See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
1. NATURE OF OPERATIONS
AppYea, Inc. (“AppYea”, “the Company”, “we” or “us”) was incorporated in the State of South Dakota on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is in the development stage with no significant revenues and a limited operating history.
The Company incorporated a wholly-owned subsidiary, “AppYea Holdings, Inc.” in state of South Dakota on January 13, 2017 and “The Diagnostic Centers Inc.” in State of South Dakota on August 2, 2017.
Through its wholly owned subsidiary, The Diagnostic Centers, Inc., AppYea markets comprehensive diagnostic testing services to physician offices, clinics, hospitals, long term care facilities, healthcare groups, and other healthcare providers.
During the quarter ended March 31, 2019 the Company entered into a management and advisory agreement with Hempori, Inc. to assist the Company in identifying and managing the Company’s overall business strategy and opportunities to enter the hemp based Cannabidiol (CBD) industry. Additionally, the Company entered into an exclusive CBD infused beverage licensing agreement with the Prouty Company to market flavored and non-flavored beverages in various formulas infused with CBD to achieve the following “mood enhancing” affects: Energy, Calm, Focus, and Sleep.
The Company’s common stock is traded on the OTC Markets (www.otcmarkets.com) under the symbol “APYP”. The first day of trading on the OTC Markets was December 15, 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company’s year-end is June 30.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of AppYea and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents.
Fixed Assets
The Company’s fixed assets represent mobile applications that is has purchased and upgrades that it has made to these applications. These mobile applications and any upgrades are being amortized over their useful lives of 3 years. The Company also purchased a pre-owned vehicle. Due to the age of the vehicle, it is being depreciated over the useful life of 3 years.
Long-Lived Assets
The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended June 30, 2019 and 2018, no impairment losses have been identified.
Stock-based Compensation
ASC 718 “Compensation – Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. See note 11.
Financial Instruments and Fair Value Measurements
As defined in ASC 820” Fair Value Measurements,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The following table summarizes fair value measurements by level at June 30, 2019 and 2018, measured at fair value on a recurring basis:
June 30, 2019
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
578,812
|
|
|
$
|
578,812
|
|
June 30, 2018
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,016,865
|
|
|
$
|
1,016,865
|
|
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Revenue Recognition
The Company generates it revenue from the sale of its mobile software applications through online mobile applications stores.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
·
|
identify the contract with a customer;
|
|
·
|
identify the performance obligations in the contract;
|
|
·
|
determine the transaction price;
|
|
·
|
allocate the transaction price to performance obligations in the contract; and
|
|
·
|
recognize revenue as the performance obligation is satisfied.
|
The Company has no remaining obligation to customers after the date on which its customers purchase its mobile software applications.
Equity Method Investment
The Company owns membership interests of 5% in Cedar Creek Labs Series Two LLC. The Company accounts for its interest in this entity using the equity method. The Company’s investment in this entity was $25,000 at June 30, 2018. Under the equity method of accounting, the Company records the investment at cost. The Company’s investment in the entity is increased by additional contributions to the entity as well as its proportionate share of earnings in the entity. Conversely, the Company’s investment is decreased by distributions made by the Company and by its proportionate share of losses. During the year ended June 30, 2018, the Company recognized loss on Investment in equity method investee of $476. The Company reviewed Cedar Creek Labs Series Two LLC financial condition at June 30, 2018 and concluded that there is a 100% impairment loss related to the Company’s investment, and recorded an impairment loss of $24,524, for the year ended June 30, 2018.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740 “Income Taxes”. Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At June 30, 2019 and 2018, a full deferred tax asset valuation allowance has been provided and no deferred tax asset has been recorded.
Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. During the year ended June 30, 2019 and 2018, there were shares of convertible preferred stock outstanding and conversion privileges attached to convertible promissory notes payable. The common share equivalents of these securities have not been included in the calculations of loss per share because such inclusions would have an anti-dilutive effect as the Company has incurred losses during the year ended June 30, 2019 and 2018.
Recent Accounting Pronouncements
In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update addresses several aspects of the accounting for nonemployee share-based payment transactions and expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The main provisions of the update change the way nonemployee awards are measured in the financial statements. Under the simplified standards, nonemployee options will be valued once at the date of grant, as compared to at each reporting period end under ASC 505-50. At adoption, all awards without established measurement dates will be revalued one final time, and a cumulative effect adjustment to retained earnings will be recorded as the difference between the pre-adoption value and new value. Companies will be permitted to make elections to establish the expected term and either recognize forfeitures as they occur or apply a forfeiture rate. Compensation expense recognition using a graded vesting schedule will no longer be permitted. This pending content is the result of the FASB’s Simplification Initiative, to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. Because the Company does not currently have any outstanding awards to non-employees for which a measurement date has not been established the adoption of ASU 2018-07 does not have a material impact to the Company’s financial statements and related disclosures upon adoption. The adoption of this standard will change the way that the Company accounts for non-employee compensation in the future.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee’s obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Company’s financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.
3. GOING CONCERN AND LIQUIDITY
At June 30, 2019, the Company had cash of $45,056 and current liabilities of $1,030,167 and had a working capital deficit of $975,611 and an accumulated deficit of $7,841,929. The Company anticipates future losses in its business. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.
In our financial statements for the year ended June 30, 2019, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.
4. FIXED ASSETS
As at June 30, 2019 and 2018, the balance of fixed assets represented a vehicle and mobile application software as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Mobile applications
|
|
$
|
257,870
|
|
|
$
|
257,870
|
|
Accumulated depreciation
|
|
|
(257,870
|
)
|
|
|
(250,570
|
)
|
Fixed assets, net
|
|
$
|
-
|
|
|
$
|
7,300
|
|
Depreciation expense for the year ended June 30, 2019 and 2018 was $7,300 and $31,744.
5. CONVERTIBLE LOANS
At June 30, 2019 and 2018, convertible loans consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
March 2015 Note
|
|
$
|
-
|
|
|
$
|
-
|
|
November 2016 Note -1
|
|
|
147,000
|
|
|
|
150,000
|
|
Convertible notes - Issued in fiscal year 2018
|
|
|
49,438
|
|
|
|
195,614
|
|
Convertible notes - Issued in fiscal year 2019
|
|
|
105,000
|
|
|
|
-
|
|
Total convertible notes payable
|
|
|
301,438
|
|
|
|
345,614
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
28,794
|
|
|
|
27,177
|
|
Less: Unamortized debt discount
|
|
|
(15,000
|
)
|
|
|
(81,968
|
)
|
Total convertible notes
|
|
|
315,232
|
|
|
|
290,823
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes
|
|
|
315,232
|
|
|
|
290,823
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the year ended June 30, 2019 and 2018, the Company recognized amortization of discount, included in interest expense, of $171,968 and $320,886, respectively.
Conversion
During the year ended June 30, 2019 and 2018, the Company converted notes with principal amounts and accrued interest of $213,365 into 3,673,860,559 shares of common stock and $164,657 into 585,503,747 shares of common stock, respectively. The corresponding derivative liability at the date of conversion of $957,265 and $295,541 was credited to additional paid in capital, respectively.
March 2015 Note
On March 13, 2015, the Company issued a $10,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carries an interest rate of 12% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed. Effective March 13, 2015, the Company evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined it is indexed to the Company’s common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company valued the conversion feature at the issue date (March 13, 2015) at $14,552 using the Black Scholes valuation model. $10,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture. The balance of $4,552 of the value assigned to the derivative liability was expensed on the issue date of the convertible note.
As of June 30, 2019, and 2018, the outstanding principal balance of the note was $0, the note had accrued interest of $454 and an unamortized debt discount of $0.
November 2016 Note
On November 15, 2016, the Company entered into four separate agreements with Greentree Financial Group, Inc., consisting of a Financial Advisory Agreement, a Loan Agreement, a Convertible Promissory Note, and a Warrant.
The Loan Agreement allows for the Company to borrow up to $250,000 from Greentree, which will be evidenced by various promissory notes, which will automatically mature 12 months from the date of applicable Note, will accrue interest at a rate of 12% per annum, and will include an original issuance discount (“OID”) of 10%. In addition, the promissory notes will be convertible at a price equal to 55% of the lowest trading price during the 10 trading days immediately prior to a conversion date. The conversion price shall not be lower than $0.0001. Note may not be converted prior to 6 months from its issuance. There is a 10% prepayment penalty associated with each of the promissory notes. An initial promissory note of $100,000 was issued on November 15, 2016. On January 26, 2017 and June 30, 2017, the Company issued convertible note of $75,000 and $75,000 according to the loan agreement on November 15, 2016. Note is currently in default.
The warrant issued to Greentree allows for the purchase of up to 5,000,000 shares of the Company’s common stock for a three-year period, expiring on November 15, 2019, with an exercise price of $0.03 per share. The warrants also contain a cashless exercise feature, based on a cashless exercise formula.
The Company determined that the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The fair value of the warrants was recorded as a debt discount being amortized to interest expense over the term of the note.
During the year ended June 30, 2018, a total of $19,000 note principal was assigned to two lenders under the same term and conversion price.
Promissory Notes - Issued in fiscal year 2018
During the year ended June 30, 2018, the Company issued a total of $180,614 note with the following terms:
|
·
|
Terms ranging from 6 months to 12 months.
|
|
·
|
Annual interest rates of 5% - 12%.
|
|
·
|
Convertible at the option of the holders at issuance.
|
|
·
|
Conversion prices are typically based on the discounted (35% to 45% discount) average closing prices or lowest trading prices of the Company’s shares during various periods prior to conversion. Certain notes allow for the conversion price to be a floor of $0.0002 per share.
|
|
·
|
Certain note allows the principal amount will increase by $15,000 and the discount rate of conversion price will decrease by 15% if the conversion price is less than $$0.01. As a result, the discount rate of conversion price changed from 45% to 60% and the Company recognized the penalty of $15,000 and recorded principal amount of $15,000.
|
Certain notes allow the Company to redeem the notes at rates ranging from 115% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the note includes original issue discounts and financing costs totaling to $38,447 and the Company received cash of $142,167. Certain convertible notes of $116,666 are currently in default.
On June 25, 2018, the Company entered into and closed a financing transaction with Bellridge Capital L.P. consisting of a Securities Purchase Agreement, a Secured Convertible Promissory Note, and a Warrant.
The Securities Purchase Agreement provides that Bellridge Capital L.P. would receive a Secured Convertible Promissory Note in an amount of $78,947 in exchange for a funding amount of $78,947, and as additional consideration would also receive a Warrant for the purchase of an additional 394,735,000 shares of common stock. The Convertible Promissory Note will accrue interest at a rate of 5% per annum, default interest at a rate of 24% per annum, and will be convertible at a price equal to the lesser of (i) $0.0002, and (ii) the variable conversion price, which is defined as 65% of the lowest daily VWAP in the twenty (20) Trading Days prior to the Conversion Date . The “market price” is defined as the lowest trading price for the common stock during the twenty-five trading day period ending on the last complete trading day prior to the conversion date. The “trading price” is defined as the lowest trade price on the OTC Pink, OTCQB or applicable trading market. Bellridge Capital L.P. shall not be able to convert the promissory notes in an amount that would result in the beneficial ownership of greater than 4.99% of the outstanding shares of the Company, with the exception that the limitation may be waived by Bellridge Capital L.P. with 61 days prior notice. If, at any time when the note is issued and outstanding, the Company sells or issues shares of common stock for no consideration or for a consideration price per share less than the conversion price in effect on the date of such issuance, the conversion price for the note would be reduced to the amount of the consideration per share received by the Company for such dilutive issuance. If the Company prepays the note on or before 90 days following the date of the note, the Company shall be required to pay 115%, multiplied by the sum of the outstanding principal of the note, plus all accrued and unpaid interest and default interest if any. If the Company prepays the note during the period beginning 91 days and ending 180 days from the issue date of the note, the Company shall be required to pay 120% multiplied by the sum of the then outstanding principal amount of the note, plus accrued and unpaid interest and default interest, if any. If the Company prepays the note during the period beginning after 180 days from the issue date of the note, the Company shall be required to pay 125% multiplied by the sum of the then outstanding principal amount of the note, plus accrued and unpaid interest and default interest, if any.
The warrant issued to Bellridge Capital L.P. allows for the purchase of up to 394,735,000 shares of the Company’s common stock for a three-year period with an exercise price of $0.0002 per share. The warrants also contain a cashless exercise feature, based on a cashless exercise formula. In connection with the Secured Promissory Note, the Company entered into a Security Agreement which grants the Debtor a security interest in all of the assets of the Company. On March 15, 2019, the Company agreed to amend the conversion price of the note to the lower of $0.0002 or 55% of the lowest trading price in the 20 trading days prior to the conversion date and the exercise price of warrants to $0.0001.
Promissory Notes - Issued in fiscal year 2019
During the year ended June 30, 2019, the Company issued a total of $105,000 of notes with the following terms:
|
·
|
Terms ranging from 3 months to 12 months.
|
|
·
|
Annual interest rates of 5% - 8%.
|
|
·
|
Convertible at the option of the holders at issuance.
|
|
·
|
Conversion prices are typically based on the discounted (45% discount) average closing prices or lowest trading prices of the Company’s shares during various periods prior to conversion.
|
|
·
|
The note of $80,000 is the tranche of Note issued on June 25, 2018.
|
Certain notes allow the Company to redeem the notes at rates ranging from 115% to 125% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the note includes original issue discounts and financing costs totaling to $5,000 and the Company received cash of $100,000. Certain convertible note was also provided with a total of 50,000,000 common shares and 800,000,000 warrants.
Derivative liabilities
The Company determined that the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The fair value of the warrants was recorded as a debt discount being amortized to interest expense over the term of the note.
The Company valued the conversion features using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the year ended June 30, 2018 amounted to $965,401. $277,167 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $688,234 was recognized as a “day 1” derivative loss.
The fair value of the derivative liability for all the note that became convertible for the year ended June 30, 2019 amounted to $387,038. $85,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $302,038 was recognized as a “day 1” derivative loss.
Warrants
The Company identified conversion features embedded within certain notes and warrants issued during the year ended June 30, 2018. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the conversion price is variable and the Notes include a reset provision which could cause adjustments upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The warrants are exercisable into 42,500,000 shares of common stock, for a period of five and three years from issuance, at a price of $0.0005 and $0.0001 per share. As a result of the reset features, the warrants increased by 193,181,818 and 150,681,818 for the year ended June 30, 2019 and 2018, respectively, and the total warrants exercisable into 386,636,636 shares of common stock at $0.000055 per share as of June 30, 2019. The reset feature of warrants associated with this convertible note was effective at the time that a separate convertible note with lower exercise price was issued. We accounted for the issuance of the Warrants as a derivative.
During the year ended June 30, 2019, the Company granted 800,000,000 warrants valued at $159,160 in conjunction with second tranche of Bellridge convertible note. The expiry date of warrant is on June 25, 2021.
A summary of activity during the year ended June 30, 2019 and 2018 follows:
|
|
Warrants Outstanding
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding, June 30, 2017
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
437,235,000
|
|
|
|
0.0002
|
|
Reset feature
|
|
|
150,681,818
|
|
|
|
0.0001
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, June 30, 2018
|
|
|
592,916,818
|
|
|
$
|
0.0004
|
|
Granted
|
|
|
800,000,000
|
|
|
|
-
|
|
Reset feature
|
|
|
193,181,818
|
|
|
|
0.0000
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, June 30, 2019
|
|
|
1,586,098,636
|
|
|
$
|
0.0002
|
|
The following table summarizes information relating to outstanding and exercisable warrants as of June 30, 2019:
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Number of
Shares
|
|
|
Weighted Average
Remaining
Contractual life
(in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
5,000,000
|
|
|
|
0.38
|
|
|
$
|
0.03
|
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
|
386,363,636
|
|
|
|
3.29
|
|
|
$
|
0.000055
|
|
|
|
386,363,636
|
|
|
$
|
0.000055
|
|
|
1,194,735,000
|
|
|
|
1.99
|
|
|
$
|
0.0001
|
|
|
|
1,194,735,000
|
|
|
$
|
0.0001
|
|
|
1,586,098,636
|
|
|
|
2.30
|
|
|
$
|
0.0002
|
|
|
|
1,586,098,636
|
|
|
$
|
0.0002
|
|
6. CONVERTIBLE LOANS – RELATED PARTY
At June 30, 2019 and 2018, convertible loan – related party consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Convertible notes - related party -Issued in fiscal year 2018
|
|
|
-
|
|
|
|
8,333
|
|
Total convertible notes payable
|
|
|
-
|
|
|
|
8,333
|
|
|
|
|
|
|
|
|
|
|
Accrued interest -related party
|
|
|
-
|
|
|
|
644
|
|
Less: Unamortized debt discount - related party
|
|
|
-
|
|
|
|
-
|
|
Total convertible notes
|
|
|
-
|
|
|
|
8,977
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes - related party
|
|
|
-
|
|
|
|
8,977
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the year ended June 30, 2019 and 2018, the Company recognized amortization of discount, included in interest expense, of $0 and $8,333, respectively.
Conversion
During the year ended June 30, 2019, the Company converted notes with principal amounts and accrued interest of $10,158 into 101,597,905 shares of common stock. The corresponding derivative liability at the date of conversion of $30,479 was settled through additional paid in capital.
Promissory Notes - Issued in fiscal year 2018
During the year ended June 30, 2018, the Company issued a total of $8,333 note with the following terms:
|
·
|
Terms of 6 months.
|
|
·
|
Annual interest rates of 8%.
|
|
·
|
Convertible at the option of the holders at issuance.
|
|
·
|
Conversion prices are typically based on the discounted (45% discount) average closing prices of the Company’s shares during 20 days prior to conversion.
|
The Company received cash of $8,333. Note is currently in default.
The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible, including the notes issued in prior years, during the year ended June 30, 2018 amounted to $9,371. $8,333 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,038 was recognized as a “day 1” derivative loss.
7. DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
Fair Value Assumptions Used in Accounting for Derivative Liabilities.
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2019. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.
For the year ended June 30, 2019 and 2018, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Expected term
|
|
0.17 - 4.04 years
|
|
|
0.04 - 5.00 years
|
|
Expected average volatility
|
|
270% - 683
|
%
|
|
147%-488
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
1.75% - 2.94
|
%
|
|
0.96%-2.73
|
%
|
The following table summarizes the changes in the derivative liabilities during the year ended June 30, 2019 and 2018:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
|
|
|
|
Balance - June 30, 2017
|
|
$
|
114,316
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
285,500
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
689,272
|
|
Settled on issuance of common stock
|
|
|
(295,541
|
)
|
Loss on change in fair value of the derivative
|
|
|
223,318
|
|
Balance - June 30, 2018
|
|
|
1,016,865
|
|
|
|
|
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
85,000
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
461,198
|
|
Settled due to conversion of debt
|
|
|
(987,744
|
)
|
Loss on change in fair value of the derivative
|
|
|
3,493
|
|
Balance - June 30, 2019
|
|
$
|
578,812
|
|
The aggregate loss on derivatives during the year ended June 30, 2019 and 2018 was $464,691 and $912,590, respectively.
9. COMMITMENTS AND CONTINGENCIES
Leases and Long term Contracts
The Company has not entered into any long-term leases, contracts or commitments.
Legal
To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.
During fiscal year 2017, the Company entered into discussions regarding a proposed merger with Decision Diagnostics Corporation (“DECN”) and entered into a Preliminary Agreement Leading to a Triangular Merger (“Merger Agreement”). The Company determined that the Merger Agreement was not in the best interest of its Shareholders and terminated the Merger Agreement. In order to resolve any potential disputes or claims, the Company entered into a Settlement Agreement and Release (“Settlement”).
DECN shall forever release and discharge, any and all claims or demands, of any type or description, whether known or unknown, that have been asserted or could have been asserted against the Company and shall further forever release and discharge the Company, from any and all claims, demands, causes of action, and liabilities of any kind whatsoever (upon any legal or equitable theory, whether contractual, common-law, statutory, federal, state, local, or otherwise) (collectively the “Claims”), arising by reason of any act, omission, transaction or occurrence which DECN ever had or now has against the Company existing on, after, or prior to the execution date of the Settlement Agreement. DECN further agrees to indemnify the Company to the fullest extent of the law with respect to any violation by DECN of the releases and discharges given hereunder.
According to the Settlement, the Company issued 75,000,000 shares of common stock in October 2017. During the year ended June 30, 2018, the Company recorded settlement expense of $67,500.
Agreements
In December 2016, the Company entered into contract agreements with Big Dreams ventures, LLC and M Endeavors, LLC, for marketing the services to Doctors office, clinic and hospitals for the term of 5 years. The Agreements shall automatically renew for successive 12-month periods unless otherwise terminated in accordance with the terms of the Agreements. The Company was required to pay monthly fees of $10,000 and $8,000, respectively, and expenses related to these contracts. On September 6, 2017, the Company entered into an amended agreement with M Endeavors, LLC and Big Dream together and agreed to pay a total of $12,000 monthly for a term of one year. The Company mutually agreed to terminate this agreement and an outstanding obligation was fully forgiven. During the year ended June30, 2019, the Company recognized gain on settlement of debt of $180,250. As of June 30, 2019 and 2018, the Company recorded accrued expenses of $0 and $180,250, respectively.
On October 2, 2017, the Company entered into an agreement with Pacific Pain & Regenerative Medicine. The Company was required to pay $3,000 per month for a collector in exchange for a minimum of 5 PGX tests per week or 20 per month. During the year ended June 30, 2018, the Company terminated the services and stopped making the monthly payments. As of June 30, 2019 and 2018, the Company recorded accrued expense of $21,000 and $21,000, respectively.
On October 17, 2017, the Company entered into an agreement of the acquisition financing of up to $30,000,000 (“the “Placement’) with Wellington Shields $ Co. The Company shall pay (i) a success fee equal to 8% of the gross proceeds of the Placement, (ii) 3% of the total Company’s shares outstanding at the time of closing the placement, and (iii) was required to pay $15,000 at the time of signing and $10,000 per month. This engagement agreement terminated at the close of business April 30, 2018. During the year ended June 30, 2019, the Company recognized gain on settlement of debt of $50,000. As of June 30, 2019 and 2018, the Company recorded accrued expense of $10,000 and $60,000, respectively.
Rent
As of January 30, 2013, the Company leases office space at $200 per month with three-month terms, which shall be automatically extended for successive three-month periods unless there is the notice to cancel. The lease can be cancelled at any time by either party with 30 days’ notice prior to expiration of an applicable term. For the years ended June 30, 2019 and 2018, the Company incurred $2,496 and $2,484, respectively.
10. SHAREHOLDERS’ EQUITY
Amendment to Articles of Incorporation or Bylaws
On February 15, 2018, the Company filed a Certificate of Amendment with the state of South Dakota, to the Company’s Articles of Incorporation, to increase in the number of authorized shares of its common stock from 1,500,000,000 to 6,000,000,000, par value $0.0001 and to increase the number of authorized Series A Preferred Stock from 5,000,000 to 60,000,000, par value $0.0001.
Convertible Preferred Stock
The Company is authorized to issue 60,000,000 shares of convertible preferred stock at a par value of $0.0001.
Each convertible preferred share is convertible into 1,500 shares of common stock and has the voting rights of 1,000 shares of common stock.
On May 23, 2019, the Company issued 4,750,000 of its restricted convertible preferred stock to its CEO in exchange for $285,000 of accrued compensation (See Note 11).
As of June 30, 2019 and 2018, 9,750,000 and 5,000,000 shares of the Company's convertible preferred stock were issued and outstanding, respectively.
Common Stock
The Company is authorized to issue 6,000,000,000 shares of common stock at a par value of $0.0001.
During the year ended June 30, 2019, the Company issued 3,855,458,464 shares of common stock as follows;
|
·
|
3,775,458,464 shares for conversion of debt and accrued interest of $223,523
|
|
·
|
50,000,000 shares in conjunction with convertible note for $15,000
|
|
·
|
30,000,000 shares exchange for common stock payable
|
|
During the year ended June 30, 2018, the Company issued common shares as follows;
|
|
|
·
|
an aggregate of 585,503,747 common shares were issued for the conversion of debt and accrued interest of $164,657, and released derivative liabilities of $295,541 to paid-in capital
|
|
·
|
30,000,000 common shares were issued for cash of $200 and reduction in common stock payable of $57,273
|
|
·
|
75,000,000 common shares were issued with a fair value of $67,500 according to the settlement (Note9).
|
|
·
|
30,000,000 common shares were issued with a fair value of $17,000 for consulting services
|
As of June 30, 2019 and 2018, 5,095,935,524and 1,240,477,060 shares of the Company’s common stock were issued and outstanding, respectively.
Stock payable
The Company had insufficient authorized shares as of June 30, 2017 and as a result, the Company had $105,000 in stock payable for which it is obligated to issue 55,000,000 shares of common stock for consulting services. During the year ended June 30, 2018 the company issued 30,000,000 common shares for cash of $200 and reduced common stock payable by $57,273.
As of June 30, 2019, the Company had $47,727 in stock payable for which it is obligated to issue 25,000,000 shares of common stock for consulting services.
On November 13, 2017, the Company entered into a consulting agreement with a third party for the term of 5 years with a consideration of an issuance of 40,000,000 shares of common stock valued at $20,000. The share shall be issued in two tranches with first tranche of 10,000,000 shares being due at signing of this agreement and an additional 30,000,000 shares are due on the 3 months anniversary of this agreement. During the year ended June 30, 2018, the Company issued 10,000,000 shares with a fair value of $5,000. On February 16, 2019, the Company issued 30,000,000 shares.
11. RELATED PARTY TRANSACTIONS
In March 2016, the Company appointed current CEO and approved a base compensation package of $8,000 per month for CEO. The President of the Company provided management and office premises to the Company for no compensation in 2015. During the year ended June 30, 2019, the Company issued 4,750,000 shares of convertible preferred stock for a settlement of accrued salary of $285,000. As a result, the Company recognized a loss on settlement of debt of $427,500. As of June 30, 2019 and 2018, the Company recorded accrued salary of $3,506 and $224,000, respectively.
During the year ended June 30, 2019 and 2018, the Company borrowed a total amount of $437 and $21,098 from Evergreen Venture Partners LLC (“EVP”), which the CEO is the majority owner, and repaid $300 and $6,618, respectively. This loan is a non-interest bearing and due on demand. As of June 30, 2019 and 2018, the Company owed EVP, a related party $88,224 and $88,087, respectively.
On November 15, 2017, the Company entered into a distribution agreement with Cedar Creek Labs Series Two LLC (“LLC”) for the term of 1 year. The agreement shall be automatically extended for successive 1 year unless there is the notice to terminate. The Company shall use best efforts to market the Products for the LLC and will receive compensation ranging from 15% to 40% of profit. The Company owns membership interests of 5% in LLC and the transactions between the Company and LLC which is an equity method investee are deemed to be between related parties. During the year ended June 30, 2019 and 2018, the Company recorded revenue – related party of $0 and $2,900 and collected accounts receivable – related party of $0 and $2,900, respectively.
12. INCOME TAXES
The Company follows ASC 740. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.
The provision for refundable federal income tax at 21% consists of the following for the periods ending:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Federal income tax (expense) benefit attributed to:
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
55
|
|
|
$
|
219,755
|
|
Valuation
|
|
|
(55
|
)
|
|
|
(219,755
|
)
|
Net benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
The cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax attributed:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
334,068
|
|
|
$
|
556,689
|
|
Effect of change in the statutory rate
|
|
|
-
|
|
|
|
(222,676
|
)
|
Less: change in valuation allowance
|
|
|
(334,068
|
)
|
|
|
(334,013
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As at June 30, 2019, the Company had an unused net operating loss (“NOL”) carry-forward of approximating $1,590,803 that is available to offset future taxable income; the loss carry-forward will start to expire in 2033. The utilization of these NOLs may become subject to limitations based on past and future changes in ownership of the Company pursuant to Internal Revenue Code Section 382.
Income taxes for the years ended 2012 through 2019, remain subject to examination.
13. SUBSEQUENT EVENTS
Subsequent to June 30, 2019, the Company issued 65,205,250 shares of common stock fo conversion of debt and accrued interest of $2,608.