Notes to Condensed Financial Statements
Three and Nine months ended March 31, 2016
and 2015
(Unaudited)
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.
BASIS OF PRESENTATION
The accompanying condensed financial statements
are unaudited. These unaudited interim condensed financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange
Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included
in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015 filed with
the SEC. The condensed balance sheet as of June 30, 2015 included herein was derived from the audited financial statements as of
that date, but does not include all disclosures, including notes, required by GAAP.
In the opinion of management, the accompanying
unaudited condensed financial statements contain all adjustments necessary to fairly present the Company’s financial position
and results of operations for the interim periods reflected. Unless noted, all adjustments contained herein are of a normal recurring
nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
GOING CONCERN
The Company’s condensed financial
statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. For the nine months ended March 31, 2016, the
Company incurred a net loss of $1,074,059 and used cash in operating activities of $67,650, and at March 31, 2016, had a
stockholders’ deficiency of $1,513,296. These factors, among others, raise substantial doubt about the Company’s
ability to continue as a going concern. The Company’s independent registered public accounting firm, in their report on
the Company’s financial statements for the year ending June 30, 2015, expressed 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 be necessary if the Company is unable to continue as a going concern.
The Company’s ability to continue as
a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve profitable operations.
Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenue
sufficient to cover its operating costs and allow it to continue as a going concern. Over the next 12 months, the Company expects
to expend up to approximately $50,000 for legal, accounting and administrative costs. The Company’s officers or principal
shareholders have committed to making advances or loans to pay for these legal, accounting, and administrative costs. The Company
has not yet determined the amount of cash that will be necessary to fund its planned operations in China.
The Company hopes to be able to attract suitable
investors for our business plan, which will not require us to use our cash. No assurance can be given that any future financing
will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able
to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial
dilution for our stockholders, in case or equity financing.
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.
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 March 31, 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:
|
|
March 31,
2016
|
|
March 31,
2015
|
Common stock issuable upon conversion of convertible and non-redeemable convertible notes payable
|
|
|
2,073,050
|
|
|
|
176,794
|
|
Common stock issuable upon conversion of accrued compensation
|
|
|
2,331,178
|
|
|
|
—
|
|
Total
|
|
|
4,404,228
|
|
|
|
176,794
|
|
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 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. 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 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 option pricing model, and based on actual experience. The assumptions used in the
Black-Scholes 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.
In addition to defining fair value, the standard
expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that
is significant to the fair value measurement in its entirety. These levels are:
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.
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 on in annual reporting periods beginning after December 31, 2016. The Company
is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.
In August 2014, the FASB issued Accounting
Standards Update 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, with early adoption permitted. The Company is currently evaluating
the impact the adoption of ASU 2014-15 on the Company’s financial statements and disclosures.
In February 2016, the FASB issued Accounting
Standards Update (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.
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. 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 March 31, 2016 and June 30, 2015, the Company was obligated
for the following advances:
|
|
March 31,
2016
(unaudited)
|
|
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 4. CONVERTIBLE NOTES-RELATED PARTIES
|
|
March 31,
2016
(unaudited)
|
|
June 30,
2015
|
Balance due on convertible notes
|
|
$
|
125,781
|
|
|
$
|
—
|
|
Unamortized note discounts
|
|
|
(49,065
|
)
|
|
|
—
|
|
Balance on convertible notes, net of note discounts
|
|
$
|
76,716
|
|
|
$
|
—
|
|
During the nine months ended March 31,
2016, the Company issued seven convertible notes for total proceeds of $115,581. The notes are unsecured, accrue interest at
10% per annum, are due through January 24, 2017, and are convertible into 1,155,810 shares of the Company’s common
stock at a conversion price of $0.10 per share. The closing price of the Company’s common stock ranged from $0.53 per
share to $0.81 per share on the dates the notes were issued. The Company determined that the notes contained a beneficial
conversion feature of $115,581 since the market price of the Company’s common stock was higher than the conversion
price of the 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 three and nine months ended March 31,
2016, $28,473 and $66,515 of discount amortization is included in interest expense, respectively, and at March 31, 2016,
there was an unamortized discount balance of $48,372 to be amortized through January 2017. In addition, at March 31, 2016,
$10,200 of advances due to shareholders that are convertible into 102,000 shares of the Company’s common stock at a
conversion price of $0.10 per share are included in the balance due on convertible notes. The advances are unsecured,
noninterest bearing, and due June 3, 2016.
NOTE 5. 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 March 31, 2016, the face amount of the note, due to a related party, plus accrued interest
was $40,762 and is convertible into 815,240 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
condensed balance sheets.
NOTE 6. 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. The price per share of
the Series B Preferred Stock was determined to be $0.73 per share, which was the closing price of the Company's common stock on
September 8, 2015. The debt settled by the issuance of shares totaled $44,787. Based on $0.73 per share, this results in a valuation
of the 25,000 shares of Series B Preferred Stock of $18,250. The difference of $26,537 is a gain on settlement of debt, which is
recorded as a contribution to capital because it is a transaction between a principal shareholder of the Company and the Company.
At March 31, 2016, there were 68,252,650 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.
NOTE 7. RELATED PARTY TRANSACTIONS
Compensation and accrued compensation
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 March 31, 2016, accrued cash
compensation totaled $582,795, which, if the executives and shareholder elected to be paid in shares of common stock, would
result in the issuance of 2,331,178 shares of the Company’s common stock valued at $1,165,589. Accordingly, at March
31, 2016, the Company has recorded accrued compensation of $1,165,589. For the three and nine months ended March 31, 2016,
the Company recorded $195,288 and $877,896 of compensation, respectively, related to these agreements, which included $97,644
and $295,101, respectively, for the pro-rata accrual of annual cash compensation, with the balance reflecting an expense for
the value that could be paid in shares of common stock.