Notes to Audited Consolidated Financial Statements
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
APPlife Digital Solutions Inc. (the “Company”) is a business incubator and portfolio manager that uses digital technology to create and invest in e-commerce and cloud-based solutions. The Company was formed March 5, 2018 in Nevada and has offices in San Francisco, California and Shanghai, China. The Company’s mission is using digital technology to create APPs and websites that make life, business and living easier, more efficient and just smarter.
Rooster Essentials APP SPV, LLC (the “Rooster”), incorporated on April 9, 2019, is a wholly owned subsidiary of the Company. Rooster is a fully customizable men’s subscription service that delivers daily use grooming needs and essential items.
B2BCHX SPV LLC (the “B2BCHX”), incorporated on June 5, 2019, is a wholly owned subsidiary of the Company. B2BCHX does an independent background check on mainland Chinese companies for small businesses globally.
Office Hop, incorporated on January 28, 2021, is a wholly owned subsidiary of the Company. Office Hop is a global sharing model platform for short term rentals of office and meeting rooms. Users can find an office or conference space for half-day, full-day, or weekly rental. Hosts can list their spare office or meeting rooms.
Going Concern
The Company has generated losses and negative cash flows from operations since inception. The Company has historically financed its operations from equity financing. The Company anticipates additional equity financings to fund operations in the future. Should management fail to adequately address the issue, the Company may have to reduce its business activities or curtail its operations. There can be no assurance that any additional financings, would be available to the Company on satisfactory terms and conditions if at all. The current pandemic known as COVID-19 as described in Note 5, creates additional uncertainty.
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and classification of liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. All intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For the purpose of the consolidated statement of cash flows, the Company considers cash equivalents to include cash and investments with an original maturity of three months or less.
Income Taxes
The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a
F-6
tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. The Company had no accrual for interest or penalties as of June 30, 2021. The Company files income tax returns with the Internal Revenue Service (“IRS”) and the state of California.
Use of Estimates
Generally accepted accounting principles require that the consolidated financial statements include estimates by management in the valuation of certain assets and liabilities. Significant matters requiring the use of estimates and assumptions include, but are not necessarily limited to, fair value of the Company’s stock, stock-based compensation, BCF (Beneficial Conversion Feature) liabilities feature of convertible debt, and valuation allowance relating to the Company’s deferred tax assets. Management uses its historical records and knowledge of its business in making these estimates. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company will recognize revenue from the sale of products and services in accordance with ASC 606, ”Revenue from Contracts with Customers,” by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Stock Based Compensation
The Company accounts for share-based compensation in accordance with the fair value recognition provision of FASB ASC 718, Compensation – Stock Compensation (“ASC 718”), prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on the estimated grant date fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505, Equity–based Payments to Non-Employees (“ASC 505”). Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares ("dilutive securities") that were outstanding during the period. Dilutive securities include stock options and warrants granted, convertible debt, and convertible preferred stock. There were no potentially dilutive securities for the years ended June 30, 2021 and 2020.
Fair Value of Financial Instruments
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclosure the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which
F-7
prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3 Pricing inputs that are generally unobservable inputs and not corroborated by market data.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term nature of these financial instruments.
Derivative Liability
FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the consolidated balance sheet at fair value. As of June 30, 2021, we used the Black-Scholes-Merton (BSM) model to estimate the fair value of the conversion feature of the convertible note. Key assumptions of the BSM model include the market price of our stock, the conversion price of the debt, applicable volatility rates, risk-free interest rates and the instrument’s remaining term. These assumptions require significant management judgment. In addition, changes in any of these variables during a period can result in material changes in the fair value (and resultant gains or losses) of this derivative instrument.
Leases
In February 2016, the Financial Accounting Standards Board (the “FASB”) established ASC Topic 842, “Leases”, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to now recognize operating leases on the balance sheet and disclose key information about leasing arrangements. ASC Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Lessor accounting under the new standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. Adoption of this standard did not result in any material changes to the financial statements.
Inventories
Inventories, consisting of raw materials, work in process and products available for sale, are primarily accounted for using the first-in, first-out method (“FIFO”), and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns to product vendors. As of June 30, 2021, the Company had inventories of $48,875. The Company has no allowance for inventory reserves.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
F-8
Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material on the Company’s financial statements and financial statement disclosures.
Note 2 – Notes Payable
In March 2018, the Company issued notes that carry an 8% annual interest rate and mature through December 31, 2019. In December 2019, $5,119 of principal was converted into Company common stock and payments were made of $11,381. In March 2020, the note was exchanged for a convertible promissory note that accrues interest at 10% per annum and matured on March 11, 2021. The principal balance of the new note is $77,235 as of June 30, 2021. On August 21, 2021, The Company settled this note after the holder agreed to accept $40,000 payment to satisfy the total amount due. Hence, no additional interest was charged on the note.
On July 3, 2019, the Company issued a $250,000 convertible promissory note (the “July 2019 Note”) to a lender (the “Lender”). According to the terms the Lender funded the July 2019 Note as follows: $100,000 upon the execution of the Note, $50,000 on August 1, 2019, $50,000 on September 1, 2019, and the remaining $50,000 on October 1, 2019. The outstanding principal balance of the Note shall bear interest at the rate of twelve percent (12%) per annum. The balance of the July 2019 Note was $250,000 on June 30, 2021 and matures July 03, 2021. On August 28, 2021, the investor agreed to extend the note till July 03, 2022.
On October 1, 2019, the Company entered into a securities purchase agreement with an investor (“Investor”) to issue up to $220,000 of convertible promissory notes tranches of $55,000 at the Investor’s discretion. Through June 30, 2020, two tranches were issued, and the balance of these promissory notes was $110,000. These notes accrue interest at 10% per annum. On July 20, 2020, these two notes were extended through September 30, 2020 and October 30, 2020, respectively. As an inducement to extend the notes, the Company promised to issue 277,012 shares of common stock valued at $40,000 to the Investor. On September 29, 2020, the Company paid $81,675 towards the first tranche which includes principal of $55,000, prepayment penalty of $21,175 and accrued interest of $5,500. Additionally, the Company issued 153,410 shares of common stock valued at $0.20 per share, or $30,682, to the Investor. On October 29, 2020, the Company paid $81,553 toward the final tranche of the notes issued on October 1, 2019, which consists of principal of $55,000, interest of $5,410 and a prepayment penalty of $21,143. The Company also issued 123,602 shares to the Investor valued at $14,832 in conjunction with the prior extension of this note.
On November 22, 2019, Company issued a $170,000 convertible promissory note (the “November 2019 Note”) to the Lender that accrues interest at 12% per annum. The July and November Notes contain embedded derivatives, see Note 7.
On April 7, 2020, the Company entered into a securities purchase agreement with an investor pursuant to which the Company sold a convertible note (“April 2020 Note”) bearing 8% interest in the principal amount of $111,290. On October 27, 2020, the Company entered into an agreement to pay off the April 2020 Note with $75,000, 416,295 shares of common stock at $0.1328 per share, or $55,484 and 188,253 shares, valued at $0.1328 per share, or $25,000. During the year ended June 30, 2021, the Company paid off the note with $75,000 and issued the 604,548 shares to the investor.
On July 14, 2020 and October 21, 2020, the Company sold convertible notes bearing 12% interest in the principal amounts of $340,000 and $348,000, respectively. Subject to certain ownership limitations, the notes will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price of $0.144. The embedded conversion features of these notes were valued at $85,000 and $135,333, respectively, and is amortized over the life of the notes.
On January 12, 2021, the Company sold convertible notes bearing 12% interest on the principal amount of $360,000, respectively. The principal amount was agreed to be paid in two tranches of $180,000 each, received on February19, 2021 and March 08, 2021. The note is subject to certain ownership limitations and will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion rate of $0.144. The
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embedded conversion features of this note were valued at $35,500 and $7,500 for each tranche received and are amortized over the life of the note.
|
|
|
|
Amount
|
|
Balance of notes payable, net of discount on June 30, 2020
|
$
|
522,283
|
|
Issuances of debt, net of discount
|
|
|
787,667
|
|
Amortization of debt discount
|
|
|
293,499
|
|
Payments on notes payable
|
|
|
(185,000)
|
|
Payment of notes payable with issuance of common stock
|
|
|
(36,289)
|
|
Balance of notes payable, net of discount as of June 30, 2021
|
$
|
1,382,160
|
|
Payments of notes payable as of June 30,2021 are as follows:
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
77,235
|
|
|
2022
|
|
|
768,000
|
|
|
Thereafter
|
|
|
700,000
|
|
|
Less Derivative Liability as of June 30, 2021
|
|
|
(11,953)
|
|
|
Less Discounts on Convertible Notes as of June 30, 2021
|
|
|
(151,122)
|
|
|
Total
|
|
$
|
1,382,160
|
Note 3 – Related Party Transactions
Due to Officer
During the year ending June 30, 2018, the Company received advances from its officer to pay for certain operating expenses. The balance due to the officer at June 30, 2021 and 2020 was $6,428. There are no definitive repayment terms and no interest is accruing on these advances.
Note 4 – Concentrations
Cash Concentration
The Company maintains its cash and cash equivalents at financial institutions in the United States and China, which may, at times, exceed federally insured limits or similar limits in foreign jurisdictions. At June 30, 2021, the Company’s cash balance did not exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts.
Note 5 – Commitments and Contingencies
Legal Matters
From time to time the Company may be involved in certain legal actions and claims arising in the ordinary course of business. The Company was not a party to any specific legal actions or claims at June 30, 2021.
Agreements
On April 4, 2018, the Company entered into an agreement with GHS, where the Company is entitled, at its sole discretion, to request equity investments of up to $5 million over twenty-four months following an effective registration of the underlying shares.
On April 22, 2020, the Company, entered into a letter agreement with Maxim Group, LLC (“Maxim”) for Maxim to provide general financial advisory, investment banking, and digital marketing services for the Company. The fees paid to Maxim in exchange for the services under the agreement are a combination of cash and common stock. On May 7, 2020, the Company issued 2,250,000 shares of common stock to Maxim.
F-10
On July 21, 2020, the Company, entered into a letter agreement (the “Agreement”) with Carter, Terry & Company (“CT&Co”) for CT&Co to act as the Company’s exclusive financial advisor and placement agent, on a best efforts basis. Under the terms of the Agreement, CT&Co will be the Company’s exclusive financial advisor for an initial period of thirty (30) days and then reverting to a non-exclusive financial advisor for the next twelve (12) months, with an option to extend for an additional six (6) months. Both the Company and CT&Co may cancel the Agreement at any time upon written notice to the other party. Within five (5) days of execution of the Agreement, the Company shall issue 500,000 shares of its restricted common stock to CT&Co. As additional consideration, the Company shall pay CT&Co a success fee of ten percent (10%) of the amount of any equity or hybrid equity capital raised up to $1,000,000, eight percent (8%) of the amount of any equity or hybrid equity capital raised up to $5,000,000, and six percent (6%) of the amount of any equity or hybrid equity capital raised over $5,000,000. In connection with the compensation set forth above, the Company shall also issue to CT&Co restricted shares of its common stock equal to four percent (4%) of the capital raised divided by the last reported closing price of the Company’s common stock on the date of the close.
Common Stock Payable
As of June 30, 2021, the Company does not owe third parties commons stock for services rendered. On June 30, 2020, the company owed $80,000 worth of common stock for the services rendered.
Other Risks
On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares. While we did not incur significant disruptions from the COVID-19 pandemic during the year ended June 30, 2021, this situation could have an impact on our future business and results of operations in 2021 that may be material but cannot be reasonably estimated at this time due to numerous uncertainties.
Note 6 – Stockholders’ Equity (Deficit)
As of June 30, 2021, and June 30, 2020, there were shares authorized; 135,524,617 and 127,037,531 shares of common stock issued and outstanding, respectively.
During the years ended June 30, 2021 and 2020, the Company issued 1,200,000 and 1,000,000 shares of common stock pursuant to subscriptions agreements for $120,000 and $100,000, respectively, at prices between $0.049 and $0.10 per share.
Common stock issued for services
During the years ended June 30, 2021 and 2020, the Company issued 3,265,327 and 6,777,857 shares of common stock to third parties for services valued at $568,636 and $1,085,821, respectively, with prices between $0.0612 and $0.40 per share.
Issuance of common stock payable
During the year ended June 30, 2021, the Company issued 140,199 shares of common stock owed to third parties for services rendered during the year, valued at $25,236. The Company does not owe any shares as of the year end June 30, 2021.
Restricted stock and Stock options
During the year ended June 30, 2021, and 2020, the Company recognized stock compensation expense on outstanding restricted stock awards of $2,060,245 and $2,007,285, respectively.
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During the years ended June 30, 2021, the Company granted 4,094,959 and no stock options, in the aggregate, to its board members. The options vest pro-rata over the member’s term, have exercise prices between $0.14 and $0.17 and expire in five years from the date of grant.
On June 15, 2021, the Company granted 3,000,000 stock options, in the aggregate, to its attorney as compensation. The options vest pro-rata over the member’s term, have exercise prices between $0.14 and $0.17 and expire in five years from the date of grant.
|
|
Options
|
|
Weighted
Average
Exercise Price
per Share
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Intrinsic
Value
|
|
Outstanding – June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
-
|
|
Granted
|
|
|
4,094,959
|
|
|
|
0.15
|
|
|
|
5
|
|
824
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
-
|
|
Outstanding – June 30, 2021
|
|
|
4,094,959
|
|
|
$
|
0.15
|
|
|
|
5
|
|
824
|
The Company recognized $472,470 of expense in connection with the options and valued with Black Scholes using the following inputs:
|
|
|
Year Ended
June 30, 2021
|
|
|
Stock price
|
|
$
|
0.11 - 0.20
|
|
|
Exercise price
|
|
$
|
0.22 - 0.37
|
|
|
Expected term (in years)
|
|
|
3 – 5
|
|
|
Volatility (annual)
|
|
|
187% – 271.1
|
%
|
|
Risk-free rate
|
|
|
0.05% – 0.12
|
%
|
Shares issued for prepayment penalty
On September 29, 2020, the Company paid $81,675 towards one of its outstanding notes, which includes principal of $55,000, prepayment penalty of $21,175 and accrued interest of $5,500. As an inducement to pay off the note early, the Company issued 153,410 shares of common stock valued at $0.20 per share, or $30,682 to the Investor (see Note 2).
On October 29, 2020, the Company paid $81,553 toward the final tranche of the notes issued on October 1, 2019, which consists of principal of $55,000, interest of $5,410 and a prepayment penalty of $21,143. The Company also issued 123,602 shares to the creditor valued at $14,832 in conjunction with the prior extension of this note.
Equity component of issuance of convertible notes
On July 14, 2020 and October 21, 2020, the Company sold convertible notes bearing 12% interest in the principal amounts of $340,000 and $348,000, respectively. Subject to certain ownership limitations, the notes will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price of $0.144. The embedded conversion features of these notes were valued at $85,000 and $135,333, respectively, and is amortized over the life of the notes.
On January 12, 2021, the Company sold convertible notes bearing 12% interest on the principal amount of $360,000, respectively (see Note 2). The embedded conversion features of this note was valued at $40,000 and is amortized over the life of the note.
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Note 7 – Derivative Liability
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that are categorized within Level 3 of the fair value hierarchy for the year ended June 30, 2021 is as follows:
|
|
|
Year Ended
June 30, 2021
|
|
|
Stock price
|
|
$
|
0.17
|
|
|
Exercise price
|
|
$
|
0.22 – 0.37
|
|
|
Contractual term (in years)
|
|
|
0.25 – 0.64
|
|
|
Volatility (annual)
|
|
|
206 – 271
|
%
|
|
Risk-free rate
|
|
|
0.03 – 0.07
|
|
The foregoing assumptions are reviewed quarterly and are subject to change based primarily on management’s assessment of the probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuations.
Financial Liabilities Measured at Fair Value on a Recurring Basis
Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative liability – warrants and derivative liabilities:
|
|
|
Fair value measured at June 30, 2021
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
Fair value at
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
June 30, 2021
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
28,576
|
|
|
$
|
28,576
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
28,576
|
|
|
$
|
28,576
|
|
|
|
|
Fair value measured at June 30, 2020
|
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
Fair value at
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
June 30, 2020
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
248,173
|
|
|
$
|
248,173
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
248,173
|
|
|
$
|
248,173
|
|
F-13
The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
|
|
|
·Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
|
·Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
|
|
|
|
·Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
There were no transfers between Level 1, 2 or 3 during the years ended June 30, 2021 and 2020.
In the year ending June 30, 2020, the Company recorded a decrease in fair value of derivative liability of $46,077.
In the year ending June 30, 2021, the Company recorded a decrease in fair value of derivative liability of $94,359.
The following table presents the activity for derivative liabilities measured at estimated fair value:
|
|
|
Derivative Liability
|
|
Balance as of June 30, 2020
|
|
$
|
248,173
|
|
Additions during the period
|
|
|
-
|
|
Change in fair value
|
|
|
(94,357)
|
|
Change due to conversion / exercise / redemptions
|
|
|
(125,240)
|
|
Balance as of June 30, 2021
|
|
$
|
28,576
|
The balance of the derivative liability at June 30, 2021 and 2020 and 2019 was $28,576 and $248,173, respectively.
Note 8 – Prepaid Expenses
|
Prepaid expenses consist of the following:
|
|
June 30,
|
|
|
|
2021
|
|
2020
|
|
Prepaid Expenses
|
|
$
|
18,641
|
|
$
|
5,061
|
|
Prepaid Insurance
|
|
|
9,649
|
|
|
6,911
|
|
Prepaid Stock
|
|
|
5,823
|
|
|
376,454
|
|
|
|
$
|
34,113
|
|
$
|
388,426
|
Note 9 – Income Taxes
The Company files corporate income tax returns in the United States (federal) and in Delaware. Since the Company incurred net operating losses in every tax year since inception, the 2019, 2020 and 2021 income tax returns are subject to examination and adjustments by the IRS for at least three years following the year in which the tax attributes are utilized.
As of June 30, 2021, the Company had federal net operating loss carry forwards of $4,196,000 and state net operating loss carryforwards of $2,803,000. Federal net operating losses generated since inception amounting to $4,196,000, no longer have an expiration for the years the Company has been operating. State net operating loss carryforwards will begin to expire in 2039 through 2041. The Company also had net operating losses of $18,000 in China which will expire in 2031. Net operating loss carry forwards may be limited in available usage under Internal Revenue Code 382 as a result of the issuance of additional stock. The Company is current reviewing the limitation.
F-14
Other than minimum taxes, the company does not incur a provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realizability of the benefit, based on a more likely than not criteria and in consideration of available positive and negative evidence.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities consist of the following:
|
|
|
Year Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
Net Operating Loss Carryforward
|
$
|
1,078,203
|
|
$
|
354,977
|
|
Stock Based Compensation
|
|
592,103
|
|
|
317,400
|
|
Unrealized loss on Debt conversion
|
|
10,036
|
|
|
-
|
|
Valuation Allowance
|
|
(1,680,342)
|
|
|
(672,377)
|
|
Net Deferred Tax Assets
|
$
|
-
|
|
$
|
-
|
Reconciliation of the statutory federal income tax to the Company’s effective tax:
|
|
Year Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
|
|
%
|
|
%
|
|
Statutory federal tax rate
|
|
21.00
|
%
|
|
21.00
|
%
|
|
State taxes, net of federal benefit
|
|
3.99
|
%
|
|
1.33
|
%
|
|
Non-deductible Stock Compensation
|
|
(1.61)
|
%
|
|
(14.45)
|
%
|
|
Other
|
|
0.47
|
%
|
|
(2.49)
|
%
|
|
Valuation Allowance
|
|
(23.85)
|
%
|
|
(5.39)
|
%
|
|
Provision for income taxes
|
|
-
|
%
|
|
-
|
%
|
Note 10 – Subsequent Events
On July 6, 2021, the Company entered into multiple subscription agreements with investors and issued 5,200,000 shares of common stock, priced at $0.10 per share, for an aggregate purchase price of $520,000.
On August 27, 2021. The Company negotiated $77,235 note payable with the investor. The investor agreed to reduce the amount to $40,000 as a final settlement. The Company doesn’t owe this note to the investor subsequent to June 30, 2021.
One of the investors note payable due on July 03, 2021, is extended till July 03, 2022. The extension was granted to the Company on August 28, 2021.
F-15
