000
|
|
|
11/15/2019
|
|
|
8
|
%
|
|
The conversion price shall be $0.07 per share
|
|
—
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
|
|
|
|
35,000
|
|
|
12/2/2019
|
|
|
8
|
%
|
|
The conversion price shall be $0.07 per share
|
|
—
|
|
|
|
250,000
|
|
|
|
100,000
|
|
|
|
7,964,002
|
|
|
|
150,000
|
|
|
12/26/2019
|
|
|
8
|
%
|
|
45% discount of average three lowest price of last 20 trading days prices
|
|
—
|
|
|
|
105,000
|
|
|
|
—
|
|
|
|
|
|
|
|
105,000
|
|
|
1/8/2020
|
|
|
8
|
%
|
|
35% discount to average of 2 lowest trading price during last 20 trading days
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
100,000
|
|
|
1/22/2020
|
|
|
8
|
%
|
|
42% discount to average of 3 lowest trading price during last 20 trading days
|
|
—
|
|
|
|
53,000
|
|
|
|
—
|
|
|
|
|
|
|
|
53,000
|
|
|
1/24/2020
|
|
|
8
|
%
|
|
35% discount to average of 2 lowest trading price during last 20 trading days
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
100,000
|
|
|
2/26/2020
|
|
|
8
|
%
|
|
42% discount to average of 3 lowest trading price during last 20 trading days
|
|
—
|
|
|
|
250,000
|
|
|
|
—
|
|
|
|
|
|
|
|
250,000
|
|
|
3/4/2020
|
|
|
8
|
%
|
|
58% discount to average 2 lowest trading prices during 20 days prior conversion date
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
100,000
|
|
|
4/2/2020
|
|
|
8
|
%
|
|
40% discount to average 3 lowest trading prices during 10 days prior conversion date
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
100,000
|
|
|
4/4/2020
|
|
|
8
|
%
|
|
58% discount to average 2 lowest trading prices during 20 days prior conversion date
|
|
—
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
|
|
|
|
125,000
|
|
|
5/2/2020
|
|
|
8
|
%
|
|
40% discount to average 3 lowest trading prices during 10 days prior conversion date
|
|
—
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
|
|
|
|
125,000
|
|
|
5/7/2020
|
|
|
8
|
%
|
|
58% discount to average 2 lowest trading prices during 20 days prior conversion date
|
|
—
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
|
|
|
|
125,000
|
|
|
5/29/2020
|
|
|
8
|
%
|
|
40% discount to average 3 lowest trading prices during 10 days prior conversion date
|
|
—
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
|
|
|
|
125,000
|
|
|
6/12/2020
|
|
|
8
|
%
|
|
58% discount to average 2 lowest trading prices during 20 days prior conversion date
|
$
|
2,426,245
|
|
|
$
|
2,330,500
|
|
|
$
|
2,520,494
|
|
|
$
|
121,332,262
|
|
|
$
|
2,236,251
|
|
|
|
|
|
|
|
|
|
As of the year ended June 30, 2019,
the Company’s debt discount consisted of following:
|
Date of
|
|
|
Due Date
|
|
|
Related Debt Discount
|
|
|
|
Amortization in 06/30/2018
|
|
|
|
Debt Discount Balance 06/30/18
|
|
|
|
Total Amortization in 06/30/2019
|
|
|
|
Debt Discount Balance 06/30/2019
|
|
|
8/22/2017
|
|
|
8/22/2018
|
|
$
|
35,000
|
|
|
$
|
29,918
|
|
|
$
|
5,082
|
|
|
$
|
5,082
|
|
|
$
|
—
|
|
|
9/26/2017
|
|
|
9/26/2018
|
|
$
|
15,000
|
|
|
$
|
11,384
|
|
|
$
|
3,616
|
|
|
$
|
3,616
|
|
|
$
|
—
|
|
|
7/17/2017
|
|
|
7/17/2018
|
|
$
|
164,900
|
|
|
$
|
160,445
|
|
|
$
|
4,455
|
|
|
$
|
4,455
|
|
|
$
|
—
|
|
|
12/7/2017
|
|
|
12/7/2018
|
|
$
|
30,000
|
|
|
$
|
16,849
|
|
|
$
|
13,151
|
|
|
$
|
13,151
|
|
|
$
|
—
|
|
|
9/20/2018
|
|
|
9/15/2019
|
|
$
|
12,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,826
|
|
|
$
|
2,674
|
|
|
9/20/2018
|
|
|
9/15/2019
|
|
$
|
250,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
196,528
|
|
|
$
|
53,472
|
|
|
10/5/2018
|
|
|
10/5/2019
|
|
$
|
5,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,000
|
|
|
$
|
—
|
|
|
10/5/2018
|
|
|
10/5/2019
|
|
$
|
245,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
245,000
|
|
|
$
|
—
|
|
|
11/1/2018
|
|
|
11/1/2019
|
|
$
|
84,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55,652
|
|
|
$
|
28,634
|
|
|
11/16/2018
|
|
|
11/16/2019
|
|
$
|
36,571
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,644
|
|
|
$
|
13,927
|
|
|
11/16/2018
|
|
|
11/16/2019
|
|
$
|
18,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,322
|
|
|
$
|
6,964
|
|
|
12/3/2018
|
|
|
12/3/2019
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,726
|
|
|
$
|
4,274
|
|
|
12/26/2018
|
|
|
12/26/2019
|
|
$
|
5,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,548
|
|
|
$
|
2,452
|
|
|
12/26/2018
|
|
|
12/26/2019
|
|
$
|
245,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124,849
|
|
|
$
|
120,151
|
|
|
1/8/2019
|
|
|
1/8/2020
|
|
$
|
0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,653
|
|
|
$
|
48,448
|
|
|
1/22/2019
|
|
|
1/22/2020
|
|
$
|
0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,107
|
|
|
$
|
49,371
|
|
|
1/22/2019
|
|
|
1/22/2020
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
871
|
|
|
$
|
1,129
|
|
|
1/24/2019
|
|
|
1/24/2020
|
|
$
|
0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,402
|
|
|
$
|
27,030
|
|
|
2/26/2019
|
|
|
2/26/2020
|
|
$
|
0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,854
|
|
|
$
|
63,854
|
|
|
2/26/2019
|
|
|
2/26/2020
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
679
|
|
|
$
|
1,321
|
|
|
3/4/2019
|
|
|
3/4/2020
|
|
$
|
243,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
78,344
|
|
|
$
|
164,656
|
|
|
3/4/2019
|
|
|
3/4/2020
|
|
$
|
7,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,257
|
|
|
$
|
4,743
|
|
|
4/2/2019
|
|
|
4/2/2020
|
|
$
|
98,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,831
|
|
|
$
|
74,169
|
|
|
4/2/2019
|
|
|
4/2/2020
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
486
|
|
|
$
|
1,514
|
|
|
4/4/2019
|
|
|
4/4/2020
|
|
$
|
98,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,295
|
|
|
$
|
74,705
|
|
|
4/4/2019
|
|
|
4/4/2020
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
475
|
|
|
$
|
1,525
|
|
|
5/2/2019
|
|
|
5/2/2020
|
|
$
|
123,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,828
|
|
|
$
|
103,172
|
|
|
5/2/2019
|
|
|
5/2/2020
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
322
|
|
|
$
|
1,678
|
|
|
5/7/2019
|
|
|
5/7/2020
|
|
$
|
122,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,074
|
|
|
$
|
104,426
|
|
|
5/7/2019
|
|
|
5/7/2020
|
|
$
|
2,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
369
|
|
|
$
|
2,131
|
|
|
5/29/2019
|
|
|
5/29/2020
|
|
$
|
123,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,754
|
|
|
$
|
112,246
|
|
|
5/29/2019
|
|
|
5/29/2020
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
175
|
|
|
$
|
1,825
|
|
|
6/12/2019
|
|
|
6/12/2020
|
|
$
|
122,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,025
|
|
|
$
|
116,475
|
|
|
6/12/2019
|
|
|
6/12/2020
|
|
$
|
2,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
123
|
|
|
$
|
2,377
|
|
|
Total:
|
|
|
|
|
|
|
|
|
$
|
218,597
|
|
|
$
|
26,303
|
|
|
$
|
1,026,324
|
|
|
$
|
1,189,341
|
|
9.
Derivative Liabilities
The derivative liability is derived
from the conversion features in note 8 and stock warrant in note 10. All were valued using the weighted-average Binomial option
pricing model using the assumptions detailed below. As of June 30, 2019 and 2018, the derivative liability was $2,991,953 and $3,069,616,
respectively. The Company recorded $4,191,727 and $525,394 loss from changes in derivative liability during the year ended June
30, 2019 and 2018, respectively. The Binomial model with the following assumption inputs:
|
|
June 30, 2018
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
0.15-1.00
|
|
Risk-Free Interest Rate
|
|
|
1.13%-2.06
|
%
|
Expected Volatility
|
|
|
94%-212
|
%
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
0.50-1.00
|
|
Risk-Free Interest Rate
|
|
|
1.92-2.64
|
%
|
Expected Volatility
|
|
|
87-150
|
%
|
Fair value of the derivative is summarized
as below:
Beginning Balance, June 30, 2018
|
|
$
|
3,069,616
|
|
Additions
|
|
$
|
3,217,870
|
|
Mark to Market
|
|
$
|
4,040,238
|
|
Reclassification to APIC Due to Conversions
|
|
$
|
(7,335,771
|
)
|
Ending Balance, June 30, 2019
|
|
|
2,991,953
|
|
10.
Stock Warrants
In connection with the issuance of the
promissory notes in 2012, the investors in the aggregate received two-year warrants to purchase up to a total of 50,000 shares
of common stock at an exercise price of $0.50 per share, and two-year warrants purchasing up to a total of 81,250 shares of common
stock at an exercise price of $0.01 per share. For purposes of accounting for the detachable warrants issued in connection with
the convertible notes, the fair value of the warrants was estimated using the Binomial option pricing formula. The value of all
warrants granted at the date of issuance totaled $508,413 and was recorded as a discount to the notes payable. The amount was amortized
over the nine (9) month term of the respective convertible note as additional interest expense.
On various dates during June 2014 and
December 2014 the Company and holders of certain convertible notes agreed to cancel warrants to purchase common shares in the Company
and to extend the due dates on the Notes to July l, 2016. $0.50 warrants and “Bonus Warrants” priced at $0.01, as defined
in the original Convertible Note Purchase Agreements we cancelled pertaining to the Note and warrants acquired on the following
dates for the following Convertible Notes and amounts. These warrants were expired on July 1, 2016.
On May 17, 2017, the Company entered
a promissory note with an investor for a total amount of $1,375,000 (after $10,000 legal and due diligence fee) with an OID of
$125,000, the note will be fulfilled through a series of funding. In connection with the note, the investor will also receive warrants
and is calculated based on 15% of the maturity amount. The warrants have a life of
four years with an exercise price of $0.15 per share and have cashless exercise option. The fair value of the warrants at the grant
date was $40,400. As of June 30, 2019 and 2018, the fair value of the warrant liability was $5,555 and $40,400, respectively.
On September 7, 2018, the Company entered
a settlement agreement with several investors to settle all disputes by issues additional unrestricted shares. In connection with
the note each individual investor will also receive warrants equal to the number of the shares the investors own as of the effective
date of the settlement agreement. The warrants have a life of five years with an exercise price as of the date of exchange. The
fair value of the warrants at the grant date was $56,730. As of June 30, 2019 and June 30, 2018, the fair value of the warrant
liability was $10,103 and $0, respectively.
As of June 30, 2019 and June 30, 2018,
the total fair value of the warrant liability was $24,658 and $40,400, respectively.
The Binomial model with the following
assumption inputs:
Warrants liability:
|
|
|
June 30, 2018
|
|
Annual dividend yield
|
|
|
—
|
|
Expected life (years)
|
|
|
0.5
|
|
Risk-free interest rate
|
|
|
2.06
|
%
|
Expected volatility
|
|
|
151
|
%
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in May 2017:
|
|
|
June 30, 2019
|
|
Annual dividend yield
|
|
|
—
|
|
Expected life (years)
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.76
|
%
|
Expected volatility
|
|
|
351
|
%
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining contractual life
|
|
Outstanding at June 30, 2016
|
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
|
|
|
Expired
|
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
|
|
|
Granted
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
4
|
|
|
Outstanding at June 30, 2017
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
3.86
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
0.5
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
578,880
|
|
|
|
0.034
|
|
|
|
5
|
|
|
Outstanding at June 30, 2019
|
|
|
|
1,083,880
|
|
|
$
|
0.034
|
|
|
|
5
|
|
11.
Note Payable
Note payable due to bank
During October 2011, we entered into
a revolving demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing limit of $150,000. The line
of credit bears a variable interest rate of one quarter percent (0.25%) above the prime rate (3.25% as of September 30, 2013).
In the event the deposit account is not established or minimum balance maintained, HSBC can charge a higher rate of interest of
up to 4.0% above prime rate. As of June 30, 2019 and 2018, the loan principal balance was $25,982.
Notes payable due to non-related
parties
On June 15, 2018, the Company entered
into a promissory note with one of the accredited investors. The original principal amount was $20,000 and the note bears 8% interest
per annum. The note was payable upon demand. As of June 30, 2019 and 2018, this note had a balance of $20,000 and $20,000, respectively.
Notes payable due to related parties
On January 23, 2013, the Company entered
into a promissory note with its former employee of the Company who owns less than 5% of the Company’s stock. The original principal
amount was $40,000 and the note bears no interest. The note was payable upon demand. As of June 30, 2019 and 2018, this note had
a balance of $18,000 and $18,000, respectively.
As of June 30, 2019 and 2018, the Company
has an outstanding balance of notes payable due to related parties of 18,000 and $23,000, respectively.
12.
Stockholders’ Deficit
The Company is authorized to issue 1,990,000,000
shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred stock.
During the year ended June 30, 2018,
the Company issued 1,171,429 shares of common stock for cash in total amount of $82,000.
During the year ended June 30, 2018,
the Company issued 4,736,842 shares of common stock for services in total amount of $180,000.
During the year ended June 30, 2018,
the Company issued 13,492,560 shares of common stock to settle the old debt in total amount of $306,810.
During the year ended June 30, 2019,
the Company issued 8,658,685 shares of common stock to settle the old debt in total amount of $665,918.
During the year ended June 30, 2019,
the Company issued 121,332,262 shares of common stock to convert the convertible notes in total amount of $2,783,237.
During the year ended June 30, 2019,
the Company issued 14,842,857 shares of common stock for cash in total amount of $390,000.
During the year ended June 30, 2019,
the Company issued 96,639,563 shares of common stock for services in total amount of $6,660,643.
During the year ended June 30, 2019,
the Company (buyer) signed a letter of intent (LOI) regarding a potential acquisition of all the outstanding capital stock, assets
and assumption of liabilities of a company (seller). The Company issued 10,000,000 shares of common stock as the stock compensations
upon the signing of the LOI in total amount of $1,175,000. The share is non-refundable and vested immediately, but was issued on
a restricted basis with a restrictive legend and will be subject to normal restrictions imposed by the financial industry and governmental
agencies.
During the year ended June 30, 2019,
the Company issued 200,000,000 shares of common stock as deposit for acquisition of BZRTH with a total value of $18,000,000. See
Note 4 for details.
During the year ended June 30, 2019,
the Company issued 2,000,000 shares of Series A preferred stock to multiple investors for EB-5 project to be issued in prior years.
As of June 30, 2019 and June 30, 2018,
the Company had 697,608,570 and 246,135,203 shares of its common stock issued and outstanding.
As of June 30, 2019 and June 30, 2018,
the Company had 2,000,000 and 0 shares of its Series A preferred stock issued and outstanding.
13.
Related Party Transactions
As of June 30, 2019 and 2018, the Company
had outstanding balance of $78,000 and $83,000 owed to various related parties, respectively. See note 11 and 15 for the details.
14.
Loans Payable
On October 1, 2017, SGMD entered a straight
promissory note with Greater Asia Technology Limited (Greater Asia) for borrowing $100,000 with maturity date on June 30, 2018;
the note bears an interest rate of 33.33%. As of June 30, 2019 and 2018, the note was in default and the outstanding balance under
this note was $63,924 and $63,924, respectively.
During the year ended June 30, 2019,
the Company entered a series of short-term loan agreements with Greater Asia Technology Limited (Greater Asia) for borrowing $375,000,
with interest rate at 40% - 50% of the principal balance. As of June 30, 2019 and 2018, the outstanding balance with Greater Asia
loans were $100,000 and $0, respectively.
On January 6, 2015, the Company entered
into repayment agreement with its former employee for a loan of $9,500 at no interest. As of June 30, 2019 and 2018, the Company
has an outstanding balance of $3,584 and $4,285.
On December 17, 2018, the Company entered
into a repayment agreement with an individual for $100,000 at no interest. As of June 30, 2019 and 2018, the Company has an outstanding
balance of $17,834 and $100,000, respectively.
On July 1, 2012, CarryOutSupplies entered
an equipment loan agreement with a bank with maturity on June 21, 2024. The monthly payment is $648. As of June 30, 2019 and 2018,
the outstanding balance under this loan were $29,243 and $0, respectively.
As of June 30, 2019 and 2018, the Company
had an outstanding loan balance of $214,585 and $329,029, respectively.
15.
Loans Payable – Related Parties
On June 26, 2017, SGMD entered a straight
promissory note with a company (whose major shareholder is the former director of the Company) for borrowing $180,820 with maturity
date on March 31, 2018; the note bears an interest rate of 12%, commencing on October 31, 2017, and on the last day of each moth
thereafter until the notes is paid in full, the Company shall make an interest payment. During the year ended June 30, 2019, all
the principles have been converted into the Company’s common stocks. As of June 30, 2019 and 2018, the outstanding balance
under this note was $0 and $180,820, respectively.
On July 7, 2016, SWC received a loan
from an employee. The amount of the loan bore no interest and amortized on a monthly basis over the life of the loan. As of June
30, 2019, and 2018, the balance of the loan were $30,000 and $30,000, respectively.
16.
Shares to Be Issued
During the year ended June 30, 2019,
the Company had entered into one private placement agreement and had potential shares to be issued in total amount of $100,000.
As of June 30, 2019 and 2018, the Company
had balance of $100,000 and $2,691,000 share to be issued.
17.
Commitments and Contingencies
On February 23, 2018 the Company entered
into lease agreement for a new office space as part of the plan to expand operation, the lease is set to commence Commencing March
1, 2018. The term of the lease is for a (5) Five Years with 1 month free on the 1st year of the term. The monthly rent on
the 1st year will be $11,770 with a 3% increase for each subsequent year. Total commitment for the full term of the lease
will be $737,367. As of the date of this filing, this property became the headquarter of the company.
18.
Income Tax
The deferred tax asset as of June 30,
2019 and 2018 consisted of the following:
|
|
2019
|
|
2018
|
Net Operating Loss Carryforwards
|
|
$
|
11,909,744
|
|
|
$
|
11,849,081
|
|
Less Valuation Allowance
|
|
|
(11,909,744
|
)
|
|
|
(11,849,081
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Management provided a deferred tax asset
valuation allowance equal to the potential benefit due to the Company’s loss. When the Company demonstrates the ability to
generate taxable income, management will re-evaluate the allowance.
As of June 30, 2019, the Company has
net operating loss carryforward of $44,110,162 which is available to offset future taxable income that expires by year 2035.
Reconciliation between the provision
for income taxes and the expected tax benefit using the federal statutory rate of 21% for 2019 and 34% for 2018 is as follows:
|
|
2019
|
|
2018
|
US federal statutory income tax rate
|
|
|
(21
|
)%
|
|
|
(34
|
)%
|
State tax – net of benefit
|
|
|
(7
|
)%
|
|
|
(7
|
)%
|
Non-deductible expenses, net of federal benefit
|
|
|
7
|
%
|
|
|
7
|
%
|
Increase in valuation allowance
|
|
|
21
|
%
|
|
|
34
|
%
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
19.
Subsequent Events
Convertible Notes
On July 3, 2019, the Company entered a convertible
promissory note with an accredited investor for a total amount of $125,000. The note is due 360 days and bear an interest rate
of 8%. The conversion price for the note is 40% of average three lowest closing bid for the 10 consecutive trading days prior to
the conversion date.
On July 30, 2019, the Company entered a convertible
promissory note with an accredited investor for a total amount of $162,000. The note is due 360 days and bear an interest rate
of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion
date.
Private Placement Memorandum
On July 25, 2019, the Company entered into
a private placement memorandum with an accredited investor. The Company issued 1,960,000 shares of the Company’s common stock
for total cash of $196,000.
Warrant Exercises
Subsequent to June 30, 2019, 1,766,544 shares
of the warrants were exercised in total of 28,381,818 shares of the Company’s common stocks.
In August 2019, the Company entered into
an agreement with an investor to issue an exchange note to cancel the outstanding warrants with an original value of approximately
$75,750.
Convertible note conversions
Subsequent to June 30, 2019, there were multiple
accredited investors converted approx. $547,000 of the convertible notes into 71,915,557 shares of the Company’s common stocks.
Form S-1 Registration
On June 26, 2019, the Company filed a Form
S-1 Registration Statement for the offer and resale of up to 138,461,538 shares of Sugarmade, Inc.’s Common
Stock, par value $0.001 per share, (the “Shares”) by K & J Funds, LLC (“K&J” or the “Investor”
or the “Selling Security Holder”) pursuant to an Investment Agreement dated April 16, 2019 (the “Investment Agreement”).
The received the Notice of Effective on July 18, 2019. On July 29, 2019, we sold and issued to K&J 11,348,591 shares of stock
for $100,000.
Investment
On August 1, 2019, the Company entered into
a loan agreement with Hempistry, Inc. (“Hempistry”), a Nevada corporation. Pursuant to the terms of the agreement,
the Company lent $196,000 to Hempistry. Hempistry promises to repay this principal amount to the Lender in the form of a minimum
of 13,800 pounds of dry hemp biomass or 12% stake of Hempistry’s hemp crop located at 2690 Nebo Rd. Madisonville, KY 42431,
during Hempistry’s 2019 crop harvest. Hempistry also agrees to issue and deliver a cashless Warrant registered in the name
of the Company exercisable for 100% of the total loan value at a $.50 per share price, leaving the total number of shares to be
distributed pursuant to this cashless warrant at 392,000 shares.
Acquisition
As of the date of this report, the
Company is working on the final terms to acquire 100% equity ownership of BZRTH, Inc. (“BZRTH”), a Nevada corporation.