Notes to Consolidated Financial
Statements
1.
Nature of Business
Sugarmade, Inc. (hereinafter
referred to as ''we'', ''us" or "the/our Company'') is a publicly traded company incorporated in the state of Delaware.
Our previous legal name was Diversified Opportunities, Inc. Our Company, Sugarmade, Inc. operates through our subsidiary, Sugarmade,
Inc., a California corporation ("SWC Group, Inc., - CA''). As of the end of the reporting period, June 30, 2018, we were involved
in several businesses including the supply of products to the quick service restaurant sub-sector of the restaurant industry and
as a distributor of paper products derived from non-wood sources. We are headquartered in Monrovia, California, a suburb of Los
Angeles, with two (2) additional warehouse locations in Southern California. As of date of this filing, we employ 7 full-time workers.
Our Board of Directors
believes the legal cannabis-related supply sector could be highly lucrative for the Company, and thus we plan to pursue a strategy
of expanding operations within this area. According to the State of Legal Marijuana Markets Report (4th Edition), published by
Arc View Market Research and produced by New Frontier, California is the largest medical marijuana program in the country among
states where medical marijuana is currently legal. The California market is fueled by the state's large size, longevity as the
first-in-the-nation medical marijuana program, and low barriers to patient access. Even with California's newly passed recreational
marijuana law, which will significantly tighten the program with new restrictions; the market is still projected to reach $2.6
billion in sales in 2020. That is nearly double Colorado's $1.5 billion, and over five times the size of the markets in Arizona,
Oregon, and Michigan for that year. If legalized in 2016, the medical marijuana markets in Ohio and Pennsylvania will become two
of the largest in the country by 2020. According to the data, a handful of states in the western U.S. project to command over 50%
of the medical marijuana market by 2020. As more and more states legalize both medical and recreational cannabis, we believe our
company can benefit from our Internet and e-commerce marketing activities.
As of the date of this
filing, our main business operation, CarryOutSuppies.com, is a producer and wholesaler of custom printed and generic supplies servicing
more than 3,000 quick service restaurants. Our products include double poly paper cups for cold beverage; disposable, clear, plastic
cold cups, paper coffee cups, yogurt cups, ice cream cups, cup lids, cup sleeves, food containers, soup containers, plastic spoons
and many other similar products for this market sector. CarryOutSupplies.com was founded in 2009 when the founders gained first-hand
experience within the restaurant industry of the difficulty for restaurant owners to acquire custom printed supplies at a reasonable
cost. Many quick service restaurants wish to acquire custom printed products, such as those embossed with logos, but the minimum
order size for such customization had been cost prohibitive. With that in mind, carry out supplies was founded to provide products
to this underserved section of the market. Since that time, the company has become a key supplier to many popular U.S. franchises,
particularly in the frozen dessert segments. The company estimates it holds approximately 40% market share of generic and printed
products within the take-out frozen yogurt and ice cream industries. We also hold a product supply and licensing agreement FreeHand®
ThumbTray™ for the western part of the United States.
Sugarmade, Inc. and Subsidiary
Notes to Consolidated Financial
Statements
1.
Nature of Business (continued)
We are also a distributor
of paper made from 100% reclaimed sugarcane fiber, enhanced with bamboo. Sugarcane fiber, called bagasse, is a discarded byproduct
of sugarcane production. Sugarmade, Inc. was founded in 2010. As is explained below, in 2014, CarryOutSupplies.com was acquired
by Sugarmade, Inc., creating the Company as it is today. Relative to Sugarmade Paper, our third- party contract manufacturer uses
bagasse and bamboo, as opposed to wood products significantly reducing its manufacturing carbon footprint, energy consumption,
and attendant water pollution during the manufacture of its products. This allows us to offer our unique, exclusive, tree-free
paper products at price-parity equal to or less than current recycled fiber products already on the market. Our products were unique
and we believe offered an ideal solution for those consumers (both corporate and individual) seeking to meet their sustainability
mandates or personal environmentally conscious goals, at a price that is equal to or less than current recycled products.
Our primary focus for this
business unit as of filing of this report is the organization and administration of fundraisers and paper drives for schools, non-profits
and other institutions.
During September of 2016,
the Company completed negotiations for and signed an agreement with HUY FONG FOODS, INC. ("HFFI"), the maker of Sriracha
Hot Chili Sauce. Under the terms of the agreement, the Company is granted license to use the licensed marks of HFFI. Based on this
agreement and a separate license agreement signed during 2015 with Seasoning Stix International, LLC, the Company introduced new
culinary seasoning products named Sriracha Seasoning Stix and Sriracha Seasoning Stix. The Company launched the products in 2017.
During 2018, the Company’s board of directors determined this business was no longer strategic and it was thus terminated.
2.
Summary of Significant Accounting Policies
Basis of presentation
The accompanying
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America.
Principles of consolidation
The consolidated
financial statements include the accounts of our Company and its wholly-owned subsidiaries, Sugarmade-CA and SWC. All significant
intercompany transactions and balances have been eliminated in consolidation.
Going concern
The Company's continuation
as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which
it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
Our consolidated financial
statements have been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result should the Company be unable to continue as a going concern.
Sugarmade, Inc. and Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
Management is endeavoring
to increase revenue-generating operations. While priority is on generating cash from operations through the sale of the Company's
products, management is also seeking to raise additional working capital through various financing sources, including the sale
of the Company's equity and/or debt securities, which may not be available on commercially reasonable terms to our Company, or
which may not be available at all. If such financing is not available on satisfactory terms, we may be unable to continue our business
as desired and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse
effects on us and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless
of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional
funds, the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences
or privileges senior to those of the current holders of our common stock.
Use of estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires our 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 significantly from those estimates.
Revenue recognition
We recognize revenue in
accordance with Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC'') No. 605, Revenue Recognition.
Revenue is recognized when an arrangement and a determinable fee occur, and when collection is considered to be probable and products
are delivered, or title has been transferred. This generally occurs upon shipment of the merchandise, which is when legal transfer
of title occurs. In the event that final acceptance of our product by the customer is uncertain, revenue is deferred until all
acceptance criteria have been met. We currently have a consignment arrangement with two of our customers. We record revenue on
consignment goods when the consigned goods are sold by the consignee and all other above-mentioned revenue recognition criteria
have been satisfied. Cash deposits received in connection with the sales of our products prior to their being delivered or acceptance
if applicable is recorded
as
deferred revenue.
Adoption of ASC Topic 606, "Revenue
from Contracts with Customers"
Sugarmade, Inc. is planning
on implementing Topic 606. Results for reporting periods beginning within the next fiscal year will be presented under Topic 606,
while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic
605.
Sugarmade experienced no
impact to the opening balance of the accumulated deficit or revenues for any quarterly period as a result of applying Topic 606.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
Sugarmade will apply a
five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer,
(2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction
price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied.
Substantially all of Sugarmade’s
revenue is recognized at the time control of the products transfers to the customer.
Additionally, Sugarmade
has substantially increased its accounting and financial staffs and enhanced its information technology and accounting systems
software to ensure proper and effective implementation of Topic 606.
Cash and cash equivalents
consist of amounts held as bank deposits and highly liquid debt instruments purchased with an original maturity of three months
or less.
From time to time, we may
maintain bank balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit Insurance
Corporation for interest bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts).
We have not experienced any losses with respect to cash. Management believes our Company is not exposed to any significant credit
risk with respect to its cash.
Accounts receivable
Accounts receivable are
carried at their estimated collectible amounts, net of any estimated allowances for doubtful accounts. We grant unsecured credit
to our customer's deemed credit worthy. Ongoing credit evaluations are performed and potential credit losses estimated by management
are charged to operations on a regular basis. At the time, any particular account receivable is deemed uncollectible, the balance
is charged to the allowance for doubtful accounts. The Company had accounts receivable net allowances of $453,623 as of June 30,
2018 and of $113,218 as of June 30, 2017.
Inventory consists of finished
goods paper and paper-based products such as paper cups and food containers ready for sale and is stated at the lower of cost or
market. We value our inventory using the weighted average costing method. Our Company's policy is to include as a part of inventory
any freight incurred to ship the product from our contract manufacturers to our warehouses. Outbound freights costs related to
shipping costs to our customers are considered period costs and reflected in selling, general and administrative expenses. We regularly
review inventory and consider forecasts of future demand, market conditions and product obsolescence.
If the estimated realizable
value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated market value.
On a consolidated basis, as of June 30, 2018 and June 30, 2017, the balance for the inventory totaled 531,249 and $568,229, respectively.
$120,486 were reserved for obsolescent inventory for the year ended June 30, 2018, and $70,332 were reserved for obsolescent inventory
for the year ended June 30, 2017.
Sugarmade, Inc.
and Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
Long-lived assets, which
include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair
value of the assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value,
if readily determinable. Based on its review, the Company, as of June 30, 2018, performed an impairment test of all of its intangible
assets
. Based on the company’s analysis, the
company had an impairment of $65K.
Income taxes
We account for income taxes
under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
As a result of the implementation
of certain provisions of ASC 740, Income Taxes ("ASC 740''), which clarifies the accounting and disclosure for uncertainty
in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspect of the recognition
and measurement related to accounting for income taxes.
We adopted the provisions
of ASC 740 as of October 2, 2008 and have analyzed filing positions in each of the federal and state jurisdictions where we are
required to file income tax returns, as well as open tax years in these jurisdictions. We have identified the U.S. federal and
California as our ''major'' tax jurisdictions and generally, we remain subject to Internal Revenue Service examination of our 2013
U.S. federal income tax returns. However, we have certain tax attribute carryforwards, which will remain subject to review and
adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes
are utilized.
We believe that our income
tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material
change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC
740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording
interest and penalties associated with income-based tax audits is to record such items
as
a component of income taxes. We
have not taken any uncertain positions that would necessitate recording of tax related liability as of June 30, 2018 and 2017.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
Stock based compensation
Stock based compensation
cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized
as expense over the employee's requisite service period (generally the vesting period of the award). We estimate the fair value
of employee stock options granted using the Binomial Option Pricing Model. Key assumptions used to estimate the fair value of stock
options will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option
term, the risk-free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common
stock. We use our company's own data among other information to estimate the expected price volatility and the expected forfeiture
rate. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Loss per share
We calculate basic earnings
per share ("EPS") by dividing our net loss by the weighted average number of common shares outstanding for the period,
without considering common stock equivalents. Diluted BPS is computed by dividing net income or net loss by the weighted average
number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as
options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.
Fair value of financial instruments
ASC Topic 820 defines fair
value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value
measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1- observable inputs
that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - include other
inputs that are directly or indirectly observable in the marketplace.
Level 3 - unobservable
inputs which are supported by little or no market activity.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
The Company used Level 2 inputs for its valuation
methodology for the derivative liabilities for conversion feature of the convertible notes and warrants in determining the fair
value using Lattice Binomial model with the following assumption inputs:
|
|
Carrying Value
|
|
Fair Value Measurements at June 30, 2018 Using Fair Value Hierarchy
|
|
|
June 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative Liabilities
|
|
|
3,069,616
|
|
|
|
|
|
|
|
—
|
|
|
3,069,616
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
June 30, 2018
|
Expected Life (Years)
|
|
|
|
|
|
|
0.74
|
|
|
|
—
|
|
|
0.5
|
Risk Free Interest Rate
|
|
|
|
|
|
|
1.68
|
%
|
|
|
—
|
|
|
2.06%
|
Expected Volatility
|
|
|
|
|
|
|
161
|
%
|
|
|
—
|
|
|
151%
|
Derivative instruments
The fair value of derivative
instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives liability are recorded
in the consolidated statement of operations under non-operating income (expense).
Our Company evaluates all
of its 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 consolidated statements
of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes- Merton option-pricing
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 instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12months of the balance sheet date.
Segment Reporting
FASB ASC Topic 280, "Segment
Reporting'', requires use of the ''management approach" model for segment reporting. The management approach model is based
on the way a company's management organizes segments within the Company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in
which management disaggregates a company.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
FASB ASC Topic 280 has
no effect on the Company's financial statements as substantially all of its operations are conducted in one industry segment -paper
and paper-based products such as paper cups, cup lids, food containers, etc.
New accounting pronouncements not yet adopted
In February 2016, the FASB
issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires
a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases
will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income
statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. 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 in the process of evaluating the impact of adoption of this ASU on the consolidated financial
statements.
In May 2014, the FASB issued
No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Accounting Standards
Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that
an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a one-year
deferral of the effective date of the new revenue recognition standard. Public business entities, certain not-for-profit entities,
and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December
15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. In March
2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting
Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying
Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606)
and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue
from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation
guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The Company is evaluating the effect
that these ASUs will have on its consolidated financial statements and related disclosures.
On March 30, 2016, the
FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes amendments to accounting for
income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The amendments in ASU 2016-09 are effective
for public companies for fiscal years beginning after December 31, 2016, and interim periods within those annual periods. The Company
adopted this new guidance on January 1, 2017 and this standard does not have a material impact on the Company’s consolidated
financial statements.
In June 2016, the
FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of
credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently
evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
2.
Summary of Significant Accounting Policies (continued)
In August 2016, the FASB
issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification
of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for
fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company
has implemented ASU 2016-15 on its financial statements and related disclosures.
In October 2016, the FASB
issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves
the accounting for the income tax consequences of intra-entity transfers of assets other than invent tory. For public business
entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including
interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company has implemented ASU 2016-16
on its financial statements and related disclosures.
In November 2016, the FASB
issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim
period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be
applied using a retrospective transition method to each period presented. The Company has implemented ASU 2016-18 on its financial
statements and related disclosures.
In January 2017, the FASB
issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the
definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be
accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be
applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively
upon any transactions of acquisitions or disposals of assets or businesses.
In January 2017, the FASB
issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test,
which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s
carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective
basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted
for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently
evaluating the impact of adopting this standard on its consolidated financial statements.
Prior period reclassification
Certain prior period balance
sheet accounts have been reclassified in conformity with current period presentation including reclassification of $4,000 from
derivative liability to warrant liability. The reclassification had no effect to the company's consolidated statement of operations,
statement of cash flow or statement of shareholder's equity.
Sugarmade, Inc.
and Subsidiary
Notes to Consolidated Financial
Statements
3
.
Concentration
Customer
For the year ended June
30, 2018, our Company earned net revenues of $4,439,324. The company does not have any concentration of revenue with any customer
that represent over 10% of overall revenue. The highest revenue from (2) customers accounted for 8.51% and 6.96% respectively,
as percentage of overall revenue for the year ended June 30, 2018.
For the year ended June
30, 2017, our Company earned net revenues of $4,100,560. The vast majority of these revenues for the periods were derived from
a large number of customers, with no customers accounted for over 10% of the Company's total revenues in either period. The highest
revenue from (2) customers accounted for 8.37% and 5.75% respectively, as percentage of overall revenue for the year ended June
30, 2017.
Suppliers
For the year ended June
30, 2018, we purchased products for sale by the company's subsidiaries from several contract manufacturers located in Asia and
the U.S. A substantial portion of the Company's inventory is purchased from two (2) suppliers. The two (2) suppliers accounted
as follows: Two suppliers accounted for 36% and 17.50% of the Company's total inventory purchase for the year ended June 30, 2018,
respectively.
For the year ended June
30, 2017, two (2) suppliers accounted for 36.71% and 39.03% of the Company's total inventory purchase, respectively.
4.
Equity Transaction – Exclusive License Rights
On December 13, 2017, we
entered into a Master Marketing Agreement with BizRight Hydroponic, Inc. (“BizRight”), a leading marketer and manufacturer
of cannabis and hydroponic growth supplies, which offers a range of hydroponics-related products including: HPS grow lights,
electronic ballasts, HPS Bulbs, nutrient mixes, environmental control products, pH measurement and calibration solutions and other
cannabis-related grow and storage products. BizRight operates the ZenHydro.com website and other e-commerce properties, and sells
various products to distributors and retailers.
Under the terms of the
Master Marketing Agreement, all products procured, developed and imported by BizRight will be sold by the Company. The expected
term of the exclusive license rights is 20 years. BizRight and its owners will be compensated via a combination of cash and common
shares in Sugarmade. Effective the contract date, Bizright will be compensated Two hundred million (200,000,000) common shares.
Sugarmade will compensate BizRight and its owners six million dollars ($6,000,000) in cash. The amount due will be divided over
3 payments equally and are contingent upon the filing of the S-1 and significant funding.
As of June 30, 2018, the
shares to be issued in connection with the acquisition of exclusive license rights has not been issued therefore the transaction
has not been completed. $350,000 in cash has been paid and reflected as a prepaid deposit in other current assets on our balance
sheet, see Note 6.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
5.
Litigation
From time to time and in
the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount
of the ultimate liability, if any, from such claims cannot be determined. As of June 30, 2018, there were no legal claims pending
or threatened against the Company; the opinion of our management would be likely to have a material adverse effect on our financial
position, results of operations or cash flows. However, as of the date of this filing, we were involved in the following legal
proceedings.
On February 4, 2014, the
Company filed suit in Contra Costa County, California, alleging breach of fiduciary duty, conspiracy to commit breach of fiduciary
duty, fraud, conspiracy to commit fraud, conversion, breach of contract, and interference with contractual relations against, Diversified
Products Group Inc. (DPG), Stephen Pinto, Lewis Cohen and Heidi Estiva, who were former sales agents for the Company. Stephen Pinto
is the Company's former Chairman of the board of directors. The Company plans to actively pursue this case. During November of
2014, the Company received notice that a cross complaint had been filed against the Company. The complaint alleges the parties
were induced to make a series of investments in the Company by the material misrepresentations and omissions made by the Company.
The Company believes the allegations are without merit The Company plans to vigorously defend against such claims. The parties
have attended mediation on the matters on September 7, 2018, and executed a stipulation for a settlement agreement. However, the
final settlement agreement is currently pending.
On December 11, 2013, the Company was served
with a complaint from two Convertible Note Holders and investors in the Company, Lovitt & Hannan, Inc. Salary Deferral Plan
FBO J. Thomas Hannan, Attorney at Law 401K Plan and Trust, and Kevin M. Kearney. The Company's former CEO, Scott Lantz, was also
named in the suit.
On February 21, 2017, the Company signed a
settlement agreement with the plaintiff in the matter of Hannan vs Sugarmade. Under the terms of the settlement agreement, the
Company agreed to pay the plaintiffs' $227,000 to settle all claims against the Company, which included the payoff of the two notes
outstanding within one (1) week. The parties had estimated the value of the notes at approximately $80,000. The Company agreed
to pay the plaintiff $97,000 within one hundred and twenty (120) days of the settlement with the remaining balance of $50,000 due
within one hundred and eighty (180) days of the settlement. Upon receipt of all payments, plaintiffs will surrender for cancellation
230,000 of the Company's shares within ten (10) days. The parties agreed that all claims against the Company would be satisfied
through such payments and that the matter would be fully resolved. As of June 30, 2018, third-parties had purchased two (2) notes
of approximately $80,000, reducing the Company's exposure by $80,000. As of the date of this filing the balance for accrued legal
settlement for Hannan vs Sugarmade has been reduced to $227,000.
There can be no assurances the ultimate liability
relative to these law suits will not exceed what is outlined above.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
As of June 30, 2018 and 2017, other current assets consisted of
the following:
|
|
For the years ended June 30,
|
|
|
2018
|
|
2017
|
Prepaid Deposit
|
|
$
|
355,500
|
|
|
$
|
57,500
|
|
Prepaid Inventory
|
|
|
92,737
|
|
|
|
84,065
|
|
Employees Advance
|
|
|
41,303
|
|
|
|
30,078
|
|
Prepaid Expenses
|
|
|
246,260
|
|
|
|
4,894
|
|
Others
|
|
|
20,765
|
|
|
|
13,801
|
|
Total
|
|
$
|
756,565
|
|
|
$
|
190,338
|
|
7.
Intangible Asset
On August 21,
2017, the Company entered into an intellectual property assignment agreement with Sound Decisions to revamp the company’s
shopify website to generate and attract more traffic from potential customers. The Company made a payment of $14,000 for the website
(intellectual property). The Company amortized this use right as intangible asset over ten years, and recorded $1,400 amortization
expense for the year ended June 30, 2018.
8.
Convertible Notes
As of June 30, 2018 and
2017, the balance owing on convertible notes, net of debt discount, with terms as described below was $2,399,941 and $1,502,023,
respectively.
Convertible notes issued
prior the year ended June 30, 2017 were as follows:
Convertible note 1: On
August 24, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a
term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30
days prior to the conversion date. As of June 30, 2018, the note is in default.
Convertible note 2: On
September 18, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has
a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30
days prior to the conversion date. As of June 30, 2018, the note is in default.
Convertible note 3: On
December 21, 2012, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has
a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30
days prior to the conversion date. As of June 30, 2018, the note is in default.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
8.
Convertible Notes (continued)
Convertible note 4: On
December 19, 2016, the Company entered into a convertible promissory note with an accredited investor for $20,000. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount. As of June 30, 2018,
the note is in default.
Convertible
note 5: On January 17, 2017, the Company entered into a convertible promissory note with an accredited investor for $25,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of June 30, 2018, the note is in default
.
Convertible note 6: On
January 17, 2017, the Company entered into a convertible promissory note with an accredited investor for $20,000. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current
market price of our shares. The note has been fully converted as of June 30, 2018.
Convertible note 9: On
January 20, 2017, the Company entered into a convertible promissory note with an accredited investor for $80,000. The note has
a term of seven (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current
market price of our shares. As of June 30, 2018, the note is in default.
Convertible note 7: On
January 24, 2017, the Company entered into a convertible promissory note with an accredited investor for $43,000. The note has
a term of twelve (12) months with an interest of 8% and is convertible to common shares at a 45% discount to the then current market
price of our shares. This convertible promissory note has been fully converted in the year ended June 30, 2018.
Convertible note 8: On
February 8, 2017, the Company entered into a convertible promissory note with an accredited investor for $50,000. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current
market price of our shares. As of June 30, 2018, the note is in default.
Convertible note 10: On
February 24, 2017, the Company entered into a convertible promissory note with an accredited investor for $66,023. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current
market price of our shares. As of June 30, 2018, the note is in default.
Convertible note 11: On
February 9, 2017, the Company entered into a convertible promissory note with an accredited investor for $50,000. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current
market price of our shares. As of June 30, 2018, the note is in default.
Convertible note 12: On
February 28, 2017, the Company entered into a convertible promissory note with an accredited investor for $75,000. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount. As of June 30, 2018,
the note is in default.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
8.
Convertible Notes (continued)
Convertible note 13: On
March 1, 2017, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a
term of nine (9) months with an interest rate of 10% and is convertible to common shares at a 45% discount to the then current
market price of our shares. As of June 30, 2018, there were $92,500 has been converted into the Company’s common stock and
the remaining principal balance was $7,500. As of June 30, 2018, the note is in default.
Convertible note 14: On
March 23, 2017, the Company entered into a convertible promissory note with an accredited investor for $70,000. The note has a
term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market
price of our shares. As of June 30, 2018, the note is in default.
Convertible note 15: On
February 15, 2017, the Company entered into a convertible promissory note with an accredited investor for $63,000. The note has
a term of nine (9) months with an interest rate of 8% and is convertible to common shares at 40% discount to the then current market
price of our shares. This convertible promissory note has been fully converted in the year ended June 30, 2018.
Convertible note 16: On
February 16, 2017, the Company entered into a convertible promissory note with an accredited investor for $30,000. The note has
a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current
market price of our shares. As of June 30, 2018, the note is in default.
Convertible note 17: On
March 31, 2017, the Company entered into a convertible promissory note with an accredited investor for $200,000. The note has a
term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then current market
price of our shares. As of June 30, 2018, the note is in default.
Convertible note 18 &
19: On May 17, 2017, the Company entered a convertible promissory note with an investor for a total amount of $1,375,000 (after
$10,000 legal and due diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. The note
is due 12 months after each funding date and bear an interest rate of 10%. The conversion price for the note is 55% of the lowest
closing bid for the 20 consecutive trading days prior to the conversion date. In connection with the note, the investor will also
receive warrants and is calculated based on 15% of the maturity amount. The warrants have a life of four years with exercise price
of $0.15 per share and have cashless exercise option. The Company received $505,000 from this note during the year ended June 30,
2018. The fair value of the warrants were $40,400 at grant date. As of June 30, 2018, the Company had outstanding convertible note
payable to this investor for $671,004 (with two major default charge in total of $166,004), the fair value of the warrant liability
was $40,400. As of June 30, 2018, the note is in default and bears a default interest rate of 22% per annum.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
8.
Convertible Notes (continued)
Convertible notes issued
during the year ended June 30, 2018 were as follows:
On July 17, 2017, the Company
entered into a convertible promissory note with an accredited investor for $164,900. The note has a term of one year with an interest
rate of 8% and is convertible to common shares at a fixed conversion price of $0.025.
On August 3, 2017, the
Company entered into a convertible promissory note with an accredited investor for $150,000. The note has a term of six (6) months
with an interest rate of 10% and is convertible to common shares at a 45% discount to average of 3 lowest trading price during
last 20 trading days. As of June 30, 2018, the note is in default.
On August 22, 2017, the
Company entered into a convertible promissory note with an accredited investor for $35,000. The note has a term of six (6) months
with an interest rate of 8% and is convertible to common shares at a 40% discount of average two lowest price of last 20 trading
days prices.
On September 15, 2017,
the Company entered into a convertible promissory note with an accredited investor for $150,000. The note has a term of six (6)
months with an interest rate of 10% and is convertible to common shares at a 45% discount to average of 3 lowest trading price
during last 20 trading days. As of June 30, 2018, the note is in default.
On September 26, 2017,
the Company entered into a convertible promissory note with an accredited investor for $15,000. The note has a term of six (6)
months with an interest rate of 8% and is convertible to common shares at a 40% discount of average two lowest price of last 20
trading days prices.
On December 7, 2017, the
Company entered into a convertible promissory note with an accredited investor for $50,000. The note has a term of one year with
an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.05.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
8.
Convertible Notes (continued)
As of the year ended June
30, 2018, the Company’s convertible notes consisted of following:
Principal
|
|
Default Penalty
|
|
Conversion in Principal
|
|
Number of Shares
|
|
Balance as of 6/30/2018
|
|
Due Date
|
|
Interest Rate
|
|
Conversion Price
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,000
|
|
|
2/24/2013
|
|
|
14
|
%
|
|
75% of the average of 30 days prior to the conversion date
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,000
|
|
|
3/18/2013
|
|
|
14
|
%
|
|
75% of the average of 30 days prior to the conversion date
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
|
6/21/2013
|
|
|
14
|
%
|
|
75% of the average of 30 days prior to the conversion date
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,000
|
|
|
7/17/2017
|
|
|
8
|
%
|
|
40% discount of average of last 20 trading days
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,000
|
|
|
7/17/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
20,000
|
|
|
|
|
|
|
$
|
20,000
|
|
|
|
737,748
|
|
|
|
—
|
|
|
7/17/2017
|
|
|
8
|
%
|
|
Greater of $0.05 or 40% discount to average of 3 lowest trading price during 20 trading days
|
$
|
43,000
|
|
|
|
|
|
|
$
|
43,000
|
|
|
|
2,462,180
|
|
|
|
—
|
|
|
1/24/2018
|
|
|
8
|
%
|
|
45% discount of average two lowest price of last 20 trading days
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000
|
|
|
8/8/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,000
|
|
|
7/20/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
66,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,023
|
|
|
8/24/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000
|
|
|
8/9/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75,000
|
|
|
7/31/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
8.
Convertible Notes (continued)
$
|
100,000
|
|
|
|
|
|
|
$
|
92,500
|
|
|
|
5,246,524
|
|
|
$
|
7,500
|
|
|
12/1/2017
|
|
|
10
|
%
|
|
50% discount of average three lowest price of last 20 trading days
|
|
|
|
|
$
|
56,067
|
|
|
|
|
|
|
|
|
|
|
$
|
56,067
|
|
|
12/1/2017
|
|
|
10
|
%
|
|
50% discount of average three lowest price of last 20 trading days
|
|
|
|
|
$
|
7,273
|
|
|
|
|
|
|
|
|
|
|
$
|
31,097
|
|
|
12/1/2017
|
|
|
10
|
%
|
|
50% discount of average three lowest price of last 20 trading days
|
|
|
|
|
$
|
7,270
|
|
|
|
|
|
|
|
|
|
|
$
|
29,654
|
|
|
12/1/2017
|
|
|
10
|
%
|
|
50% discount of average three lowest price of last 20 trading days
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,000
|
|
|
9/23/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
63,000
|
|
|
|
|
|
|
$
|
63,000
|
|
|
|
3,081,746
|
|
|
|
—
|
|
|
11/20/2017
|
|
|
8
|
%
|
|
42% discount of average three lowest price of last 10 trading days
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,000
|
|
|
8/16/2017
|
|
|
8
|
%
|
|
Greater of $0.05 or 40% discount to average of 3 lowest trading price during 20 trading days
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
|
9/30/2017
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
340,000
|
|
|
$
|
78,482
|
|
|
|
|
|
|
|
|
|
|
$
|
418,482
|
|
|
5/12/2018
|
|
|
22
|
%
|
|
45% discount of lowest price of last 20 trading days
|
$
|
165,000
|
|
|
$
|
87,522
|
|
|
|
|
|
|
|
|
|
|
$
|
252,522
|
|
|
5/12/2018
|
|
|
22
|
%
|
|
45% discount of lowest price of last 20 trading days
|
|
|
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
$
|
80,000
|
|
|
5/12/2018
|
|
|
22
|
%
|
|
45% discount of lowest price of last 20 trading days
|
|
|
|
|
$
|
170,000
|
|
|
|
|
|
|
|
|
|
|
$
|
170,000
|
|
|
5/12/2018
|
|
|
22
|
%
|
|
45% discount of lowest price of last 20 trading days
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
5/3/2018
|
|
|
10
|
%
|
|
45% discount of average three lowest price of last 20 trading days
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
6/15/2018
|
|
|
10
|
%
|
|
45% discount of average three lowest price of last 20 trading days
|
$
|
164,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
164,900
|
|
|
7/17/2018
|
|
|
8
|
%
|
|
$0.025
|
$
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,000
|
|
|
8/22/2018
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,000
|
|
|
9/26/2018
|
|
|
8
|
%
|
|
40% discount of average two lowest price of last 20 trading days
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000
|
|
|
12/7/2018
|
|
|
8
|
%
|
|
$0.025
|
|
Total:
|
|
|
|
|
|
|
$
|
218,500
|
|
|
|
|
|
|
$
|
2,426,245
|
|
|
|
|
|
|
|
|
|
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
8.
Convertible Notes (continued)
As of the year ended June
30, 2018, the Company’s debt discount consisted of following:
Date of
|
|
Due Date
|
|
Related Debt OID
|
|
Debt Discount at 6/30/2017
|
|
Amortization during 6/30/2018
|
|
Debt Discount at 6/30/2018
|
8/3/2017
|
|
5/3/2018
|
|
$
|
150,000
|
|
|
$
|
—
|
|
|
$
|
150,000
|
|
|
|
|
|
9/15/2017
|
|
6/15/2018
|
|
|
150,000
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
|
|
8/22/2017
|
|
8/22/2108
|
|
|
35,000
|
|
|
|
—
|
|
|
|
29,918
|
|
|
|
5,082
|
|
9/26/2017
|
|
9/26/2018
|
|
|
15,000
|
|
|
|
—
|
|
|
|
11,384
|
|
|
|
3,616
|
|
5/12/2017
|
|
5/12/2018
|
|
|
30,000
|
|
|
|
13,232
|
|
|
|
13,232
|
|
|
|
|
|
6/12/2017
|
|
6/12/2018
|
|
|
15,000
|
|
|
|
28,263
|
|
|
|
28,263
|
|
|
|
|
|
9/28/2017
|
|
5/12/2018
|
|
|
78,482
|
|
|
|
—
|
|
|
|
78,482
|
|
|
|
|
|
11/14/2017
|
|
5/12/2018
|
|
|
87,522
|
|
|
|
—
|
|
|
|
87,522
|
|
|
|
|
|
8/8/2017
|
|
12/1/2017
|
|
|
56,067
|
|
|
|
—
|
|
|
|
56,067
|
|
|
|
|
|
10/13/2017
|
|
12/1/2017
|
|
|
15,298
|
|
|
|
—
|
|
|
|
15,298
|
|
|
|
|
|
11/14/2017
|
|
12/1/2017
|
|
|
42,280
|
|
|
|
—
|
|
|
|
42,280
|
|
|
|
|
|
11/17/2017
|
|
5/12/2018
|
|
|
80,000
|
|
|
|
—
|
|
|
|
80,000
|
|
|
|
|
|
11/25/2017
|
|
5/12/2018
|
|
|
170,000
|
|
|
|
—
|
|
|
|
170,000
|
|
|
|
|
|
7/17/2017
|
|
7/17/2018
|
|
|
164,900
|
|
|
|
—
|
|
|
|
160,445
|
|
|
|
4,455
|
|
12/7/2017
|
|
12/7/2018
|
|
|
50,000
|
|
|
|
—
|
|
|
|
36,849
|
|
|
|
13,151
|
|
Total debt discount
|
|
|
|
$
|
1,139,549
|
|
|
$
|
41,495
|
|
|
$
|
912,446
|
|
|
$
|
26,303
|
|
9.
Derivative Liabilities
The derivative liability
is derived from the conversion features in note 8 and stock warrant in note 10. All were valued using the weighted-average Binomial
option pricing model using the assumptions detailed below. As of June 30, 2018 and 2017, the derivative liability was $3,069,616
and $1,134,000, respectively. The Company recorded $525,394 and $437,000 loss from changes in derivative liability during the year
ended June 30, 2018 and 2017, respectively. During the year ended June 30, 2018, the Company changed the method to value the fair
market value from Black-Scholes to Binomial Option model. The Binomial model with the following assumption inputs:
|
|
|
June 30, 2018
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
0.15-1.00
|
|
Risk-Free Interest Rate
|
|
|
1.13-2.06%
|
|
Expected Volatility
|
|
|
94-212%
|
|
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
9.
Derivative Liabilities (continued)
|
|
|
June 30, 2017
|
|
Annual Dividend Yield
|
|
|
—
|
|
Expected Life (Years)
|
|
|
0.47-1.00
|
|
Risk-Free Interest Rate
|
|
|
1.08-2.12%
|
|
Expected Volatility
|
|
|
103-202%
|
|
Fair value of the derivative is summarized
as below:
Beginning Balance, June 30, 2017
|
|
$
|
1,134,000
|
|
Additions
|
|
$
|
1,913,992
|
|
Mark to Market
|
|
|
530,948
|
|
Reclassification to APIC Due to Conversions
|
|
$
|
(509,324
|
)
|
Ending Balance, June 30, 2018
|
|
|
3,069,616
|
|
10.
Stock Warrants
In connection with the
issuance of the promissory notes in 2012, the investors in the aggregate received two-year warrants to purchase up to a total of
50,000 shares of common stock at an exercise price of $0.50 per share, and two-year warrants purchasing up to a total of 81,250
shares of common stock at an exercise price of $0.01 per share. For purposes of accounting for the detachable warrants issued in
connection with the convertible notes, the fair value of the warrants was estimated using the Binomial option pricing formula.
The value of all warrants granted at the date of issuance totaled $508,413 and was recorded as a discount to the notes payable.
The amount was amortized over the nine (9) month term of the respective convertible note as additional interest expense.
On various dates during
June 2014 and December 2014 the Company and holders of certain convertible notes agreed to cancel warrants to purchase common shares
in the Company and to extend the due dates on the Notes to July l, 2016. $0.50 warrants and "Bonus Warrants" priced at
$0.01, as defined in the original Convertible Note Purchase Agreements we cancelled pertaining to the Note and warrants acquired
on the following dates for the following Convertible Notes and amounts. These warrants were expired on July 1, 2016.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
10.
Stock Warrants (continued)
On May 17, 2017, the Company
entered a promissory note with an investor for a total amount of $1,375,000 (after $10,000 legal and due diligence fee) with an
OID of $125,000, the note will be fulfilled through a series of funding. In connection with the note, the investor will also receive
warrants and is calculated based on 15% of the maturity amount. The warrants have a life of four years with an exercise price of
$0.15 per share and have cashless exercise option. The fair value of the warrants at the grant date was $40,400. As of June 30,
2018 and 2017, the fair value of the warrant liability was $40,400 and $25,250, respectively. The Binomial model with the following
assumption inputs:
Warrants liability:
|
|
June 30, 2018
|
Annual dividend yield
|
|
|
—
|
|
Expected life (years)
|
|
|
0.5
|
|
Risk-free interest rate
|
|
|
2.06
|
%
|
Expected volatility
|
|
|
151
|
%
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in May 2017:
|
|
|
June 30, 2017
|
|
Annual dividend yield
|
|
|
—
|
|
Expected life (years)
|
|
|
3.86
|
|
Risk-free interest rate
|
|
|
1.89
|
%
|
Expected volatility
|
|
|
440
|
%
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining contractual life
|
|
Outstanding at June 30, 2016
|
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
|
|
|
Expired
|
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
|
|
|
Granted
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
4
|
|
|
Outstanding at June 30, 2017
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
3.86
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
0.5
|
|
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
11.
Note Payable
Note payable due to bank
During October 2011, we
entered into a revolving demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing limit of $150,000.
The line of credit bears a variable interest rate of one quarter percent (0.25%) above the prime rate (3.25% as of September 30,
2013). In the event the deposit account is not established or minimum balance maintained, HSBC can charge a higher rate of interest
of up to 4.0% above prime rate. As of June 30, 2018 and 2017, the loan principal balance was $25,982. As of June 30, 2018, the
note is in default.
Notes payable due to related parties
On January 23, 2013, the
Company entered into a promissory note with its former employee of the Company who owns less than 5% of the Company's stock. The
original principal amount was $40,000 and the note bears no interest. The note was payable upon demand. As of June 30, 2018 and
2017, this note had a balance of $18,000 and $18,000, respectively.
On December 31, 2013, the
Company entered into a promissory note with Kalvin Kwong (an employee of the Company, who owns less than 5% of the Company's stock).
The principal amount was $20,000 and the interest rate on the note was 10%. The note had a term of six (6) months. However, this
note was now payable upon demand per the oral agreement with the lender. As of June 30, 2018 and 2017, this note had a balance
of $0 and $20,000, respectively.
On January 13, 2014, the
Company entered into a promissory note with an employee (an employee of the Company, who owns less than 5% of the Company's stock).
The principal amount was $25,000 and the note bears no interest. The note had a term of twenty-four (24) months and was due on
January 13, 2016, and became payable upon demand after January 13, 2016. As of June 30, 2018 and 2017, this note had a balance
of $0 and $12,666, respectively.
On January 14, 2015, the
Company entered into a promissory note with Richard Ko (an employee of the Company, who owns less than 5% of the Company's stock).
The principle amount was $30,000 and the note bore no interest. The note had a term of one (1) year and was due on January 14,
2016, and became payable upon demand after January 14, 2016. As of June 30, 2018 and 2017, this note had a balance of $5,000 and
$20,000, respectively.
As of June 30, 2018 and
2017, the Company has an outstanding balance of notes payable due to related parties of $23,000 and $70,666, respectively.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
12.
Stockholders’ Deficit
The Company is authorized
to issue 1,990,000,000 shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred stock.
During the year ended June
30, 2018, the Company issued 1,171,429 shares of common stock for cash in total amount of $82,000.
During the year ended June
30, 2018, the Company issued 4,736,842 shares of common stock for services in total amount of $180,000.
During the year ended June
30, 2018, the Company issued 13,492,560 shares of common stock to settle the old debt in total amount of $306,810.
As of June 30, 2018 and
June 30, 2017, the Company had 246,135,203 and 247,395,774 shares of its common stock issued and outstanding.
13.
Common Shares Issued for Services
In September 2017, the
Company issued 4,736,842 shares of commons stock for services. The fair value of the shares were valued at $0.04, the closing price
of the grant date.
14.
Related Party Transactions
As of June 30, 2018, the
Company had outstanding balance of $23,000 owed to various related parties. See note 11 and 16 for the details.
15.
Loans Payable
On October 1, 2017, the
Company entered a straight promissory note with Greater Asia Technology Limited (Greater Asia) for borrowing $100,000 with maturity
date on June 30, 2018; the note bears an interest rate of 33.33%. As of June 30, 2018, the note was in default and the outstanding
balance under this note was $79,524.
On January 25, 2017, SWC
entered into an agreement with a lending company for $100,000 for its working capital needs. As of June 30, 2018 and 2017, the
Company has an outstanding balance of $0 and $10,036, respectively.
During the year ended June
30, 2017, the Company entered a series of short-term loan agreements with Greater Asia Technology Limited (Greater Asia) for borrowing
$375,000, with interest rate at 40% - 50% of the principal balance. As of June 30, 2018 and 2017, the outstanding balance with
Greater Asia loans were $84,400 and $140,125, respectively. As of June 30, 2018 the note is in default.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
15.
Loans Payable (continued)
On July 1, 2016, the Company
entered into a repayment agreement with its employee for $20,280 at no interest. As of June 30, 2018 and 2017, the Company has
an outstanding balance of $4,285 and $6,285.
On January 6, 2015, the
Company entered into repayment agreement with its former employee for a loan of $9,500 at no interest. As of June 30, 2018 and
2017, the Company has an outstanding balance of $0 and $4,076, respectively.
On July 2, 2015, the Company
entered into a repayment agreement with an individual for $22,583 at no interest. As of June 30, 2018 and 2017, the Company has
an outstanding balance of $0 and $13,936, respectively.
On March 5, 2013, the Company
entered an equipment loan agreement with Toyota financial services with maturity date of April 4, 2018. As of June 30, 2018 and
2017, the balance under this loan were $0 and $4,308, respectively.
On July 1, 2012, CarryOutSupplies
entered an equipment loan agreement with a bank with maturity on June 1, 2017. The monthly payment is $255. As of June 30, 2018
and 2017, the outstanding balance under this loan were $0 and $261, respectively.
As of June 30, 2018 and
2017, the Company had an outstanding loan balance of $329,029 and $1,599, respectively from one (1) vendor of the Company.
16.
Loans Payable – Related Parties
On June 26, 2017, the Company
entered a straight promissory note with a company (whose major shareholder is the former director of the Company) for borrowing
$150,820 with maturity date on March 31, 2018; the note bears an interest rate of 12%, commencing on October 31, 2017, and on the
last day of each moth thereafter until the notes is paid in full, the Company shall make an interest payment. As of June 30, 2018
and 2017, the outstanding balance under this note was $150,820. As of June 30, 2018. the note was in default. As of October 2017,
they are no long a related party.
On July 7, 2016, SWC received
a loan from an employee. The amount of the loan bore no interest and amortized on a monthly basis over the life of the loan. As
of June 30, 2018 and 2017, the balance of the loan were $30,000 and $34,015, respectively.
On November 21, 2016, the
Company received a loan from the Company’s director. The amount of the loan bore no interest and amortized on a monthly basis
over the life of the loan. As of June 30, 2018 and 2017, the balance of the loan from Sugarmade were $0 and $9,252, respectively.
On December 1, 2016, the
Company received a loan from an employee for $12,500 with an interest charge of $12,500. This amount was recorded as interest owed
to the loan payable amount and is to be amortized on a monthly basis over the life of the loan. The loan is due on December 1,
2017. As of June 30, 2018 and 2017, the balance is $0 and 6,250, respectively.
From time to time, SWC
would receive short-term loans from LMK Capital, LLC (“LMK”) for its working capital needs. As of June 30, 2018 and
2017, the Company had outstanding balance of $0 and $34,107, respectively, borrowed from LMK Capital., LLC, a company affiliated
with CEO Chan.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
17.
Shares to Be Issued
During the year ended June
30, 2018, the Company had entered into multiple private placement agreements and had increased potential shares to be issued in
total amount of $1,798,000.
As of June 30, 2018 and
2017, the Company had balance of $2,691,000 and $893,000 share to be issued.
18.
Commitments and Contingencies
On April 1, 2015, the Company
entered into a lease for general office and warehouse in City of Industry, California with a lease term of one year. The monthly
rent was $11,884. The Company renewed the lease to March 31, 2016, effective April 1, 2016 to March 31, 2017, increasing the rent
from $11,884 to $13,238. On March 6, 2017, the Company executed a Fifth Amendment to the Lease, in which the Monthly rent increased
from $13,238 to $15,043 effective from April 1, 2017 to March 31, 2018. As of March 31, 2018, the Monthly rent is $15,043. As of
April 1, 2018, the Company has vacated and return the property to the property owner and have no further lease commitment associated
with this property.
On February 23, 2018 the
Company entered into lease agreement for a new office space as part of the plan to expand operation, the lease is set to commence
Commencing March 1, 2018. The term of the lease is for a (5) Five Years with 1 month free on the 1st year of the term. The
monthly rent on the 1st year will be $11,770 with a 3% increase for each subsequent year. Total commitment for the full term
of the lease will be $737,367. As of the date of this filing, this property became the main office of the Company.
19.
Income Tax
The deferred tax asset as of June 30, 2018
and 2017 consisted of the following:
|
|
2018
|
|
2017
|
Net Operating Loss Carryforwards
|
|
$
|
11,849,081
|
|
|
$
|
9,711,559
|
|
Less Valuation Allowance
|
|
|
(11,849,081
|
)
|
|
|
(9,711,559
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Management provided a deferred tax asset valuation
allowance equal to the potential benefit due to the Company’s loss. When the Company demonstrates the ability to generate
taxable income, management will re-evaluate the allowance.
As of June 30, 2018, the Company has net operating
loss carryforward of $34,859,799, which is available to offset future taxable income that expires by year 2034.
Reconciliation between the provision for income
taxes and the expected tax benefit using the federal statutory rate of 34% for 2018 and 2017 is as follows:
|
|
2018
|
|
2017
|
Income tax benefit at federal statutory rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
Increase in valuation allowance
|
|
|
34
|
%
|
|
|
34
|
%
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
20.
Subsequent Events
On July 15, 2018, the Company
signed a settlement agreement and consulting contract with a services provider. Under the terms of the agreement, the consultant
performed specific functions pertaining the wind down of business operations for products previously marketed by the Company, receiving
1,500,000 registered common shares.
On July 20, 2018, the Company
sold 1,000,000 common shares to an accredited investor at $0.05 per common share for a total of $50,000.
On July 30, 2018, a consultant
paid the Company $1,000 for an option exercised on June 8, 2018. The strike price of the option was $0.002 per share. As of this
date, the 500,000 common shares from the option exercise have yet to be issued.
On August 1, 2018, the
Company signed a services contract with a consultant for 2,307,693 registered common shares, valued at $150,000 or $0.065 per share.
On August 1, 2018, the
Company signed a services contract with a consultant for 538,461 registered common shares, valued at $70,000 or $0.065 per share.
On August 2, 2018, the
Company converted a note for $50,000 dated August 3, 2017, into 1,114,491 common shares.
On August 13, 2018, the
Company issued 2,500,000 common shares to an accredited investor. The shares were purchased on December 21, 2017 at $0.05 per share
for a total of $125,000.
On August 14, 2018, the
Company converted a note dated September 27, 2017 into common shares. The original face value of the note was $15,000, which converted
into 294,114 common shares.
On August 14, 2018, the
Company converted a note dated August 22, 2017 into common shares. The original face value of the note was $35,000, which converted
into 691,184 common shares.
On August 23, 2018, the
Company converted a note for $115,698.63 dated August 3, 2017 in the amount of $50,000 into 1,114,491 common shares.
On August 28, 2018, the
Company converted a note dated May 12, 2017 into common shares. The original face value of the note was $150,000, which converted
into 3,921,569 common shares.
On September 1, 2018, the
Company issued a consultant 125,000 common shares for services, based on an agreement with the consultant dated April 5, 2018.
On September 13, 2018,
the Company converted a note dated September 15, 2017 into common shares. The original face value of the note was $150,000, which
converted into 3,745,330 common shares.
Sugarmade, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
20.
Subsequent Events
On September 19, 2018,
the Company issued a convertible note to an accredited investor for proceeds to the Company in the amount of $250,000. The Company
reserved 15,000,000 common shares for future maximum issuance for the eventual conversion.
On September 27, 2018,
the Company sold 642,857 common shares to an accredited investor at $0.07 per common share for a total of $45,000.
On October 7, 2018, a consultant
paid the Company $500 for an option exercised on June 8, 2018. The strike price of the option was $0.001 per share. As of this
date, the 500,000 common shares from the option exercise have yet to be issued.
On October 9, 2018, the
Company issued shares in a debt settlement. A total of 500,000 shares were issued at a price of $0.10 per shares, which settled
the $39,000 and interest owed by the Company.
On October 10, 2018, the
Company issued a convertible note to an accredited investor for proceeds to the Company in the amount of $250,000. The Company
reserved 26,000,000 common shares for future maximum issuance for the eventual conversion.
On October 15, 2018, the
Company signed a Letter of Intent to acquire Sky Unlimited, LLC doing business as Athena United (“Sky Unlimited”),
a Southern California-based, supplier of hydroponic cultivation supplies to the wholesale sector and to large commercial cultivators.
Upon execution of LOI, the Company will pay Sky Unlimited $1,000,000 in common shares of Sugarmade at $0.10 per share equal 10,000,000
shares, which will immediately vest as a non-refundable fee. Sugarmade will be granted 180 days to close on acquisition, If the
acquisition is completed, Sky Unlimited will be compensated with cash and Sugarmade shares having a total value equaling one times
annualized revenues realized by Sky Unlimited during last 2 quarters of 2018 calendar year. At the projected $40,000,000 annualized
revenue realization for Sky Unlimited for the period agreed, it is contemplated Sky Unlimited will be paid a total of $8,000,000
in cash and $32,000,000 in Sugarmade common shares at $0.10 per share.
On October 16, 2018, the
Company issued 2,500,000 common shares due to an accredited investor for an investment on December 21, 2017 in the amount of $250,000
at $0.05 per share.
On October 16, 2018, the
Company issued 10,00,000 common shares due to an accredited investor for an investment on December 21, 2017 in the amount of $1,000,000
at $0.10 per share.
Sugarmade, Inc. and
Subsidiary
Condensed Consolidated
Balance Sheets
|
|
March 31, 2019
|
|
June 30, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
33,916
|
|
|
$
|
42,121
|
|
Accounts receivable, net
|
|
|
375,970
|
|
|
|
453,623
|
|
Inventory, net
|
|
|
627,369
|
|
|
|
531,249
|
|
Loan receivables
|
|
|
191,776
|
|
|
|
157,872
|
|
Other current assets
|
|
|
2,099,634
|
|
|
|
756,565
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,328,665
|
|
|
|
1,941,432
|
|
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
450,852
|
|
|
|
195,180
|
|
Intangible assets, net
|
|
|
11,550
|
|
|
|
12,600
|
|
Other assets
|
|
|
68,751
|
|
|
|
38,751
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,859,818
|
|
|
$
|
2,187,963
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficiency)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Note payable due to bank
|
|
$
|
25,982
|
|
|
$
|
25,982
|
|
Accounts payable and accrued liabilities
|
|
|
1,368,547
|
|
|
|
1,707,641
|
|
Customer deposits
|
|
|
310,128
|
|
|
|
329,509
|
|
Unearned revenue
|
|
|
65,013
|
|
|
|
110,142
|
|
Other payable
|
|
|
367,239
|
|
|
|
241,771
|
|
Accrued interest
|
|
|
448,942
|
|
|
|
493,365
|
|
Accrued compensation and personnel related payables
|
|
|
24,528
|
|
|
|
869,673
|
|
Note Payable
|
|
|
20,000
|
|
|
|
20,000
|
|
Notes payable – related parties
|
|
|
18,000
|
|
|
|
23,000
|
|
Loans payable
|
|
|
190,755
|
|
|
|
329,029
|
|
Loans payable – related parties
|
|
|
30,000
|
|
|
|
30,000
|
|
Convertible notes payable, net
|
|
|
1,059,655
|
|
|
|
2,399,941
|
|
Derivative liabilities
|
|
|
2,541,563
|
|
|
|
3,069,616
|
|
Warrants liabilities
|
|
|
39,192
|
|
|
|
40,400
|
|
Shares to be issued
|
|
|
50,000
|
|
|
|
2,691,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,559,544
|
|
|
|
12,381,069
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficiency):
|
|
|
|
|
|
|
|
|
Preferred stock ($0.001 par value, 10,000,000 shares authorized, 2,000,000 and 0 issued and outstanding at March 31, 2019 and June 30, 2018, respectively)
|
|
|
2,000
|
|
|
|
—
|
|
Common stock ($0.001 par value, 1,990,000,000 shares authorized, 660,473,827 and 246,135,203 shares issued and outstanding at March 31, 2019 and June 30, 2018, respectively)
|
|
|
660,474
|
|
|
|
246,136
|
|
Additional paid-in capital
|
|
|
59,550,187
|
|
|
|
21,952,560
|
|
Shares issued advance for investment
|
|
|
(18,000,000
|
)
|
|
|
—
|
|
Shares to be issued, preferred shares
|
|
|
—
|
|
|
|
2,000,000
|
|
Shares to be issued, common shares
|
|
|
—
|
|
|
|
467,996
|
|
Accumulated deficiency
|
|
|
(44,912,387
|
)
|
|
|
(34,859,799
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficiency)
|
|
|
(2,699,726
|
)
|
|
|
(10,193,106
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficiency)
|
|
$
|
3,859,818
|
|
|
$
|
2,187,963
|
|
The accompanying notes are an integral part
of these condensed unaudited consolidated financial statements
Sugarmade, Inc. and Subsidiary
Condensed Consolidated Statements
of Operations
For the three and nine months ended March 31, 2019 and 2018
|
|
For the Three
Months Ended
March 31, 2019
|
|
For the Three
Months Ended
March 31, 2018
|
|
For the Nine
Months Ended
March 31, 2019
|
|
For the Nine
Months Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
572,678
|
|
|
$
|
849,436
|
|
|
$
|
3,459,511
|
|
|
$
|
2,965,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
398,281
|
|
|
|
594,888
|
|
|
|
2,528,680
|
|
|
|
2,107,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
174,397
|
|
|
|
254,549
|
|
|
|
930,831
|
|
|
|
857,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
$
|
634,705
|
|
|
$
|
797,196
|
|
|
$
|
5,371,662
|
|
|
$
|
2,849,789
|
|
Operating loss
|
|
|
(460,308
|
)
|
|
|
(542,647
|
)
|
|
|
(4,440,832
|
)
|
|
|
(1,992,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
19,949
|
|
|
|
—
|
|
|
|
25,050
|
|
|
|
14,206
|
|
Interest Expense
|
|
|
(105,088
|
)
|
|
|
(97,107
|
)
|
|
|
(846,568
|
)
|
|
|
(303,484
|
)
|
Change in fair value of derivative liabilities
|
|
|
(510,314
|
)
|
|
|
3,680,532
|
|
|
|
(4,171,698
|
)
|
|
|
(1,384,423
|
)
|
Change in fair value of warrant liability
|
|
|
(24,712
|
)
|
|
|
—
|
|
|
|
1,208
|
|
|
|
—
|
|
Loss on debt conversion
|
|
|
—
|
|
|
|
(250,640
|
)
|
|
|
8,763
|
|
|
|
(250,640
|
)
|
Loss on debt settlement
|
|
|
(40,081
|
)
|
|
|
—
|
|
|
|
(295,963
|
)
|
|
|
—
|
|
Loss on asset disposal
|
|
|
9,391
|
|
|
|
—
|
|
|
|
9,391
|
|
|
|
—
|
|
Amortization of debt discount
|
|
|
(298,992
|
)
|
|
|
—
|
|
|
|
(358,589
|
)
|
|
|
—
|
|
Other expense
|
|
|
—
|
|
|
|
(1,265
|
)
|
|
|
—
|
|
|
|
(362,254
|
)
|
Gain on debt forgiveness
|
|
|
—
|
|
|
|
—
|
|
|
|
16,649
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating expenses, net
|
|
|
(949,848
|
)
|
|
|
3,331,520
|
|
|
|
(5,611,756
|
)
|
|
|
(2,286,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,410,156
|
)
|
|
$
|
2,788,872
|
|
|
$
|
(10,052,588
|
)
|
|
$
|
(4,278,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic and diluted
|
|
|
519,631,764
|
|
|
|
244,395,774
|
|
|
|
434,601,096
|
|
|
|
237,925,753
|
|
Weighted average basic and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
The accompanying notes are an integral
part of these condensed unaudited consolidated financial statements
Sugarmade, Inc. and Subsidiary
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
For the three and nine months ended
March 31, 2019
(Unaudited)
|
|
Preferred Stock
|
|
Common Stock
|
|
APIC
|
|
Investment
|
|
Share to be issued, PS
|
|
Share to be issued, CS
|
|
Accumulated Deficit
|
|
Total
|
Balance at June 30, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
246,135,203
|
|
|
$
|
246,136
|
|
|
$
|
21,952,561
|
|
|
$
|
—
|
|
|
$
|
2,000,000
|
|
|
$
|
467,996
|
|
|
$
|
(28,563,409
|
)
|
|
$
|
(5,100,492
|
)
|
Shares issued for debt settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
174,450
|
|
|
|
—
|
|
|
|
174,450
|
|
Reclass derivative liabilities from conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,714,433
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,714,433
|
|
Shares issued for conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
27,301,360
|
|
|
|
27,301
|
|
|
|
845,558
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
872,859
|
|
Shares issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
3,700,000
|
|
|
|
3,700
|
|
|
|
181,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,000
|
|
|
|
—
|
|
|
|
280,000
|
|
Shares issued for service
|
|
|
—
|
|
|
|
—
|
|
|
|
2,971,154
|
|
|
|
2,971
|
|
|
|
194,529
|
|
|
|
—
|
|
|
|
—
|
|
|
|
137,000
|
|
|
|
—
|
|
|
|
334,500
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,609,053
|
)
|
|
|
(2,609,053
|
)
|
Balance at September 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
280,107,717
|
|
|
|
280,108
|
|
|
|
25,888,381
|
|
|
|
—
|
|
|
|
2,000,000
|
|
|
|
874,446
|
|
|
|
(37,468,852
|
)
|
|
|
(8,425,917
|
)
|
Shares issued for debt settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
6,632,605
|
|
|
|
6,633
|
|
|
|
603,965
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(263,616
|
)
|
|
|
|
|
|
|
346,982
|
|
Reclass derivative liabilities from conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,574,807
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,574,807
|
|
Shares issued for conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
47,865,888
|
|
|
|
47,866
|
|
|
|
967,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,015,391
|
|
Initial Valuation of BCF
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
149,143
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
149,143
|
|
Shares issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
4,142,857
|
|
|
|
4,143
|
|
|
|
215,857
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(220,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares issued for service
|
|
|
—
|
|
|
|
—
|
|
|
|
89,111,251
|
|
|
|
89,111
|
|
|
|
6,384,569
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(390,830
|
)
|
|
|
—
|
|
|
|
6,082,850
|
|
Shares issued for LOI
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000,000
|
|
|
|
10,000
|
|
|
|
1,165,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,175,000
|
|
Shares issued for Award-Bizright
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000,000
|
|
|
|
200,000
|
|
|
|
17,800,000
|
|
|
|
(18,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Shares issued for EB-5
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,998,000
|
|
|
|
—
|
|
|
|
(2,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,033,380
|
)
|
|
|
(6,033,380
|
)
|
Balance at December 31, 2018
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
637,860,318
|
|
|
|
637,861
|
|
|
|
58,747,246
|
|
|
|
(18,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(43,502,232
|
)
|
|
|
(2,115,124
|
)
|
Reclass derivative liabilities from conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
286,193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
286,193
|
|
Shares issued for conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
13,962,038
|
|
|
|
13,962
|
|
|
|
314,913
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
328,875
|
|
Shares issued for service
|
|
|
—
|
|
|
|
—
|
|
|
|
625,391
|
|
|
|
625
|
|
|
|
34,375
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,000
|
|
Shares issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
6,000,000
|
|
|
|
6,000
|
|
|
|
54,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,000
|
|
Shares issued for debt settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
2,026,080
|
|
|
|
2,026
|
|
|
|
113,460
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115,487
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,410,156
|
)
|
|
|
(1,410,156
|
)
|
Balance at March 31, 2019
|
|
|
2,000,000
|
|
|
$
|
2,000
|
|
|
|
660,473,827
|
|
|
$
|
660,474
|
|
|
$
|
59,550,187
|
|
|
$
|
(18,000,000
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(44,912,387
|
)
|
|
$
|
(2,699,726
|
)
|
The accompanying notes are
an integral part of these condensed unaudited consolidated financial statements
Sugarmade, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the nine months ended March 31,
2019 and 2018
(Unaudited)
|
|
For the nine months
ended March 31,
|
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,052,588
|
)
|
|
$
|
(4,278,813
|
)
|
Adjustments to reconcile net loss to cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Excess of debt discount over the principal
|
|
|
149,143
|
|
|
|
125,642
|
|
Loss on settlement
|
|
|
295,963
|
|
|
|
250,460
|
|
Gain on debt forgiveness
|
|
|
(16,649
|
)
|
|
|
—
|
|
Amortization of debt discount
|
|
|
870,355
|
|
|
|
364,663
|
|
Stock based compensation
|
|
|
3,151,206
|
|
|
|
789,229
|
|
Change in fair value of derivative liability
|
|
|
4,171,733
|
|
|
|
1,384,423
|
|
Amortization of Intangible Assets
|
|
|
1,050
|
|
|
|
—
|
|
Change in exercise of warrant
|
|
|
(1,208
|
)
|
|
|
—
|
|
Depreciation and amortization
|
|
|
41,482
|
|
|
|
85,807
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
77,653
|
|
|
|
(239,302
|
)
|
Inventory
|
|
|
(96,120
|
)
|
|
|
100,447
|
|
Prepayment, deposits and other receivables
|
|
|
(168,067
|
)
|
|
|
—
|
|
Loan receivable
|
|
|
(33,904
|
)
|
|
|
—
|
|
Other assets
|
|
|
(30,000
|
)
|
|
|
(374,664
|
)
|
Bank overdraft
|
|
|
—
|
|
|
|
13,260
|
|
Accounts payable and accrued liabilities
|
|
|
(161,930
|
)
|
|
|
(194,809
|
)
|
Customer deposits
|
|
|
(19,381
|
)
|
|
|
66,713
|
|
Unearned revenue
|
|
|
(45,129
|
)
|
|
|
(11,970
|
)
|
Interest Payable
|
|
|
236,826
|
|
|
|
53,137
|
|
Accrued interest and Other payables
|
|
|
125,468
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,504,097
|
)
|
|
|
(1,865,597
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of intangible assets
|
|
|
—
|
|
|
|
(13,999
|
)
|
Acquisition of property and equipment
|
|
|
(297,154
|
)
|
|
|
(133,132
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(297,154
|
)
|
|
|
(147,131
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from shares to be issued
|
|
|
—
|
|
|
|
1,322,685
|
|
Proceeds from shares issuance
|
|
|
155,000
|
|
|
|
—
|
|
Proceeds from convertible notes
|
|
|
1,630,500
|
|
|
|
652,653
|
|
Payment to Note payable-related parties
|
|
|
(5,000
|
)
|
|
|
(22,666
|
)
|
Proceeds (Repayment) from(to) loans
|
|
|
12,546
|
|
|
|
30,342
|
|
Proceeds from loan payable-related parties
|
|
|
—
|
|
|
|
(158,617
|
)
|
Proceeds from advanced share issuance
|
|
|
—
|
|
|
|
95,094
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,793,046
|
|
|
|
1,919,491
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(8,205
|
)
|
|
|
(93,237
|
)
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
42,121
|
|
|
|
101,880
|
|
Cash, end of period
|
|
$
|
33,916
|
|
|
$
|
8,643
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
Shares issued for conversion of convertible debt
|
|
|
564,051
|
|
|
|
—
|
|
Reduction in derivative liability due to conversion
|
|
|
6,575,434
|
|
|
|
—
|
|
Debt discount related to convertible debt
|
|
|
2,217,123
|
|
|
|
—
|
|
Debts settled through shares issuance
|
|
|
1,875,647
|
|
|
|
993,250
|
|
Shares issued for advanced share payment
|
|
|
2,641,000
|
|
|
|
—
|
|
The accompanying notes are an integral
part of these condensed unaudited consolidated financial statements
Sugarmade, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Sugarmade,
Inc. (hereinafter referred to as we, us or the/our Company) is a publicly traded company incorporated in the
state of Delaware. Our previous legal name was Diversified Opportunities, Inc. Our Company, Sugarmade, Inc. operates much of its
business activities through our subsidiary, SWC Group, Inc., a California corporation (SWC).
Sugarmade,
Inc. was founded in 2010. In 2014, CarryOutSupplies.com was acquired by Sugarmade, Inc., creating the Company as it is today.
As of the end of the reporting period, March 31, 2019, we were involved in several businesses including, the supply of products
to the quick service restaurant sub-sector of the restaurant industry and as an importer, distributor and marketer of hydroponic
supplies to various agricultural sectors. We had previously been a marketer of culinary seasoning products Seasoning Stix and
Sriracha Seasoning Stix and a marketer of tree-free paper products. These products were discontinued during 2018 in order to focus
the majority of our corporate resources on the marketing of hydroponic supplies.
The
marketplace in which we plan to be mainly engaged is generally referred to as hydroponic agricultural supplies. While some of
our customers are engaged in the legal cultivation, processing and/or distribution of cannabis or cannabis containing products,
our Company neither sells any products containing cannabis nor do we handle, process, or distribute any products containing cannabis.
Our
legacy business operation, CarryOutSupplies.com, is a producer and wholesaler of custom printed and generic supplies servicing
more than 2,000 quick service restaurants. Our products include double poly paper cups for cold beverage; disposable, clear, plastic
cold cups, paper coffee cups, yogurt cups, ice cream cups, cup lids, cup sleeves, food containers, soup containers, plastic spoons
and many other similar products for this market sector. CarryOutSupplies.com was founded in 2009 when the founders gained first-hand
experience within the restaurant industry of the difficulty for restaurant owners to acquire custom printed supplies at a reasonable
cost. Many quick service restaurants wish to acquire custom printed products, such as those embossed with logos, but the minimum
order size for such customization had been cost prohibitive. With that in mind, carry out supplies was founded to provide products
to this underserved section of the market. Since that time, the company has become a key supplier to many popular U.S. franchises,
particularly in the frozen dessert segments. The company estimates it holds at least a 20% market share of generic and printed
products within the take-out frozen yogurt and ice cream industries.
In
December 2017, we announced a Master Marketing Agreement with BizRight, LLC where the Company would market BizRights products.
The Company also gained an option to acquire all of BizRights operations. See Note 4 below for further details.
Also
during 2017, Sugarmade announced the signing of an exclusive distribution agreement for California, Oregon and Washington with
privately held Plantation Corp. for its BudLife preservation technology based on integration of specialized gases and natural
agents that dramatically extends the useful life of medical marijuana up to six (6) months by actively monitoring the internal
containers environment and automatically adjusting its atmosphere as needed. Sugarmade has conducted initial product prototype
testing of the BudLife product, realizing positive results. Sugarmade plans to move forward as Plantations distribution
partner upon availability of the BudLife product line. As of the end of the reporting period, the Company is awaiting final product
availability in order to begin marketing the products under the Agreement.
During
October 2018, the Company signed a Letter of Intent to acquire Sky Unlimited, LLC doing business as Athena United, a Southern
California-based, supplier of hydroponic cultivation supplies to the wholesale sector and to large commercial cultivators. Athena
United operates its ecommerce website at www.AthenaUnited.com. Under the terms of the Agreement, which contains both binding and
non-binding elements, Sugarmade will acquire all of the outstanding capital stock and the business operations for a combination
of cash and common shares of Sugarmade. Athena United, and its associated operations, is believed to be one of the larger operators
in this market sector and is producing revenues of approximately $40 million per year, is profitable, and cash flow positive.
Should the Company be successful in its acquisition efforts, the operation would be integrated under the Sugarmade corporate umbrella
with Sugarmade assuming all operations and recognizing all revenues and profits.
During
January of 2019, the Company announced its intention to acquire a retail location of Washington State-based Hydro4Less. The operation
is expected to produce approximately $5 million in revenues and to be profitable during calendar 2019. Additionally, via the pending
transaction, Sugarmade will gain an option to purchase two additional Hydro4Less retail operations, which are currently producing
in excess of $20 million annually. Should all three Hydro4Less acquisitions close, Sugarmade will increase its annual revenues
by approximately $25 million per year.
Via
the marketing agreement with BizRight, LLC and the acquisitions of Athena United and Hydro4Less, the Company believes it could
become one of the largest and fast growing market participants in the cannabis and other agricultural supply/hydroponic industries.
As has been also outlined and disclosed in other corporate filings, there can be no assurances these acquisitions will close and
that such revenues will be realized by the Company.
|
2.
|
Summary
of Significant Accounting
|
Policies
Basis of presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results
of operations, or cash flows. It is managements opinion however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statement presentation.
These
interim condensed consolidated financial statements should be read in conjunction with our Companys Annual Report on Form
10-K for the year ended June 30, 2018, which contains our audited consolidated financial statements and notes thereto, together
with the Managements Discussion and Analysis of Financial Condition and Results of Operation, for the year ended June 30,
2018. The interim results for the period ended March 31, 2019 are not necessarily indicative of the results for the full fiscal
year.
Principles
of consolidation
The
condensed consolidated unaudited financial statements include the accounts of our Company and its wholly-owned subsidiary, SWC
Group Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
Going
concern
The
Company sustained continued losses from operations during the nine months ended March 31, 2019 and for the fiscal year ended June
30, 2018. The Companys continuation as a going concern is dependent on its ability to generate sufficient cash flows from
operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders
or other sources, as may be required.
Our
condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. Such assumption
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These condensed consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going
concern.
Management
is endeavoring to increase revenue-generating operations. While priority is on generating cash from operations through the sale
of the Companys products, management is also seeking to raise additional working capital through various financing sources,
including the sale of the Companys equity and/or debt securities, which may not be available on commercially reasonable
terms to our Company, or which may not be available at all. If such financing is not available on satisfactory terms, we may be
unable to continue our business as desired and our operating results will be adversely affected. In addition, any financing arrangement
may have potentially adverse effects on us and/or our stockholders. Debt financing (if available and undertaken) will increase
expenses, must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we
issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced and the
new equity securities may have rights, preferences or privileges senior to those of the current holders of our common stock.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires our 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 significantly from those estimates.
Revenue
recognition
Sugarmade
applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with
a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating
the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation
is satisfied.
Substantially
all of Sugarmades revenue is recognized at the time control of the products transfers to the customer.
Cash
Cash
and cash equivalents consist of amounts held as bank deposits and highly liquid debt instruments purchased with an original maturity
of three months or less.
From
time to time, we may maintain bank balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal
Deposit Insurance Corporation for interest bearing accounts (there is currently no insurance limit for deposits in noninterest
bearing accounts). We have not experienced any losses with respect to cash. Management believes our Company is not exposed to
any significant credit risk with respect to its cash.
Accounts
receivable
Accounts
receivable are carried at their estimated collectible amounts, net of any estimated allowances for doubtful accounts. We grant
unsecured credit to our customers deemed credit worthy. Ongoing credit evaluations are performed and potential credit losses
estimated by management are charged to operations on a regular basis. At the time any particular account receivable is deemed
uncollectible, the balance is charged to the allowance for doubtful accounts. The Company had accounts receivable net of allowances
of $375,970 as of March 31, 2019 and of $453,623 as of June 30, 2018.
Inventory
Inventory
consists of finished goods paper and paper-based products such as paper cups and food containers ready for sale and is stated
at the lower of cost or market. We value our inventory using the weighted average costing method. Our Companys policy is
to include as a part of inventory any freight incurred to ship the product from our contract manufacturers to our warehouses.
Outbound freights costs related to shipping costs to our customers are considered period costs and reflected in selling, general
and administrative expenses. We regularly review inventory and consider forecasts of future demand, market conditions and product
obsolescence.
If
the estimated realizable value of our inventory is less than cost, we make provisions in order to reduce its carrying value to
its estimated market value. On a consolidated basis, as of March 31, 2019 and June 30, 2018, the balance for the inventory totaled
$627,346 and $531,249, respectively. Obsolescence reserve at March 31, 2019 and June 30, 2018 were $16,177 and $120,486, respectively.
Property
and equipment
Property
and equipment is stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided
using the straight-line method over the estimated useful lives of the assets for both financial and income tax reporting purposes
as follows:
Machinery equipment
|
|
5 years
|
Furniture and equipment
|
|
7 years
|
Vehicles
|
|
7 years
|
Expenditures
for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations
in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in
an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized
as an additional cost of the asset.
Upon
sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed
from their respective accounts and any gain or loss is recorded in the statements of income.
The
Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate
that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment
loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by
management in performing this assessment include current operating results, trends and prospects, the manner in which the property
is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment
expenses for property, plant, and equipment was recorded in operating expenses during the nine months ended March 31, 2019 and
2018.
Impairment
of Long-Lived Assets
Long-lived
assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair
value of the assets. Fair value is generally determined using the assets expected future discounted cash flows or market value,
if readily determinable. Based on its review, the Company, as of June 30, 2018, performed an impairment test of all of its intangible
assets. Based on the companys analysis, the company had an amortization of intangible assets of $1,050 and $0 for the nine
months ended March 31, 2019 and 2018.
Income
taxes
We
account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their perspective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances
are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.
As
a result of the implementation of certain provisions of ASC 740, Income Taxes (ASC 740), which clarifies the accounting
and disclosure for uncertainty in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with
certain aspect of the recognition and measurement related to accounting for income taxes. We adopted the provisions of ASC 740
as of October 2, 2008, and have analyzed filing positions in each of the federal and state jurisdictions where we are required
to file income tax returns, as well as open tax years in these jurisdictions. We have identified the U.S. federal and California
as our major tax jurisdictions and generally, we remain subject to Internal Revenue Service examination of our 2013
U.S. federal income tax returns. However, we have certain tax attribute carryforwards, which will remain subject to review and
adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes
are utilized.
We
believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that
will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been
recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.
Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component
of income taxes. We have no interest or penalties as of March 31, 2019.
Stock
based compensation
Stock
based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award,
and will be recognized as expense over the employees requisite service period (generally the vesting period of the award).
We estimate the fair value of employee stock options granted using the Binomial Option Pricing Model. Key assumptions used to
estimate the fair value of stock options will include the exercise price of the award, the fair value of our common stock on the
date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected
annual dividend yield on our common stock. We use our companys own data among other information to estimate the expected
price volatility and the expected forfeiture rate. Share-based compensation awards issued to non-employees for services rendered
are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more
readily determinable.
Loss
per share
We
calculate basic earnings per share (EPS) by dividing our net loss by the weighted average number of common shares
outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income or net
loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common
stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when
their effect is dilutive.
Fair
value of financial instruments
ASC
Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy
for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels
are defined as follows:
Level
1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 - include other inputs that are directly or indirectly observable in the marketplace.
Level
3 - unobservable inputs which are supported by little or no market activity.
The
Company used Level 3 inputs for its valuation methodology for the derivative liabilities in determining the fair value using the
Binomial option-pricing model for the nine months ended March 31, 2019.
|
|
Carrying Value
|
|
|
Fair Value Measurements at
|
|
|
|
As of
|
|
|
March 31, 2019
|
|
|
|
March 31,
|
|
|
Using Fair Value Hierarchy
|
|
|
|
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
2,541,563
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,541,563
|
|
Total
|
|
$
|
2,541,563
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,541,563
|
|
|
|
June 30, 2018
|
|
|
March 31, 2019
|
|
Expected life (years)
|
|
|
0.5
|
|
|
|
0.5
|
|
Risk-free interest rate
|
|
|
2.06
|
%
|
|
|
2.44
|
%
|
Expected volatility
|
|
|
151
|
%
|
|
|
138
|
%
|
|
|
Carrying Value
|
|
|
Fair Value Measurements at
|
|
|
|
As of
|
|
|
June 30, 2018
|
|
|
|
June 30,
|
|
|
Using Fair Value Hierarchy
|
|
|
|
2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
3,069,616
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,069,616
|
|
Total
|
|
$
|
3,069,616
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,069,616
|
|
Derivative
instruments
The
fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in the fair value of
derivatives liability are recorded in the consolidated statement of operations under non-operating income (expense).
Our
Company evaluates all of its 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 consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average
Binomial option-pricing 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 instrument liabilities are classified in the balance sheet as current or non-current
based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet
date.
Segment
Reporting
FASB
ASC Topic 280, Segment Reporting, requires use of the management approach model for segment reporting.
The management approach model is based on the way a companys management organizes segments within the Company for making
operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a company.
FASB
ASC Topic 280 has no effect on the Companys financial statements as substantially all of its operations are conducted in
one industry segment – paper and paper-based products such as paper cups, cup lids, food containers, etc.
New
accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU
2016-02, “Leases (Topic 842),” which requires lessees to recognize leases on-balance sheet and disclose key information
about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-10, “Codification Improvements to Topic 842, Leases”
and ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” The new standard establishes a right-of-use model that
requires a lessee to recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet for all leases
with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern
and classification of expense recognition in the income statement. This standard is effective for public business entities for
annual periods beginning after December 15, 2018, and for other entities for annual periods after December 15, 2019. The Company
will adopt this new standard on July 1, 2019 using the modified retrospective transition method and will use the effective date
as the date of initial application. Consequently, financial information will not be updated and the disclosures required under
the new standard will not be provided for dates and periods before July 1, 2019. The new standard provides a number of optional
practical expedients in transition. The Company will elect the “package of practical expedients,” which permits the
Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial
direct costs.
The adoption of the standard will have
a material impact on the Company’s financial statements, with the most significant effects related to: (1) the recognition
of new ROU assets and lease liabilities on the Company’s balance sheet for its real estate and data center operating leases;
(2) providing significant new disclosures about the Company’s leasing activities.
In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted.
The standard should be applied prospectively on or after the effective date. The Company does not expect that the adoption of
this guidance will have a material impact on its consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which
a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should
be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based
Payment Accounting. The new standard contains several amendments that will simplify the accounting for employee share-based payment
transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. The Company does not expect that the
adoption of this guidance will have a material impact on its consolidated financial statements.
ASC
606, Revenue from Contracts with Customers, was issued jointly by the FASB and IASB on May 28, 2014. It was originally effective
for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016, for
public entities. Early application was not permitted (however, early adoption was optional for entities reporting under IFRSs).
On August 12, 2015, the FASB issued an ASU, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
which deferred for one year the effective date of the new revenue standard for public and nonpublic entities reporting under U.S.
GAAP. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial
statements.
Customers
For
the nine months ended March 31, 2019 and 2018, our Company earned net revenues of $3,459,511 and $2,965,404 respectively. The
vast majority of these revenues for the period ending March 31, 2019 were derived from a large number of customers, whereas the
vast majority of these revenues for the period ending March 31, 2018 were derived from a limited number of customers. No customers
accounted for over 10% of the Companys total revenues for the period ended March 31, 2019.
Suppliers
For
the nine months ended March 31, 2019, we purchased products for sale from several contract manufacturers located in Asia and the
U.S. A substantial portion of the Companys inventory is purchased from two (2) suppliers. The two (2) suppliers accounted as
follows: Two suppliers accounted for 38.38% and 22.36% of the Companys total inventory purchase for the nine months ended March
31, 2019, respectively.
|
4.
|
Equity
Transaction - Exclusive License Rights
|
On
December 13, 2017, we entered into a Master Marketing Agreement with BizRight Hydroponic, Inc. (BizRight), a leading
marketer and supplier hydroponic growth supplies, which offers a range of hydroponics-related products including: HPS grow
lights, electronic ballasts, HPS Bulbs, nutrient mixes, environmental control products, pH measurement and calibration solutions
and other cannabis-related grow and storage products. BizRight operates the ZenHydro.com website and other e-commerce properties,
and sells various products to distributors and retailers.
Under
the terms of the Master Marketing Agreement, all products procured, developed and imported by BizRight will be sold by the Company.
The expected term of the exclusive license rights is 20 years. BizRight and its owners will be compensated via a combination of
cash and common shares in Sugarmade. Effective the contract date, Bizright will be compensated Two hundred million (200,000,000)
common shares. Sugarmade will compensate BizRight and its owners six million dollars ($6,000,000) in cash. The amount due will
be divided over 3 payments equally and are contingent upon the filing of the S-1 and significant funding.
We began recognizing revenues under
this marketing agreement during April 2018 and stopped recognizing the revenue in December 2018 due to the incompletion of the
Master Marketing Agreement. We plan to exercise the purchase option pursuant to the agreement and begin re-recognizing revenues
upon closing of the transaction.
As
of March 31, 2019, the shares to be issued in connection with the acquisition of exclusive license rights has been issued and
the transaction has not been fully completed. $550,000 in cash has been paid and reflected as a prepaid deposit in other current
assets on our balance sheet.
From
time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other
relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of date of this filing, there
were no legal claims currently pending or, to our knowledge, threatened against our Company that, in the opinion of our management,
would be likely to have a material adverse effect on our financial position, results of operations or cash flows, except as follows:
|
●
|
On
December 11, 2013, the Company was served with a complaint from two Convertible Note Holders and investors in the Company, Lovitt
& Hannan, Inc. Salary Deferral Plan FBO J. Thomas Hannan, Attorney at Law 401K Plan and Trust, and Kevin M. Kearney. The Companys
former CEO, Scott Lantz, was also named in the suit. On February 21, 2017, the Company signed a settlement agreement with the
plaintiffs. Under the terms of the settlement agreement, the Company agreed to pay the plaintiffs $307,000 to settle all claims
against the Company, which included the payoff of the two notes outstanding within one (1) week. Upon receipt of all payments,
plaintiffs will surrender for cancellation of 230,000 of the Companys shares within ten (10) days. The parties agreed that all
claims against the Company would be satisfied through such payments and that the matter would be fully resolved. As of June 30,
2018, third-parties had purchased two (2) notes of approximately $80,000, reducing the Companys exposure by $80,000. As of the
date of this filing the balance for accrued legal settlement for Hannan vs Sugarmade has been reduced to $227,000, plus interest
until the date of complete payoff.
|
|
●
|
On
May 24, 2014, the Labor Commissioner, State of California issued an Order, Decision or Award of the Labor Commissioner against
the Company in the amount of $56,365. On October 28, 2014, the Company entered into a settlement agreement, which was effective
October 28, 2014, to resolve a judgment against the Company via the issuance of 502,533 restricted shares and a $30,000 cash payment.
As of March 31, 2019, the shares have not been issued yet.
|
There
can be no assurances the ultimate liability relative to these law suits will not exceed what is outlined above.
As
of March 31, 2019 and June 30, 2018, other current assets consisted of the following:
|
|
For the periods ended
|
|
|
|
March 31, 2019
|
|
|
June 30, 2018
|
|
Prepaid Deposit
|
|
$
|
1,775,000
|
|
|
$
|
355,500
|
|
Prepaid Inventory
|
|
|
75,480
|
|
|
|
92,737
|
|
Employees Advance
|
|
|
46,303
|
|
|
|
41,303
|
|
Prepaid Expenses
|
|
|
155,065
|
|
|
|
246,260
|
|
Other
|
|
|
47,786
|
|
|
|
20,765
|
|
Total:
|
|
$
|
2,099,634
|
|
|
$
|
756,565
|
|
On
August 21, 2017, the Company entered into an intellectual property assignment agreement with Sound Decisions to revamp the companys
shoplifty website to generate and attract more traffic from potential customers. The Company made a payment of $14,000 for the
website (intellectual property). The Company amortized this use right as intangible asset over ten years, and recorded amortization
expense of $1,050 and $1,400 for the periods ended March 31, 2019 and June 30, 2018, respectively.
|
8.
|
Property
and Equipment, net
|
As
of March 31, 2019 and June 30, 2018, property, plant and equipment consisted of the following:
|
|
March 31, 2019
|
|
|
June 30, 2018
|
|
Computer Equipment
|
|
$
|
18,888
|
|
|
$
|
15,734
|
|
Furniture and Equipment
|
|
|
228,315
|
|
|
|
228,315
|
|
Leasehold Improvements
|
|
|
21,971
|
|
|
|
21,970
|
|
Warehouse Equipment
|
|
|
23,369
|
|
|
|
36,263
|
|
Assemble Machine
|
|
|
210,000
|
|
|
|
-
|
|
PP Production Molds
|
|
|
229,173
|
|
|
|
145,173
|
|
Motor Vehicles
|
|
|
58,523
|
|
|
|
73,817
|
|
Total
|
|
|
86,602
|
|
|
|
521,272
|
|
Less: accumulated depreciation
|
|
|
(339,385
|
)
|
|
|
(326,092
|
)
|
Plant and Equipment, net
|
|
$
|
450,852
|
|
|
$
|
195,180
|
|
For
the three months ended March 31, 2019 and 2018, depreciation expenses amounted to $14,903 and $10,753, respectively. For the nine
months ended March 31, 2019 and 2018, depreciation expenses amounted to $41,481 and $37,707.66, respectively.
The
Company purchased approximately $297,154 and $147,131 property and equipment during the nine months ended March 31, 2019 and 2018,
respectively.
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing
this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects
of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property,
plant, and equipment was recorded in operating expenses during the nine months ended March 31, 2019 and 2018.
As
of March 31, 2019 and June 30, 2018, the balance owing on convertible notes, net of debt discount, with terms as described below
was $1,059,655 and $2,399,941, respectively.
Convertible
notes issued prior to the year ended June 30, 2017 were as follows:
Convertible
note 1: On August 24, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The
note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average
of 30 days prior to the conversion date. As of March 31, 2019, the note is in default.
Convertible
note 2: On September 18, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000.
The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the
average of 30 days prior to the conversion date. As of March 31, 2019, the note is in default.
Convertible
note 3: On December 21, 2012, the Company entered into a convertible promissory note with an accredited investor for $100,000.
The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the
average of 30 days prior to the conversion date. As of March 31, 2019, the note is in default.
Convertible
note 4: On December 19, 2016, the Company entered into a convertible promissory note with an accredited investor for $20,000.
The note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount. As of
March 31, 2019, the note has been fully converted.
Convertible
note 5: On January 17, 2017, the Company entered into a convertible promissory note with an accredited investor for $25,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 6: On January 20, 2017, the Company entered into a convertible promissory note with an accredited investor for $80,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 7: On February 8, 2017, the Company entered into a convertible promissory note with an accredited investor for $50,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 8: On February 24, 2017, the Company entered into a convertible promissory note with an accredited investor for $66,023.
The note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the
then current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 9: On February 9, 2017, the Company entered into a convertible promissory note with an accredited investor for $50,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 10: On February 28, 2017, the Company entered into a convertible promissory note with an accredited investor for $75,000.
The note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount. As of
March 31, 2019, the note has been fully converted.
Convertible
note 11: On March 1, 2017, the Company entered into a convertible promissory note with an accredited investor for $100,000. The
note has been purchased by other investor in total amount of $156,067 with a term of nine (9) months with an interest rate of
10% and is convertible to common shares at a 45% discount to the then current market price of our shares. As of September 30,
2018, $92,500 has been converted into the Companys common stock and the Company incurred two conversion default penalties
in total of $60,751. As of June 30, 2018, the remaining principal balance was $124,318. As of March 31, 2019, the Company converted
$63,567 and the remaining balance of note was $60,751.
Convertible
note 12: On March 23, 2017, the Company entered into a convertible promissory note with an accredited investor for $70,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 13: On February 16, 2017, the Company entered into a convertible promissory note with an accredited investor for $30,000.
The note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the
then current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 14: On March 31, 2017, the Company entered into a convertible promissory note with an accredited investor for $200,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount to the then
current market price of our shares. As of March 31, 2019, the note has been fully converted.
Convertible
note 15 & 16: On May 17, 2017, the Company entered a convertible promissory note with an investor for a total amount of $1,375,000
(after $10,000 legal and due diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. The
note is due 12 months after each funding date and bears an interest rate of 10%. The conversion price for the note is 55% of the
lowest closing bid for the 20 consecutive trading days prior to the conversion date. In connection with the note, the investor
will also receive warrants and is calculated based on 15% of the maturity amount. The warrants have a life of four years with
exercise price of $0.15 per share and have cashless exercise option. The Company had outstanding balance of $921,004 as of the
year ended June 30, 2018. The fair value of the warrants was $40,400 as of June 30, 2018. During the nine months ended March 31,
2019, the principal balance has been fully converted, the remaining default charge balance of the note was $250,000 as of March
31, 2019 and the fair value of the warrant liability was $9,090. As of March 31, 2019, the note is in default and bears a default
interest rate of 22% per annum.
Convertible
notes issued during the year ended June 30, 2018 were as follows:
Convertible
note 17: On July 17, 2017, the Company entered into a convertible promissory note with an accredited investor for $164,900. The
note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.025.
As of March 31, 2019, the note has been fully converted.
Convertible
note 18: On August 3, 2017, the Company entered into a convertible promissory note with an accredited investor for $150,000. The
note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 45% discount to average
of 3 lowest trading price during last 20 trading days. As of March 31, 2019, the note has been fully converted.
Convertible
note 19: On August 22, 2017, the Company entered into a convertible promissory note with an accredited investor for $35,000. The
note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount of average
two lowest price of last 20 trading days prices. As of March 31, 2019, the note has been fully converted.
Convertible
note 20: On September 15, 2017, the Company entered into a convertible promissory note with an accredited investor for $150,000.
The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 45% discount to average
of 3 lowest trading price during last 20 trading days. As of March 31, 2019, the note has been fully converted.
Convertible
note 21: On September 26, 2017, the Company entered into a convertible promissory note with an accredited investor for $15,000.
The note has a term of six (6) months with an interest rate of 8% and is convertible to common shares at a 40% discount of average
two lowest price of last 20 trading days prices. As of March 31, 2019, the note has been fully converted.
Convertible
note 22: On December 7, 2017, the Company entered into a convertible promissory note with an accredited investor for $50,000.
The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of
$0.05. As of March 31, 2019, the note has been fully converted.
Convertible
notes issued during the nine months ended March 31, 2019 were as follows:
Convertible
note 23: On September 20, 2018, the Company entered a convertible promissory note with an accredited investor for a total amount
of $267,500 (includes $5,000 legal fee and an OID of $12,500). The note is due 360 days and bears an interest rate of 8%. The
conversion price for the note is 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 24: On October 5, 2018, the Company entered a convertible promissory note with an accredited investor for a total amount
of $250,000 (includes $5,000 OID). The note is due 360 days and bears an interest rate of 8%. The conversion price for the note
is 45% of average three lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 25: On November 1, 2018, the Company entered into a convertible promissory note with an accredited investor for $100,000.
The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of
$0.07.
Convertible
note 26: On November 16, 2018, the Company entered into a convertible promissory note with an accredited investor for $80,000.
The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of
$0.07.
Convertible
note 27: On November 16, 2018, the Company entered into a convertible promissory note with an accredited investor for $40,000.
The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of
$0.07.
Convertible
note 28: On December 3, 2018, the Company entered into a convertible promissory note with an accredited investor for $35,000.
The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of
$0.07.
Convertible
note 29: On December 26, 2018, the Company entered a convertible promissory note with an accredited investor for a total amount
of $250,000 (includes $5,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note
is 45% of average three lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 30: On January 8, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount
of $105,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 35% of average two
lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 31: On January 22, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount
of $100,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 42% of average three
lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 32: On January 24, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount
of $53,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 35% of average two
lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 33: On February 26, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount
of $100,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 42% of average three
lowest closing bid for the 20 consecutive trading days prior to the conversion date.
Convertible
note 34: On March 4, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of
$250,000 (includes $7,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is
42% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date.
For
the period ended March 31, 2019, the Companys convertible notes consisted of following:
Balance
|
|
|
|
|
|
Conversion
|
|
|
|
Balance
|
|
|
|
|
|
|
as
of
|
|
Default
|
|
Addition/
|
|
in
|
|
#
of
|
|
as
of
|
|
|
|
Interest
|
|
Conversion
|
06.30.2018
|
|
Penalty
|
|
(Repayment)
|
|
principal
|
|
shares
|
|
03.31.2019
|
|
Due
Date
|
|
Rate
|
|
Price
|
25,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
25,000
|
|
2/24/2013
|
|
14%
|
|
75% of the average of 30 days prior
to the conversion date.
|
25,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
25,000
|
|
3/18/2013
|
|
14%
|
|
75% of the average of 30 days prior to the
conversion date.
|
100,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
100,000
|
|
6/21/2013
|
|
14%
|
|
75% of the average of 30 days prior to the
conversion date.
|
20,000
|
|
—
|
|
—
|
|
20,000
|
|
1,160,391
|
|
—
|
|
7/17/2017
|
|
10%
|
|
40% discount of average price of last 20 trading days prices
|
25,000
|
|
—
|
|
—
|
|
25,000
|
|
1,426,674
|
|
—
|
|
7/17/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
50,000
|
|
—
|
|
—
|
|
50,000
|
|
2,931,188
|
|
—
|
|
8/8/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
80,000
|
|
—
|
|
—
|
|
80,000
|
|
4,530,846
|
|
—
|
|
7/20/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
66,023
|
|
—
|
|
—
|
|
66,023
|
|
3,712,324
|
|
—
|
|
8/24/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
50,000
|
|
—
|
|
—
|
|
50,000
|
|
2,390,805
|
|
—
|
|
8/9/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
75,000
|
|
—
|
|
—
|
|
75,000
|
|
4,378,547
|
|
—
|
|
7/31/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
124,318
|
|
—
|
|
—
|
|
63,567
|
|
3,919,404
|
|
60,751
|
|
12/1/2017
|
|
10%
|
|
45% discount of lowest price of last 20 trading
days prices
|
70,000
|
|
—
|
|
—
|
|
70,000
|
|
4,067,072
|
|
—
|
|
9/23/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
30,000
|
|
—
|
|
—
|
|
30,000
|
|
1,500,010
|
|
—
|
|
8/16/2017
|
|
8%
|
|
Greater of 40% discount to average of 3 lowest
trading price during last 20 trading days or $.05
|
200,000
|
|
—
|
|
—
|
|
200,000
|
|
11,557,652
|
|
—
|
|
9/30/2017
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
921,004
|
|
—
|
|
—
|
|
671,004
|
|
31,483,740
|
|
250,000
|
|
5/12/2018
|
|
22%
|
|
45% discount of lowest price of last 20 trading
days prices
|
150,000
|
|
—
|
|
—
|
|
150,000
|
|
3,745,330
|
|
—
|
|
5/3/2018
|
|
10%
|
|
45% discount to average of 3 lowest trading
price during last 20 trading days
|
164,900
|
|
—
|
|
—
|
|
164,900
|
|
6,596,000
|
|
—
|
|
7/17/2018
|
|
8%
|
|
The conversion price shall be $0.025 per share
|
35,000
|
|
—
|
|
—
|
|
35,000
|
|
691,184
|
|
—
|
|
8/22/2018
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
15,000
|
|
—
|
|
—
|
|
15,000
|
|
294,114
|
|
—
|
|
9/26/2018
|
|
8%
|
|
40% discount of average two lowest price of
last 20 trading days prices
|
50,000
|
|
—
|
|
—
|
|
50,000
|
|
1,000,000
|
|
—
|
|
12/7/2018
|
|
8%
|
|
The conversion price shall be $0.05 per share
|
—
|
|
—
|
|
267,500
|
|
—
|
|
—
|
|
267,500
|
|
9/15/2019
|
|
8%
|
|
55% discount of lowest price of last 20 trading
days prices
|
—
|
|
—
|
|
250,000
|
|
—
|
|
—
|
|
250,000
|
|
10/5/2019
|
|
8%
|
|
45% discount of average three lowest price of last 20 trading
days prices
|
—
|
|
—
|
|
100,000
|
|
—
|
|
—
|
|
100,000
|
|
10/31/2019
|
|
8%
|
|
The conversion price shall be $0.07 per share
|
—
|
|
—
|
|
80,000
|
|
—
|
|
—
|
|
80,000
|
|
11/15/2019
|
|
8%
|
|
The conversion price shall be $0.07 per share
|
—
|
|
—
|
|
40,000
|
|
—
|
|
—
|
|
40,000
|
|
11/15/2019
|
|
8%
|
|
The conversion price shall be $0.07 per share
|
—
|
|
—
|
|
35,000
|
|
—
|
|
—
|
|
35,000
|
|
12/2/2019
|
|
8%
|
|
The conversion price shall be $0.07 per share
|
—
|
|
—
|
|
250,000
|
|
—
|
|
—
|
|
250,000
|
|
12/26/2019
|
|
8%
|
|
45% discount of average three lowest price of last 20 trading
days prices
|
—
|
|
—
|
|
105,000
|
|
—
|
|
—
|
|
105,000
|
|
1/8/2020
|
|
8%
|
|
35% discount of average two lowest price of
last 20 trading days prices
|
—
|
|
—
|
|
100,000
|
|
—
|
|
—
|
|
100,000
|
|
1/22/2020
|
|
8%
|
|
42% discount of average three lowest price of last 20 trading
days prices
|
—
|
|
—
|
|
53,000
|
|
—
|
|
—
|
|
53,000
|
|
1/24/2020
|
|
8%
|
|
35% discount of average two lowest price of
last 20 trading days prices
|
—
|
|
—
|
|
100,000
|
|
—
|
|
—
|
|
35,000
|
|
2/26/2020
|
|
8%
|
|
42% discount of average three lowest price of last 20 trading
days prices
|
—
|
|
—
|
|
250,000
|
|
—
|
|
—
|
|
250,000
|
|
3/4/2020
|
|
8%
|
|
42% discount of average
two lowest price of last 20 trading days prices
|
2,426,245
|
|
|
|
1,630,500
|
|
1,965,494
|
|
89,129,286
|
|
2,091,250
|
|
|
|
|
|
|
In
connection with the convertible debt, debt discount balance as of March 31, 2019 and June 30, 2018 were $1,031,596 and $26,303,
respectively, and were being amortized and recorded as interest expenses over the term of the convertible debt.
As
of March 31, 2019, the Companys debt discount consisted of following:
Note Date
|
|
Due Date
|
|
OID
|
|
|
Amortization
for FY 2018
|
|
|
Debt Discount
Balance at
6/30/2018
|
|
|
Amortization for
the nine months
ended 03/31/2019
|
|
|
Debt Discount
Balance at
03/31/2019
|
|
08/22/2017
|
|
8/22/2018
|
|
$
|
35,000
|
|
|
$
|
29,918
|
|
|
$
|
5,082
|
|
|
$
|
5,082
|
|
|
$
|
—
|
|
09/26/2017
|
|
9/26/2018
|
|
|
15,000
|
|
|
|
11,384
|
|
|
|
3,616
|
|
|
|
3,616
|
|
|
|
—
|
|
07/17/2017
|
|
7/17/2018
|
|
|
164,900
|
|
|
|
160,445
|
|
|
|
4,455
|
|
|
|
4,455
|
|
|
|
—
|
|
12/07/2017
|
|
12/7/2018
|
|
|
50,000
|
|
|
|
36,849
|
|
|
|
13,151
|
|
|
|
13,151
|
|
|
|
—
|
|
09/20/2018
|
|
9/15/2019
|
|
|
12,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,667
|
|
|
|
5,833
|
|
09/20/2018
|
|
9/15/2019
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133,333
|
|
|
|
116,667
|
|
10/05/2018
|
|
10/5/2019
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,425
|
|
|
|
2,575
|
|
10/05/2018
|
|
10/5/2019
|
|
|
245,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
118,808
|
|
|
|
126,192
|
|
11/01/2018
|
|
11/1/2019
|
|
|
84,286
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,638
|
|
|
|
49,648
|
|
11/16/2018
|
|
11/16/2019
|
|
|
36,571
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,526
|
|
|
|
23,045
|
|
11/16/2018
|
|
11/16/2019
|
|
|
18,286
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,763
|
|
|
|
11,523
|
|
12/03/2018
|
|
12/3/2019
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,233
|
|
|
|
6,767
|
|
12/26/2018
|
|
12/26/2019
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,301
|
|
|
|
3,699
|
|
12/26/2018
|
|
12/26/2019
|
|
|
245,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,767
|
|
|
|
181,233
|
|
01/08/2019
|
|
01/08/2020
|
|
|
92,101
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,691
|
|
|
|
71,410
|
|
01/22/2019
|
|
01/22/2020
|
|
|
87,478
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,297
|
|
|
|
71,181
|
|
01/22/2019
|
|
01/22/2020
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
|
|
1,627
|
|
01/24/2019
|
|
01/24/2020
|
|
|
47,432
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,577
|
|
|
|
38,856
|
|
02/26/2019
|
|
02/26/2020
|
|
|
96,708
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,743
|
|
|
|
87,965
|
|
02/26/2019
|
|
02/26/2020
|
|
|
2,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
181
|
|
|
|
1819
|
|
03/04/2019
|
|
03/04/2020
|
|
|
243,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,926
|
|
|
|
225,074
|
|
03/04/2019
|
|
03/04/2020
|
|
|
7,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
516
|
|
|
|
6,484
|
|
Total:
|
|
|
|
|
|
|
|
$
|
41,302
|
|
|
$
|
26,303
|
|
|
$
|
484,070
|
|
|
$
|
1,031,596
|
|
|
10.
|
Derivative
liabilities
|
The
derivative liability is derived from the conversion features in note 9 and stock warrant in note 11. All were valued using the
Binomial option pricing model using the assumptions detailed below. As of March 31, 2019 and June 30, 2018, the derivative liability
was $2,541,563 and $3,069,616, respectively. The Company recorded $4,171,698 and$1,384,423 loss from changes in derivative liability
during the nine months ended March 31, 2019 and 2018, respectively. The Binomial Option Price Model with the following assumption
inputs:
|
|
March 31, 2019
|
|
Annual
dividend yield
|
|
|
—
|
|
Expected
life (years)
|
|
|
0.5-1.00
|
|
Risk-free
interest rate
|
|
|
2.40-2.64
|
%
|
Expected
volatility
|
|
|
118-150
|
%
|
|
|
December 31, 2018
|
|
Annual
dividend yield
|
|
|
—
|
|
Expected
life (years)
|
|
|
0.5-1.00
|
|
Risk-free
interest rate
|
|
|
2.49-2.72
|
%
|
Expected
volatility
|
|
|
118-175
|
%
|
|
|
September 30, 2018
|
|
Annual
dividend yield
|
|
|
—
|
|
Expected
life (years)
|
|
|
0.5-1.00
|
|
Risk-free
interest rate
|
|
|
2.15-2.37
|
%
|
Expected
volatility
|
|
|
87-123
|
%
|
|
|
June 30, 2018
|
|
Annual
dividend yield
|
|
|
—
|
|
Expected
life (years)
|
|
|
0.15-1.00
|
|
Risk-free
interest rate
|
|
|
1.08-2.12
|
%
|
Expected
volatility
|
|
|
103-202
|
%
|
Fair
value of the derivative is summarized as below:
Beginning Balance, June 30, 2018
|
|
$
|
3,069,616
|
|
Additions
|
|
|
427,076
|
|
Mark to Market
|
|
|
1,641,457
|
|
Reclassification to APIC due to conversions
|
|
|
(2,714,433
|
)
|
Balance, September 30, 2018
|
|
$
|
2,423,716
|
|
Additions
|
|
|
865,503
|
|
Mark to Market
|
|
|
2,019,927
|
|
Reclassification to APIC due to conversions
|
|
|
(3,574,808
|
)
|
Balance, December 31, 2018
|
|
$
|
1,734,338
|
|
Additions
|
|
|
583,103
|
|
Mark to Market
|
|
|
510,315
|
|
Reclassification to APIC due to conversions
|
|
|
(286,193
|
)
|
Balance, March 31, 2019
|
|
$
|
2,541,563
|
|
On
various dates during June 2014 and December 2014 the Company and holders of certain convertible notes agreed to cancel warrants
to purchase common shares in the Company and to extend the due dates on the Notes to July 1, 2016. $0.50 warrants and Bonus
Warrants priced at $0.01, as defined in the original Convertible Note Purchase Agreements we cancelled pertaining to the
Note and warrants acquired on the following dates for the following Convertible Notes and amounts. These warrants were expired
on July 1, 2016.
On
May 17, 2017, the Company entered a promissory note with an accredited investor for a total amount of $1,375,000 (after $10,000
legal and due diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. In connection with
the note, the investor will also receive warrants and is calculated based on 15% of the maturity amount. The warrants have a life
of four years with an exercise price of $0.15 per share and have cashless exercise option. The fair value of the warrants at the
grant date was $40,400. As of March 31, 2019 and June 30, 2018, the fair value of the warrant liability was $9,090 and $40,400,
respectively.
On
September 7, 2018, the Company entered a settlement agreement with several investors to settle all disputes by issues additional
unrestricted shares. In connection with the note each individual investor will also receive warrants equal to the number of the
shares the investors own as of the effective date of the settlement agreement. The warrants have a life of five years with an
exercise price as of the date of exchange. The fair value of the warrants at the grant date was $56,730. As of March 31, 2019
and June 30, 2018, the fair value of the warrant liability was $30,102 and $0, respectively.
As
of March 31, 2019 and June 30, 2018, the total fair value of the warrant liability was $39,192 and $40,400, respectively.
The
Binomial Option Price Model with the following assumption inputs:
Warrants
liability
|
|
March 31, 2019
|
|
Annual
dividend yield
|
|
|
—
|
|
Expected
life (years)
|
|
|
0.5-5
|
|
Risk-free
interest rate
|
|
|
2.23%-2.82
|
%
|
Expected
volatility
|
|
|
119%-393
|
%
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Warrants
issued in May 2017
|
|
|
|
Annual
dividend yield
|
|
|
—
|
|
Expected
life (years)
|
|
|
0.5
|
|
Risk-free
interest rate
|
|
|
2.06
|
%
|
Expected
volatility
|
|
|
151
|
%
|
Below
is the movement of warrants for the period ending March 31, 2019:
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average Remaining
contractual life
|
|
Outstanding at June 30, 2016
|
|
|
131,250
|
|
|
$
|
0.20
|
|
|
|
|
|
Expired
|
|
|
131,250
|
|
|
|
0.20
|
|
|
|
4.00
|
|
Granted
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
3.86
|
|
Outstanding at June 30, 2017
|
|
|
505,000
|
|
|
|
0.20
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
505,000
|
|
|
$
|
0.15
|
|
|
|
0.50
|
|
Granted
|
|
|
578,880
|
|
|
|
0.08
|
|
|
|
5.00
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
1,083,880
|
|
|
$
|
0.15
|
|
|
|
0.50
|
|
|
12.
|
Note
payable due to bank
|
During
October 2011, we entered into a revolving demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing
limit of $150,000. The line of credit bears a variable interest rate of one quarter percent (0.25%) above the prime rate (5.5%
as of December 20, 2018). In the event the deposit account is not established or minimum balance maintained, HSBC can charge a
higher rate of interest of up to 4.0% above prime rate. As of March 31, 2019 and June 30, 2018, the loan principal balance was
$25,982. As of March 31, 2019, the note is in default.
|
13.
|
Related
party transactions
|
On
January 23, 2013, the Company entered into a promissory note with its former employee who owns less than 5% of the Companys
stock. The original principal amount was $40,000 and the note bore no interest. The note was payable upon demand. As of March
31, 2019 and June 30, 2018, this note had a balance of $18,000.
On
January 14, 2015, the Company entered into a promissory note with Richard Ko (an employee of the Company, who owns less than 5%
of the Companys stock). The principle amount was $30,000 and the note bore no interest. The note had a term of one (1)
year and was due on January 14, 2016, and became payable upon demand after January 14, 2016. As of March 31, 2019 and June 30,
2018, this note had a balance of $0 and $5,000, respectively.
As
of March 31, 2019 and June 30, 2018, the Company had an outstanding balance of notes payable due to related parties of $18,000
and $23,000, respectively.
On
July 7, 2016, SWC received a loan in total amount of $30,000 from an employee. The amount of the loan bears no interest and due
on demand. As of March 31, 2019 and June 30, 2018, the balance of the loan due to related party was $30,000 and $30,000, respectively.
From
time to time, SWC would receive short-term loans from company former director for its working capital needs.
On
June 26, 2017, SGMD entered a straight promissory note with a company (whose major shareholder is the former director of the Company)
for borrowing $150,820 with maturity date on March 31, 2018; the note bears an interest rate of 12%, commencing on October 31,
2017, and on the last day of each moth thereafter until the notes is paid in full, the Company shall make an interest payment.
As of October 2017, they are no long a related party. As of June 30, 2018, the outstanding balance under this note was $150,820.
As of March 31, 2019, the note has been fully settled into 1,508,200 shares of the Companys common stock.
During
the year ended June 30, 2017, the Company entered a series of short-term loan agreements with Greater Asia Technology Limited
(Greater Asia) for borrowing $375,000, with interest rate at 40% - 50% of the principal balance. As of March 31, 2019 and June
30, 2018, the outstanding balance with Greater Asia loans were $163,924 and $140,125, respectively. As of March 31, 2019, the
note was in default.
On
July 1, 2016, the Company entered into a repayment agreement with its employee for $20,280 at no interest. As of March 31, 2019
and June 30, 2018, the Company has an outstanding balance of $4,084 and $4,285.
On
January 30, 2018, the Company entered a straight promissory note with an individual with one or more on demand loan with maturity
date on January 30, 2019 and no interest shall be charged to the Company. As of March 31, 2019, the outstanding balance under
this note was $22,747.
As
of March 31, 2019 and June 30, 2018, the Company had an outstanding loan balance of $190,755 and $329,029, respectively.
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15.
|
Stockholders
Deficiency
|
The
Company is authorized to issue 1,990,000,000 shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred
stock.
During
the year ended June 30, 2018, the Company issued 1,171,429 shares of common stock for cash in total amount of $82,000.
During
the year ended June 30, 2018, the Company issued 4,736,842 shares of common stock for services in total amount of $180,000.
During
the year ended June 30, 2018, the Company issued 13,492,560 shares of common stock to settle the old debt in total amount of $306,810.
During
the three months ended September 30, 2018 and the year ended June 30, 2018, the Company had entered into multiple private placement
agreements and had issued 2,000,000 shares of preferred stock in total amount of $2,000,000. The shares had been issued as of
December 31, 2018.
During
the three months ended September 30, 2018, the Company issued 27,301,360 shares of common stock to settle debt in total amount
of $872,859.
During
the three months ended September 30, 2018, the Company issued 2,971,154 shares of common stock for services in total amount of
$197,500.
During
the three months ended September 30, 2018, the Company issued 3,700,000 shares of common stock for cash in total amount of $185,000.
During
the three months ended December 31, 2018, the Company issued 6,632,605 shares of common stock to settle the old debt in total
amount of $610,598, included 2,985,568 shares of common stock issued from share to be issued, common stock in total amount of
$263,616.
During
the three months ended December 31, 2018, the Company issued 47,865,888 shares of common stock for debt conversions in total amount
of $1,015,391.
During
the three months ended December 31, 2018, the Company issued 4,142,857 shares of common stock for cash in total amount of $220,000.
During
the three months ended December 31, 2018, the Company issued 89,111,251 shares of common stock for service in total amount of
$6,473,680, included 7,296,572 shares of common stock issued from share to be issued, common stock in total amount of $390,830.
During
the three months ended December 31, 2018, the Company (buyer) signed a letter of intent (LOI) regarding a potential acquisition
of all the outstanding capital stock, assets and assumption of liabilities of A company (seller). The Company issued 10,000,000
shares of common stock upon the signing of the LOI in total amount of $1,175,000. The share is non-refundable and vested immediately,
but was issued on a restricted basis with a restrictive legend and will be subject to normal restrictions imposed by the financial
industry and governmental agencies.
During
the three months ended December 31, 2018, the Company issued 200,000,000 shares of common stock as consideration for certain master
purchase agreement in total amount of $18,000,000. The acquisition has not been fully completed as of March 31, 2019.
During
the three months ended March 31, 2019, the Company issued 2,026,080 shares of common stock to settle the contingent liability
in total amount of $47,660, with loss on debt settlement of $100,822.
During
the three months ended March 31, 2019, the Company issued 13,962,038 shares of common stock for debt conversions in total amount
of $328,875.
During
the three months ended March 31, 2019, the Company issued 6,000,000 shares of common stock for cash in total amount of $60,000.
During
the three months ended March 31, 2019, the Company issued 625,391 shares of common stock for service in total amount of $35,000.
As
of March 31, 2019 and June 30, 2018, the Company had 2,000,000 shares and 0 share of its preferred stock, 660,473,827 and 246,135,203
shares of its common stock, respectively, issued and outstanding.
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16.
|
Shares
to be issued – liability
|
During
the year ended June 30, 2018, the Company had entered into multiple private placement agreements and had shares to be issued under
liability in total amount of $2,691,000.
During
the three months ended September 30, 2018, the Company issued 3,700,000 shares of the Companys common stock for cash in
total amount of $185,000. Share to be issued under liability is reduced by $185,000 due to such issuance.
During
the three months ended September 30, 2018, the Company had entered into a multiple private placement agreement and had increased
shares to be issued under liability by 1,000,000 shares, for total amount of $50,000.
During
the three months ended December 31, 2018, the Company issued 45,307,142 shares of the Companys common stock for cash &
services in total amount of $2,506,000. Share to be issued is reduced by $2,506,000 due to such issuance.
As
of March 31, 2019 and June 30, 2018, the Company had balance of $50,000 and $2,691,000 share to be issued.
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17.
|
Shares
to be issued – equity
|
For
the year ended June 30, 2018, the Company had entered into multiple private placement agreements and had increased potential shares
to be issued under common stock in total amount of $467,996.
During
the three months ended September 30, 2018, the Company had entered into multiple private placement agreements and had increased
potential shares to be issued under common stock in total amount of $95,000. The shares have been issued as of December 31, 2018.
During
the three months ended September 30, 2018, the Company had entered into multiple service agreements and had increased potential
shares to be issued for service compensation in total amount of $137,000. The shares have been issued as of December 31, 2018.
During
the three months ended September 30, 2018, the Company had entered into debt settlement and had increased potential shares to
be issued for debt settlement under common stock in total amount of $174,450. The shares have been issued as of December 31, 2018.
During
the three months ended September 30, 2018 and the year ended June 30, 2018, the Company had entered into multiple private placement
agreements and had increased potential shares to be issued under preferred stock in total amount of $2,000,000, respectively.
The shares have been issued as of December 31, 2018.
As
of March 31, 2019, the Company had total potential shares to be issued under common stock and preferred stock in total amount
of $0.
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18.
|
Commitments
and contingencies
|
On
February 23, 2018 the Company entered into lease agreement for a new office space as part of the plan to expand operation, the
lease is set to commence Commencing March 1, 2018. The term of the lease is for a (5) Five Years with 1 month free on the 1
st
year
of the term. The monthly rent on the 1
st
year will be $11,770 with a 3% increase for each subsequent year. Total
commitment for the full term of the lease will be $737,367. As of the date of this filing, this property became the headquarter
of the company.
On
April 2, 2019, the Company issued a convertible note to an accredited investor for proceeds to the Company in the amount of $100,000.
On
April 4, 2019, the Company issued a convertible note to an accredited investor for proceeds to the Company in the amount of $100,000.
On
April 11, 2019, the Company issued 4,278,074 shares of the Companys common stock for debt conversions in total amount of
$100,000.
On
April 15, 2019, the Company issued 1,916,117 shares of the Companys common stock for debt conversions in total amount of
$45,000.
On
May 2, 2019, the Company issued a convertible note to an accredited investor for proceeds to the Company in the amount of $125,000.
On
May 2, 2019, the Company issued 2,066,116 shares of the Companys common stock for debt conversions in total amount of $40,000.
On
May 7, 2019, the Company issued a convertible note to an accredited investor for proceeds to the Company in the amount of $100,000.