Notes to Financial Statements
For the years ended June 30, 2016 and 2015
NOTE 1. NATURE AND BACKGROUND OF BUSINESS
Star Century Pandaho Corporation ("the
Company", “SCPD”) was organized under the laws of the State of Nevada on May 21, 2009. The Company was established
as part of the Chapter 11 reorganization of AP Corporate Services, Inc. ("AP").
In January, 2015, Star Century Entertainment,
Inc acquired 53.66% of total outstanding shares of the Company. In conjunction with gaining control of the Company, Star Century
Entertainment elected three individuals to be the Company’s management, amended the Company’s Articles of Incorporation
to (i) change the name of the Company to Star Century Pandaho Corporation (ii) effect a 1-for-5,000 reverse common stock split
and (iii) decrease the Company’s authorized common stock to 150,000,000 shares, par value $0.001. On May 20, 2015, the Company’s
Board of Directors and the majority shareholder amended the Company’s Articles of Incorporation to increase authorized common
stock to 250,000,000 shares. All common stock share and per-share amounts for all periods presented in these financial statements
have been adjusted retroactively to reflect the reverse stock split.
Pandaho the Panda is a cartoon styled character.
On May 22, 2015, the Company secured certain licensing rights to the Pandaho character and brand though a licensing agreement with
the creator of Pandaho, Ms. Liu Li. The Company’s aim is to build Pandaho into a competitive cartoon brand with Pandaho-themed
merchandise and multi-media exhibitions.
Going concern
The accompany financial statements on a going
concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course
of business. As reflected in the accompanying financial statements, for the year ended June 30, 2016, the Company had a net loss
of $1,184,889 and used cash in operating activities of $96,860, and at June 30, 2016, had a working capital deficiency of $1,129,920
and stockholders’ deficiency of $1,267,221. These factors, among others, raise substantial doubt about our ability to continue
as a going concern. The Company’s independent registered public accounting firm, in its report on our June 30, 2016 financial
statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has experienced recurring operating
losses and used cash in operating activities since inception. We expect to be able to secure capital through advances from our
officers or principal shareholders in order to pay expenses such as filing fees, accounting fees and legal fees. Over the next
12 months, the Company expects to expend approximately $60,000 for such filing fees, accounting fees and legal fees. The Company
has not yet determined the amount of cash that will be necessary to fund its planned operations in China. We hope to be able to
attract suitable investors for our business plan. The inability to obtain financing or generate sufficient cash from operations
could require us to reduce or eliminate expenditures or otherwise curtail or discontinue our operations, which could have a material
adverse effect on our business, financial condition and results of operations. Furthermore, to the extent that we raise additional
capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing
stockholders. If we raise additional funds through the issuance of debt securities, these securities may have rights, preferences
and privileges senior to holders of our common stock and the terms of such debt could impose restrictions on our operations. Regardless
of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services
by issuing stock in lieu of cash, which may also result in dilution to existing stockholders.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 period. Actual results could differ from those estimates.
The more significant estimates and assumptions by management include, among others, the accrual of potential liabilities, and the
assumptions used in valuing share-based instruments issued for services.
CASH AND CASH EQUIVALENTS
Investments with original maturities of three
months or less are considered to be cash equivalents.
INCOME TAXES
The Company follows the asset and liability
method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated
tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis
(temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized as income
(loss) in the period that includes the enactment date.
REVENUE
Revenue is recognized when the price is fixed
or determinable, persuasive evidence of an arrangement exists, the service has been delivered, and collectability is reasonably
assured. In transactions in which the Company brokers a sale and determines that it was not the primary obligor in the arrangement,
the Company records as net the commission earned from the transaction.
BASIC AND DILUTED LOSS PER SHARE
Basic loss per share is computed by dividing
net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Diluted
loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common
shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common
shares had been issued. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive.
At June 30, 2016 and 2015, we excluded the outstanding securities
summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive:
|
|
June 30,
2016
|
|
June 30,
2015
|
Common stock issuable upon conversion of convertible and non-redeemable convertible notes payable
|
|
|
2,516,830
|
|
|
|
1,940,000
|
|
Common stock issuable upon conversion of accrued compensation
|
|
|
14,453,671
|
|
|
|
—
|
|
Total
|
|
|
16,970,501
|
|
|
|
1,940,000
|
|
STOCK-BASED COMPENSATION
The Company may periodically issue shares of
common stock, stock options, or warrants to employees and non-employees in non-capital raising transactions for services and for
financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative
guidance provided by the FASB whereas the value of the award is measured on the date of grant and recognized as compensation expense
on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting
to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement
date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary
performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to
determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting
date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date
of vesting. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis.
In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately
vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's common stock
option grants are estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded
based upon the value derived from the Black-Scholes-Merton option pricing model, and based on actual experience. The assumptions
used in the Black-Scholes-Merton option pricing model could materially affect compensation expense recorded in future periods.
FAIR VALUE
OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would
be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at
the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated
based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
Authoritative guidance provided by the FASB
defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these
financial assets:
Level 1 – inputs are based
upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based
upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally
unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the
asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted
cash flow models, and similar techniques.
The estimated fair value of certain financial
instruments, including cash and cash equivalents and accounts payable and accrued expenses are carried at historical cost basis,
which approximates their fair values because of the short-term nature of these instruments. The recorded values of the convertible
notes-related parties and non-redeemable convertible note approximates their fair values based upon their effective interest rates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality
financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does not anticipate incurring any
losses related to these credit risks. The Company extends credit based on an evaluation of the customer's financial condition,
generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition.
The Company monitors its exposure for credit losses and intends to maintain allowances for anticipated losses, as required.
During the
year ended June 30, 2015, 100% of our revenue was from one customer.
RECENT ACCOUNTING
PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers.
ASU 2014-09 is
a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current
U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies
recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in
annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition
to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process
of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases.
ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance
sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning
after December 15, 2018. Early adoption is permitted. 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 is currently evaluating the expected impact
that the standard could have on its financial statements and related disclosures.
In March 2016, the FASB issued the ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting.
The amendments in this ASU require, among other things, that all
income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for
an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability
accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted
for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could
have on its financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,
which provides guidance on determining
when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim
and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements
are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s
ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim
periods thereafter. Early adoption is permitted. The Company is currently evaluating the expected impact that the standard could
have on its financial statements and related disclosures.
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 3. COMPENSATION AND ACCRUED COMPENSATION-RELATED
PARTY
Compensation-related party and accrued compensation-related
party represent amounts recorded for employment contracts with three executives and a consulting agreement with a shareholder.
Pursuant to the terms of these agreements, total annual compensation for services is $396,000 (“cash compensation”),
and the executives and shareholder have the option to accept shares of the Company’s common stock in lieu of cash based on
a 50% discount to the average stock price, as defined. The option to accept shares of common stock in lieu of cash is accounted
for at the intrinsic value of the potentially issuable common shares and is subject to adjustment at each reporting date based
on the change in market value of the shares. At June 30, 2015, the balance of accrued compensation was $287,693. During the year
ended June 30, 2016, one individual elected to be paid in shares for $120,000 of accrued compensation due him. The
total fair value of shares issued to the individual was $273,993, and the difference of $153,993 was recognized as stock compensation
expense. During the year ended June 30, 2016, cash compensation of $396,000 was accrued and at June 30, 2016, accrued cash compensation
totaled $563,693. At June 30, 2016, if the executives and shareholder elected to be paid in shares of common stock, it would result
in the issuance of 14,453,671 shares of the Company’s common stock with a fair value of $867,220. Accordingly, at June 30,
2016, the Company has recorded accrued compensation of $867,220. For the years ended June 30, 2016 and 2015, the Company recorded
$751,830 and $287,693 of compensation expense, respectively, related to these agreements, which included $396,000 and $287,693,
respectively, for the accrual of annual cash compensation, with the balance reflecting an expense for the value that could be paid
in shares of common stock.
NOTE 4. ADVANCES
The Company from time to time borrows from
our principal shareholders, or others, to pay expenses such as filing fees, accounting fees and legal fees. These advances are
non-interest bearing, unsecured, and generally due upon demand. At June 30, 2016 and June 30, 2015, the Company was obligated for
the following advances:
|
|
June 30,
2016
|
|
June 30,
2015
|
Advances due to shareholders
|
|
$
|
25,000
|
|
|
$
|
79,987
|
|
Advances due to unrelated parties
|
|
|
54,390
|
|
|
|
54,390
|
|
|
|
$
|
79,390
|
|
|
$
|
134,377
|
|
NOTE 5. CONVERTIBLE NOTES-RELATED PARTIES
|
|
June 30
2016
|
|
June 30,
2015
|
Balance due on convertible notes
|
|
$
|
166,581
|
|
|
$
|
—
|
|
Unamortized note discounts
|
|
|
(34,942
|
)
|
|
|
—
|
|
Current maturities
|
|
|
(36,889
|
)
|
|
|
—
|
|
Long-term portion
|
|
$
|
94,750
|
|
|
$
|
—
|
|
Principal payments due on convertible notes-related party are as
follows: Fiscal year ending June 30, 2017: $58,581, and fiscal year ending June 30, 2018: $108,000.
During the year ended June 30, 2016, the Company
issued twelve convertible notes for total proceeds of $144,381. At June 30, 2016 and 2015, the notes include accrued interest payable
of $12,000 and $0, respectively. The notes are unsecured, accrue interest at 10% per annum, are due through December, 2017, and
are convertible into shares of the Company’s common stock at a conversion price of $0.10 per share. In addition, at June
30, 2016, $10,200 of advances due to a shareholder is included in convertible notes-related party. The advances are convertible
into the Company’s common stock at a conversion price of $0.10 per share, are unsecured, noninterest bearing, and due June
30, 2017.
The closing price of the Company’s common
stock ranged from $0.08 per share to $0.81 per share on the dates the notes were issued. The Company determined that certain of
the notes contained a beneficial conversion feature of $133,493 since the market price of the Company’s common stock was
greater than the conversion price for eleven notes when issued. The Company recorded the beneficial conversion feature as a discount
(up to the face amount of the applicable note) to be amortized over the life of the related note. During the year ended June 30,
2016, $98,551 of discount amortization is included in interest expense at June 30, 2016, there was an unamortized discount balance
of $34,942 to be amortized through June 2017.
NOTE 6. NON-REDEEMABLE CONVERTIBLE NOTE
On February 20, 2014, the Company agreed to
exchange advances due an unrelated party, the original note holder, for a note for $68,000. The note bears interest at 20% per
annum, and is secured by all the assets of the Company. The note was originally due August 1, 2014 and has been was extended to
August 1, 2016. The Company may prepay the note in readily available funds at any time prior to the maturity date. The Company
has the right to convert the note into shares of the Company’s common stock at any time prior to the maturity date at a fixed
price of $0.05 per share of common stock. In January 2015, $25,000 of the $68,000 principal and accrued interest was assigned to
a related party of the Company by the original note holder. On July 31, 2015, the Company repaid $61,892 of principal and interest
due to the original note holder. At June 30, 2016, the face amount of the note, due to a related party, plus accrued interest was
$42,551 and is convertible into 851,020 shares of common stock. As it is the Company’s choice to convert the note into shares
of the Company’s common stock or to pay the note in cash, the note is presented below current liabilities on the accompanying
balance sheets.
NOTE 7. STOCKHOLDERS' EQUITY
Designation and issuance of Series B Preferred
stock
On September 4, 2015, the Company filed a Certificate
of Designation designating the rights and restrictions of 100,000 shares of Series B Preferred stock, par value $0.01 pursuant
to resolutions approved by the Company’s Board of Directors on June 11, 2015.
The holders of Series B Preferred stock are
entitled to vote together with the holders of common stock, as a single class, upon all matters submitted to holders of common
stock for a vote. Each share of Series B Preferred Stock has the voting power of 5,000 shares of common stock. The Series B Preferred
stock is not convertible into common stock. In the event of any liquidation, dissolution or winding up of the Company, Series B
Preferred stock shall have a liquidation preference to the common stock in the amount of par value per share.
On September 8, 2015, the Company issued 25,000
shares of Series B Preferred Stock in exchange for $44,787 due to Star Century Entertainment Corporation, a related party. The
fair value of the Series B Preferred Stock as determined by a third party valuation expert was determined to be $109,787. The difference
between the fair value of Series B Preferred Stock of $109,787 and the $44,787 debt settled of $65,000 is recorded as a loss on
settlement of debt in the accompany statement of operations. At June 30, 2016, there were 68,708,924 shares of common stock outstanding.
Based on the voting rights of the Series B Preferred stock of 125,000,000 shares of common stock, Star Century Entertainment has
the ability to elect our directors and determine the outcome of votes by our stockholders on corporate matters, including mergers,
sales of our assets, charter amendments and other matters requiring stockholder approval.
Common stock
Fiscal 2016
On November 16, 2015, the Company issued 456,274
shares of common stock valued at $273,933 to Mr. Peter Chin, a shareholder. 199,833 shares of common stock were issued to settle
compensation payable of $120,000. The balance of 256,441 shares of common stock valued at $153,993 was for services rendered and
was recognized as stock compensation expense.
Fiscal 2015
On May 22, 2015, the Company issued 40,000,000
shares of common stock to Ms. Lui Li as payment for the non-exclusive licensing rights in the “Pandaho” the Panda brand
and other related names and intangibles. Immediately after the transaction Lui Li held 61.5% of the outstanding common stock of
the Company. Based on Li’s 61.5% ownership percentage, Li in substance controlled the Pandaho intellectual property directly
after the purchase of the Pandaho IP by the Company. Given this, the value of the intellectual property recorded at the date of
acquisition was carried over at the historical cost to Li of zero.
On May 22, 2015, the Board authorized
the issuance of 20,000,000 shares of common stock to Asia International Finance Holdings, Hong Kong for an unsecured, non-interest
bearing note receivable with a face value of $6,000,000 due on December 31, 2016.
The note receivable is presented in the balance sheet as a deduction from stockholders’ equity. The CEO of Asian International
is also the President of Star Century Entertainment.
On May 22, 2015 the Company issued 650,000
shares of common stock valued in the aggregate at $195,000 to three members of management as signing bonuses for their employment
contracts.
Effective June 30, 2016, the Company issued
3,000,000 shares of common stock valued at $1,890,000 to Mr. Peter Chin for services rendered for the Company on the merger and
acquisition of the Company by Star Century Entertainment.
During the year ended June 30, 2015, the Company
issued 4,200,000 shares of common stock to unrelated consultants valued in aggregate at $1,290,000 for services,
NOTE 8. INCOME TAXES
For the years ended June 30, 2016 and 2015,
our net losses were $1,184,889 and $4,748,797, respectively, and no provision for income taxes was recorded. We made no provision
for income taxes due to our utilization of federal net operating loss carry forwards to offset both regular taxable income and
alternative minimum taxable income.
Income taxes differ from the amount that would
be computed by applying the Federal statutory income tax rates of 34% as follows:
|
|
Year ended
June 30, 2016
|
|
Year ended
June 30, 2015
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,184,889
|
)
|
|
$
|
(4,748,797
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
98,551
|
|
|
|
13,000
|
|
Share based compensation
|
|
|
273,993
|
|
|
|
4,375,000
|
|
|
|
|
(812,345
|
)
|
|
|
(360,797
|
)
|
Federal statutory income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income tax expense (benefit)
|
|
|
(276,197
|
)
|
|
|
(122,639
|
)
|
Change in valuation allowance
|
|
|
276,197
|
|
|
|
122,639
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred tax assets
and liabilities consist of the following as of June 30:
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
501,389
|
|
|
$
|
225,114
|
|
Less valuation allowance
|
|
|
(501,389
|
)
|
|
|
(225,114
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company has provided a valuation allowance
on the deferred tax assets at June 30, 2016 and 2015 to reduce such asset to zero, since there is no assurance that the Company
will generate future taxable income to utilize such asset. Management will review this valuation allowance requirement periodically
and make adjustments as warranted. The net change in the valuation allowance for the year ended June 30, 2015 was an increase of
$276,275.
The Company has net operating loss carryforwards
of approximately $1.4 million for federal purposes available to offset future taxable income that expire in varying amounts through
2034. The ability to utilize the net operating loss carry forwards could be limited by Section 382 of the Internal Revenue Code
which limits their use if there is a change in control (generally a greater than 50% change in ownership). The Company is subject
to examination by tax authorities for all years for which a loss carry forward is utilized in subsequent periods.
The Company follows FASB guidelines that address
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that
has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on
derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
As of June 30, 2016 and 2015, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required
at adoption. The tax years 2011 through 2016 remain open to examination by the major taxing jurisdictions in which the Company
operate
The Company’s policy is to record interest
and penalties on uncertain tax provisions as income tax expense. As of June 30, 2016 and 2015, the Company has no accrued interest
or penalties related to uncertain tax positions.