Notes to Condensed Financial Statements
Six months ended December 31, 2016 and 2015
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Star Century Pandaho Corporation ("the
Company", “SCPD”) was organized under the laws of the State of Nevada on May 21, 2009. The Company was established
as part of the Chapter 11 reorganization of AP Corporate Services, Inc. ("AP").
In January, 2015, Star Century Entertainment,
Inc acquired 53.66% of total outstanding shares of the Company. In conjunction with gaining control of the Company, Star Century
Entertainment elected three individuals to be the Company’s management, amended the Company’s Articles of Incorporation
to (i) change the name of the Company to Star Century Pandaho Corporation (ii) effect a 1-for-5,000 reverse common stock split
and (iii) decrease the Company’s authorized common stock to 150,000,000 shares, par value $0.001. On May 20, 2015, the Company’s
Board of Directors and the majority shareholder amended the Company’s Articles of Incorporation to increase authorized common
stock to 250,000,000 shares. All common stock share and per-share amounts for all periods presented in these financial statements
have been adjusted retroactively to reflect the reverse stock split.
Pandaho the Panda is a cartoon styled character.
On May 22, 2015, the Company secured certain licensing rights to the Pandaho character and brand though a licensing agreement with
the creator of Pandaho, Ms. Liu Li. The Company’s aim is to build Pandaho into a competitive cartoon brand in China and surrounding
areas with Pandaho-themed merchandise and multi-media exhibitions. Currently the Company does not have any operations in China.
Basis of presentation
The accompanying condensed financial statements
are unaudited. These unaudited interim condensed financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities
and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally
included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and
regulations. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016
filed with the SEC on September 28, 2016. The condensed balance sheet as of June 30, 2016 included herein was derived from the
audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.
In the opinion of management, the accompanying
unaudited condensed financial statements contain all adjustments necessary to fairly present the Company’s financial position
and results of operations for the interim periods reflected. Unless noted, all adjustments contained herein are of a normal recurring
nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
Going concern
The Company’s condensed financial statements
have been presented on the basis that it is a going concern, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. For the six months ended December 31, 2016, the Company incurred
a net loss of $743,017 and used cash in operating activities of $18,905, and at December 31, 2016, had a stockholders’ deficiency
of $625,121. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s independent registered public accounting firm, in their report on the Company’s financial statements
for the year ending June 30, 2016, expressed substantial doubt about the Company’s ability to continue as a going concern.
The Company’s financial statements do not include any adjustments that might result be necessary if the Company is unable
to continue as a going concern.
The Company’s ability to continue as
a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve profitable operations.
Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenue
sufficient to cover its operating costs and allow it to continue as a going concern. Over the next 12 months, the Company expects
to expend up to approximately $50,000 for legal, accounting and administrative costs. The Company’s officers or principal
shareholders have committed to making advances or loans to pay for these legal, accounting, and administrative costs. The Company
has not yet determined the amount of cash that will be necessary to fund its planned operations in China.
The Company hopes to be able to attract suitable
investors for our business plan, which will not require us to use our cash. No assurance can be given that any future financing
will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able
to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial
dilution for our stockholders, in case or equity financing.
Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The more significant estimates and assumptions by management include, among others, the accrual of potential liabilities, and the
assumptions used in valuing share-based instruments issued for services.
Revenue
Revenue is recognized when the price is fixed
or determinable, persuasive evidence of an arrangement exists, the service has been delivered, and collectability is reasonably
assured. In transactions in which the Company brokers a sale and determines that it was not the primary obligor in the arrangement,
the Company records as net the commission earned from the transaction.
Basic and Diluted loss per share
Basic loss per share is computed by dividing
net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Diluted
loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common
shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common
shares had been issued. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive.
At December 31, 2016 and 2015, we excluded the outstanding securities
summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive:
|
|
December 31,
2016
|
|
December 31,
2015
|
Common stock issuable upon conversion of convertible and non-redeemable convertible notes payable
|
|
|
4,193,150
|
|
|
|
1,987,270
|
|
Common stock issuable upon conversion of accrued compensation
|
|
|
19,736,915
|
|
|
|
1,212,877
|
|
Total
|
|
|
23,930,065
|
|
|
|
3,200,147
|
|
Share-Based Compensation
The Company may periodically issue
shares of common stock, stock options, or warrants to employees and non-employees in non-capital raising transactions for
services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees
based on the authoritative guidance provided by the FASB whereas the value of the award is measured on the date of grant and
recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based
upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date
at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges
generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future
performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation
charge is recorded in the period of the measurement date.
The fair value of the Company's common stock
option grants are estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest
rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based
upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the
Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
Fair Value
of Financial Instruments
Fair value is defined as the price that would
be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at
the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated
based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard
expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that
is significant to the fair value measurement in its entirety. These levels are:
Level 1 – inputs are based
upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based
upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally
unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the
asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted
cash flow models, and similar techniques.
The estimated fair value of certain financial
instruments, including cash and cash equivalents and accounts payable and accrued expenses are carried at historical cost basis,
which approximates their fair values because of the short-term nature of these instruments. The recorded values of the convertible
notes-related parties and non-redeemable convertible note approximates their fair values based upon their effective interest rates.
Recent
Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers.
ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU
2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in
the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and
cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. In addition, during 2016 the FASB has issued ASU 2016-08, ASU 2016-10
and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09, and ASU 2016-11, which rescinds
certain SEC guidance effective upon an entity’s adoption of ASU 2014-09. ASU 2014-09 is effective for interim and
annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning
after December 15, 2016, including interim periods therein. The standard can be adopted either retrospectively to each prior
reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently in the process
of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases.
ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance
sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning
after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for
capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in
the financial statements, with certain practical expedients available. The Company is currently evaluating the expected impact
that the standard could have on its financial statements and related disclosures.
In March 2016, the FASB issued the ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting.
The amendments in this ASU require, among other things, that all
income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for
an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability
accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted
for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could
have on its financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,
which provides guidance on determining
when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim
and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements
are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s
ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim
periods thereafter. Early adoption is permitted. The Company is currently evaluating the expected impact that the standard could
have on its financial statements and related disclosures.
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 2. COMPENSATION AND ACCRUED COMPENSATION-RELATED
PARTIES
Compensation-related party and accrued compensation-related
party represent amounts recorded for employment contracts with three executives who are also shareholders, and a consulting agreement
with another shareholder. Pursuant to the terms of these agreements, total annual compensation for services was $396,000 (“cash
compensation”), and the executives and shareholder have the option to accept shares of the Company’s common stock in
lieu of cash based on a 50% discount to the average stock price, as defined. The option to accept shares of common stock in lieu
of cash is accounted for at the intrinsic value of the potentially issuable common shares and is subject to adjustment at each
reporting date based on the change in market value of the shares.
On June 30, 2016, accrued compensation related
to the three executives totaled $761,930. During the six months ended December 31, 2016, additional compensation of $567,342 was
accrued, including $169,380 accrual of cash compensation, with the balance reflecting an expense for the value that could be paid
in shares of common stock. At December 31, 2016, accrued compensation due to the three executives totaled $1,329,272 and related
accrued payroll taxes were $50,845, or an aggregate of $1,380,117. Effective December 31, 2016, the three executives agreed to
forgive the aggregate of $1,380,117, and to also terminate their employment agreements. Accordingly, at December 31, 2016, the
total due to the three executives for accrued compensation was zero. The Company determined that based on the related party nature
of the settlement, the gain on settlement of accrued compensation was treated as a capital contribution.
On June 30, 2016, accrued compensation
due to the shareholder consultant was $105,290. During the six months ended December 31, 2016, additional compensation of
$92,079 was recorded, including $30,246 accrual of cash compensation due, and a charge of $61,833 for the fair value that
could be paid in shares of common stock. At December 31, 2016, the accrued compensation due to the shareholder consultant was
$197,369, which if the shareholder consultant elected to be paid in shares of common stock, would result in the issuance of
19,736,915 shares of the Company’s common stock.
NOTE 3. ADVANCES
The Company from time to time borrows from
our principal shareholders, or others, to pay expenses such as filing fees, accounting fees and legal fees. These advances are
non-interest bearing, unsecured, and generally due upon demand. At December 31, 2016 and June 30, 2016, the Company was obligated
for the following advances:
|
|
December 31,
2016
|
|
June 30,
2016
|
Advances due to shareholder
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Advances due to unrelated parties
|
|
|
54,390
|
|
|
|
54,390
|
|
|
|
$
|
79,390
|
|
|
$
|
79,390
|
|
NOTE 4. CONVERTIBLE NOTES - RELATED
PARTY
|
|
December 31,
2016
|
|
June 30,
2016
|
Balance due on convertible notes
|
|
$
|
197,396
|
|
|
$
|
166,581
|
|
Unamortized note discounts
|
|
|
(10,254
|
)
|
|
|
(34,942
|
)
|
|
|
$
|
187,142
|
|
|
$
|
131,639
|
|
Convertible notes-related party are unsecured,
accrue interest at 10% per annum, and are due through December, 2017. The notes are convertible into shares of the Company’s
common stock at a conversion price ranging from of $0.01 per share to $0.10 per share. At December 31, 2016, the notes are convertible
into 3,329,550 shares of common stock. At June 30, 2016, principal and accrued interest totaled $166,581. During the six months
ended December 31, 2016, the Company issued four convertible notes for total proceeds of $22,173, and accrued interest of $8,642
was added to principal, and at December 31, 2016, principal and accrued interest totaled $197,396.
At June 30, 2016,
the unamortized discount on convertible notes was $34,942. During the six months ended December 31, 2016, $5,000 of discount was
added for the beneficial conversion feature on issuance of a convertible note payable, and $29,688 of discount was amortized and
included in interest expense. At December 31, 2016, the unamortized discount on convertible notes is $10,254, and is to be amortized
through December 2017
.
NOTE 5. NON-REDEEMABLE CONVERTIBLE NOTE-RELATED
PARTY
Non-redeemable convertible note-related party
bears interest at 20% per annum, is secured by all the assets of the Company, and is due August 1, 2017. The Company may prepay
the note in readily available funds at any time prior to the maturity date. The Company has the right to convert the note into
shares of the Company’s common stock at any time prior to the maturity date at a fixed price of $0.05 per share of common
stock. At June 30, 2016, principal and accrued interest totaled $42,551. During the six month ended December 31, 2016, interest
of $629 was accrued and added to principal. At December 31, 2016, principal and accrued interest totaled $43,180 and are convertible
into 863,300 shares of common stock. As it is the Company’s choice to convert the note into shares of the Company’s
common stock or to pay the note in cash, the note is presented below current liabilities on the accompanying balance sheets.