Notes to Condensed
Financial Statements
Three months
ended September 30, 2016 and 2015
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 in China and surrounding areas with Pandaho-themed merchandise and multi-media exhibitions. Currently
the Company does not have any operations in China.
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 of America (“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, 2016 filed with the SEC on September 28, 2016. The condensed balance sheet as of June 30, 2016 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 three months ended September
30, 2016, the Company incurred a net loss of $511,709 and used cash in operating activities of $7,483, and at September 30, 2016,
had a stockholders’ deficiency of $1,778,930. 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, 2016, 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.
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 September 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:
|
|
September 30,
2016
|
|
September 30,
2015
|
Common stock issuable upon conversion
of convertible and non-redeemable convertible notes payable
|
|
|
2,642,968
|
|
|
|
1,701,090
|
|
Common stock issuable
upon conversion of accrued compensation
|
|
|
26,540,268
|
|
|
|
800,045
|
|
Total
|
|
|
29,183,236
|
|
|
|
2,501,135
|
|
Share-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 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 2. 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 September 30, 2016, accrued cash compensation totaled
$663,507, which if the executives and shareholder elected to be paid in shares of common stock, would result in the issuance of
26,540,268 shares of the Company’s common stock with a fair value of $1,327,014. Accordingly, at September 30, 2016, the
Company has recorded accrued compensation of $1,327,014. For the three months ended September 30, 2016 and 2015, the Company recorded
$459,794 and $504,352 of compensation expense, respectively, related to these agreements, which included $99,813 and $98,729,
respectively, for the accrual of cash compensation, with the balance reflecting an expense for the value that could be paid in
shares of common stock.
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 September 30, 2016 and June
30, 2016, the Company was obligated for the following advances:
|
|
September 30,
2016
|
|
June 30,
2016
|
Advances due to shareholders
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Advances due to unrelated
parties
|
|
|
54,390
|
|
|
|
54,390
|
|
|
|
$
|
79,390
|
|
|
$
|
79,390
|
|
NOTE 4. CONVERTIBLE
NOTES-RELATED PARTIES
|
|
September
30,
2016
|
|
June
30,
2016
|
Balance due on convertible notes
|
|
$
|
177,937
|
|
|
$
|
166,581
|
|
Unamortized note discounts
|
|
|
(13,975
|
)
|
|
|
(34,942
|
)
|
|
|
$
|
163,962
|
|
|
$
|
131,639
|
|
The notes are
unsecured, accrue interest at 10% per annum, are due through September, 2017, and are convertible into shares of the Company’s
common stock at a conversion price of $0.10 per share. During the three months ended September 30, 2016, the Company issued two
convertible notes for total proceeds of $7,173, and interest of $4,183 accrued during the period on all notes was added to principal.
At June 30,
2016, the unamortized discount on convertible notes was $34,942. During the three months ended September 30, 2016, $20,966 of
discount amortization is included in interest expense. At September 30, 2016, the unamortized discount on convertible notes is
$13,975, and is to be amortized through September 2017.
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, 2017. 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 balance
of the note was $42,551. Interest of $629 was accrued and added to principal during the period ended September 30,
2016. At September 30, 2016, the face amount of the note, due to a related party, plus accrued interest was $43,180 and is
convertible into 863,600 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.