Notes to Financial Statements
For the years ended June 30, 2017 and 2016
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
International Leaders Capital Corporation (formerly
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").
On May 28, 2017, Star Century Entertainment
Corporation, a shareholder of the Company, agreed to sell 25,000 shares of the Company’s Series B preferred shares, representing
approximately 99% of the voting control of the Company, to ILC Holdings, LLC, an unrelated third party, and the Company experienced
a change in control. At May 28, 2017, ILC Holdings, LLC did not have any operations and had minimal assets and liabilities. In
conjunction with the change in control, three individuals were elected to be the Company’s management, and the Company’s
former Chief Executive Officer, former Chief Operating Officer, and former Director of Public Relations resigned. Effective August
2, 2017, the Company’s Board of Directors and a majority of the shareholders of the Company amended the Company’s Articles
of Incorporation to (i) change the name of the Company to International Leaders Capital Corporation and (ii) effect a 1-for-50
reverse common stock split. 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.
The Company’s previous majority shareholders
had planned to build Pandaho, a cartoon styled character, into a competitive cartoon brand in China and surrounding areas with
Pandaho-themed merchandise and multi-media exhibitions. Commensurate with the shareholder transactions on May 28, 2017, the Company
plans to operate a financial services firm which provides consulting services for businesses and training programs for general
investors. The Company anticipates earning revenue from (1) business training and consulting and (2) jointly investing in quality
projects and ventures for companies which we serve.
The Company’s headquarters are based
in Las Vegas, Nevada with planned primary operation in mainland China and Asia.
GOING CONCERN
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. During the year ended June 30, 2017, the Company incurred a net loss of $839,039
and used cash in operating activities of $52,089, and at June 30, 2017, had a stockholders’ deficiency of $621,143. These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year
of the date that the financial statements are issued. The Company’s financial statements do not include any adjustments that
might result from the outcome of this uncertainty should we be 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 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, the assumptions
used in valuing share-based instruments issued for services, and the valuation allowance for deferred tax assets.
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, 2017 and 2016, 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,
2017
|
|
June 30,
2016
|
Common stock issuable upon conversion of convertible and non-redeemable convertible notes payable
|
|
|
5,378,010
|
|
|
|
2,516,830
|
|
Common stock issuable upon conversion of accrued compensation
|
|
|
240,821
|
|
|
|
289,073
|
|
Total
|
|
|
5,618,831
|
|
|
|
2,805,903
|
|
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.
In addition, during 2016 the FASB has issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, all of which clarify certain implementation
guidance within ASU 2014-09, and ASU 2016-11, which rescinds certain SEC guidance effective upon an entity’s adoption of
ASU 2014-09. 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. The standard can be adopted either retrospectively to each prior reporting period presented or as a cumulative
effect adjustment as of the date of adoption. The Company is currently 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.
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 compensation due to three former executives and one current executive, and due to a shareholder consultant. Pursuant
to the terms of employment agreements, the executives and shareholder consultant 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 fair 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.
On June 30, 2016, accrued compensation related
to the three former executives totaled $812,775. From July 1, 2016 to December 31, 2016, additional compensation expense of $567,342
was recorded, including $169,380 accrual of cash compensation, and a charge of $397,962 for the fair value that could be paid in
shares of common stock. At December 31, 2016, accrued compensation due to the three former executives totaled $1,380,117. Effective
December 31, 2016, the three former executives agreed to forgive the $1,380,117, and to also terminate their employment agreements.
Accordingly, at June 30, 2017, the total due to the three former executives for accrued compensation was zero. The Company determined
that based on the related party nature of the settlement, the gain on settlement of accrued compensation was treated as a capital
contribution.
On June 30, 2016, accrued compensation due
to the shareholder consultant was $105,290. During the ten months ended April 30, 2017, additional compensation of $146,531 was
recorded, including $64,973 accrual of cash compensation due, and a charge of $81,558 for the fair value that could be paid in
shares of common stock. On April 30, 2017, the consulting agreement with the shareholder consultant was terminated and the shareholder
consultant entered into a new consulting agreement whereby the Company agreed to pay $7,500 per month in cash for consulting services
through December 31, 2017. At April 30, 2017 and June 30, 2017, the accrued compensation due to the shareholder consultant under
the former agreement was $236,821, which if the shareholder consultant elected to be paid in shares of common stock, would result
in the issuance of 236,821 shares of the Company’s common stock. In addition, at June 30, 2017, accrued compensation due
to the shareholder consultant under the new agreement was $15,000.
Effective June 1, 2017, the Company entered
in an employment agreement with the current executive for annual compensation of $24,000. The executive has 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. For
the year ended June 30, 2017, compensation expense of $4,000 was recorded, including $2,000 accrual of cash compensation and a
charge of $2,000 for the fair value that could be paid in shares of common stock related to this employment agreement. At June
30, 2017, the accrued compensation due to the executive was $4,000, which if the shareholder consultant elected to be paid in shares
of common stock, would result in the issuance of 4,000 shares of the Company’s common stock.
NOTE 3. ADVANCES
The Company from time to time borrows from
its 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, 2017 and 2016, the Company was obligated for the following
advances:
|
|
June 30,
2017
|
|
June 30,
2016
|
Advances due to shareholder
|
|
$
|
36,000
|
|
|
$
|
25,000
|
|
Advances due to unrelated parties
|
|
|
54,390
|
|
|
|
54,390
|
|
|
|
$
|
90,390
|
|
|
$
|
79,390
|
|
NOTE 4. CONVERTIBLE NOTES-RELATED PARTIES
|
|
June 30,
2017
|
|
June 30,
2016
|
Balance due on convertible notes
|
|
$
|
216,738
|
|
|
$
|
166,581
|
|
Unamortized note discounts
|
|
|
(1,781
|
)
|
|
|
(34,942
|
)
|
|
|
$
|
214,957
|
|
|
$
|
131,639
|
|
Convertible notes-related party are unsecured,
accrue interest at 10% per annum, and are due from August 2017 through March 2018. The notes are convertible into shares of the
Company’s common stock at a conversion price ranging from of $0.01 per share to $0.10 per share. At June 30, 2017, the notes
are convertible into 4,514,410 shares of common stock. At June 30, 2016, principal and accrued interest totaled $166,581. During
the year ended June 30, 2017, the Company issued five convertible notes for total proceeds of $32,173, and accrued interest of
$18,115 was added the balance due. At June 30, 2017, principal and accrued interest totaled $216,738.
At June 30, 2016,
the unamortized discount on convertible notes was $34,942. During the year ended June 30, 2017, $5,000 of discount was added for
the beneficial conversion feature on issuance of a convertible note payable, and $38,161 of discount was amortized and included
in interest expense. At June 30, 2017, the unamortized discount on convertible notes is $1,781, and is to be amortized through
December 2017
.
NOTE 5. NON-REDEEMABLE CONVERTIBLE NOTE
Non-redeemable convertible note-related party
is secured by all the assets of the Company, accrues interest at 20% per annum, and is due 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. At June 30, 2016, principal and accrued interest totaled $42,551. During the year ended June 30, 2017, interest of $629
was accrued and added to principal. At June 30, 2017, principal and accrued interest totaled $43,180 and are 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.
NOTE 6. STOCKHOLDERS' DEFICIENCY
Series B Preferred stock
In 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.
During the year ended June 30, 2016, 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 shareholder. 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.
During the year ended June 30, 2017, Star Century
Entertainment Corporation agreed to sell the 25,000 shares of the Company’s Series B preferred shares to ILC Holdings, LLC,
an unrelated third party (see Note 1). At June 30, 2017, there were 1,574,179 shares of common stock outstanding. Based on the
voting rights of the Series B Preferred stock of 125,000,000 shares of common stock, ILC Holdings, LLC 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
During the year ended June 30, 2016, 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, and the balance of 256,441 shares of common stock, valued at $153,993, was recognized
as stock compensation expense.
During the year ended June 30, 2017, the Company
issued 200,000 shares of common stock for cash proceeds of $100,000.
NOTE 7. INCOME TAXES
For the years ended June 30, 2017 and 2016,
our net losses were $835,039 and $1,184,889, 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 2017
|
|
Year ended
June 30 2016
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(839,039
|
)
|
|
$
|
(1,184,889
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
38,161
|
|
|
|
98,551
|
|
Share based compensation
|
|
|
—
|
|
|
|
273,993
|
|
|
|
|
(800,878
|
)
|
|
|
(812,345
|
)
|
Federal statutory income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income tax expense (benefit)
|
|
|
(272,299
|
)
|
|
|
(276,197
|
)
|
Change in valuation allowance
|
|
|
272,299
|
|
|
|
276,197
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred tax assets and liabilities
consist of the following as of June 30:
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
773,688
|
|
|
$
|
501,389
|
|
Less valuation allowance
|
|
|
(773,668
|
)
|
|
|
(501,389
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company has provided a valuation allowance
on the deferred tax assets at June 30, 2017 and 2016 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, 2017 was an increase of
$272,299.
The Company has net operating loss carryforwards
of approximately $2.2 million for federal purposes available to offset future taxable income that expire in varying amounts through
2036. 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, 2017 and 2016, 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, 2017 and 2016, the Company has no accrued interest
or penalties related to uncertain tax positions.
NOTE 8. SUBSEQUENT EVENTS
On August 2, 2017, the directors and a majority
of the stockholders of the Company approved the following resolutions to change the name of the Corporation to International Leaders
Capital Corporation, and effect a reverse stock split of all the Company’s outstanding common stock at a ratio of fifty to
one (50 to 1). 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.
On August 16, 2017, the Company issued a convertible
note payable for $105,000, bearing interest at 8% per annum, and maturing on August 15, 2018. At the option of the holder, on or
before December 31, 2017, the note is convertible into shares of common stock of the Company at a price per share discount of 50%
of the lowest closing market price of the Company’s common stock for the ten trading days preceding a conversion notice.
The Company determined that the conversion feature of the note was not fixed, and will record the fair value of the conversion
feature of approximately $200,000 as a derivative liability.