The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
JUNE 30, 2020
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Quad M Solutions, Inc (“the Company”), f/k/a Mineral Mountain Milling and Mining Company, was incorporated under the laws of the State of Idaho on August 4, 1932 for the purpose of mining and exploring for non-ferrous and precious metals, primarily silver, lead and copper. Until April 16, 2019, the Company had two wholly owned subsidiaries, Nomadic Gold Mines, Inc., an Alaska corporation, and Lander Gold Mines, Inc., a Wyoming corporation (the “MMMM Mining Subsidiaries”). On April 16, 2019, the Company divested itself of seventy-five percent of the MMMM Mining Subsidiaries to Aurum, LLC, a newly organized Nevada corporation (“Aurum”) formed by Sheldon Karasik, the Company’s former CEO, for the purpose of entering into the MBO Agreement and operating the Company’s formerly wholly-owned mining subsidiaries. Reference is made to Recent Developments-Former MMMM Mining Subsidiaries under Note 3 – Former Mining Operations, below.
On March 22, 2019 the Company entered into two separate Share Exchange Agreements pursuant to which it agreed to acquire 100% of the capital stock of two newly organized private entities, NuAxess 2, Inc., a Delaware corporation, and PR345, Inc., a Texas corporation n/k/a Openaxess, Inc., in consideration for the issuance of 400,000 shares of Series C Preferred Stock, issued to the control shareholders of each of NuAxess and PR345,n/k/a Openaxess and 400,000 shares of Series D Preferred Stock, issued to the minority, non-control shareholders of the two entities. The closing of the two Share Exchange Agreements occurred on April 16, 2019, at which date NuAxess and PR345 became wholly-owned subsidiaries of the Company.
On May 13, 2019, the Company filed a Definitive Information Statement on Schedule 14C for the purpose of implementing the following corporate actions: (i) the increase in the authorized shares of common stock from 100 million shares to 900 million shares (the “Authorized Common Stock Share Increase”); and (ii) change the name of the Company from Mineral Mountain Mining & Milling Company to Quad M Solutions, Inc. (the “Name Change”).
On June 7, 2019, the Company filed Articles of Amendment to its Articles of Incorporation with the Secretary of State of the State of Idaho effecting the Name Change. On June 14, 2019 the Company filed Articles of Amendment to its Articles of Incorporation with the Secretary of State of the State of Idaho effecting the Authorized Common Stock Share Increase. In addition, effecting the Authorized Common Stock Share Increase. In addition, on July 19, 2019, the Company obtained the requisite approval from FINRA for the Name Change.
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended September 30, 2019. In the opinion of management, the unaudited interim financial statements furnished herein includes all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the nine-month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Quad M Solutions, Inc and its two wholly owned subsidiaries is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.
Fair Value of Financial Instruments
The Company’s financial instruments as defined by ASC 825-10-50, include cash, receivables, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2019 and June 30, 2020.
The standards under ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little of no market data, which require the reporting entity to develop its own assumptions.
The Company has convertible debt of $706,066 measured at fair value at June 30, 2020.
|
|
|
June 30,
2020
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Derivative liability
|
|
|
|
|
|
|
|
$
|
3,101,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
3,101,735
|
|
Going Concern
As shown in the accompanying financial statements, the Company has incurred cumulative operating losses since inception. As of June 30, 2020, the Company has limited financial resources with which to achieve its objectives and attain profitability and positive cash flows from operations. As shown in the accompanying balance sheets and statements of operations, the Company has an accumulated deficit of $10,112,037. The Company’s working capital deficit is $5,228,529.
Achievement of the Company’s objectives will depend on its ability to obtain additional financing, to generate revenue from current and planned business operations, and to effectively operating and capital costs.
The Company plans to fund the operations of its two wholly-owned subsidiaries, NuAxess and PR345, by potential sales of its common stock and/or by issuing debt securities to institutional investors. However, there is no assurance that the Company will be able to achieve these objectives, therefore substantial doubt about its ability to continue as a going concern exists.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income Taxes – Recognition. Under the approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by ASC 740-10-25-5 to allow recognition of such an asset. See Note 8.
Revenue Recognition
Sales revenues are generally recognized in accordance with the SAB 104 Public Company Guidance, when an agreement exists and price is determinable, the services are rendered, net of discounts, returns and allowance and collectability is reasonably assured. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue, we include the amounts in deferred or unearned revenue on our consolidated balance sheet.
NOTE 3 – FORMER MINING OPERATIONS
Recent Developments-Former MMMM Mining Subsidiaries
On April 24, 2019, the Company filed a Form 8-K reporting that on April 16, 2019, the Company entered into a Share Exchange and Assignment Agreement (the “MBO Agreement”) between the Company and Aurum, LLC, a newly organized Nevada corporation (“Aurum”) formed by Sheldon Karasik, the Company’s former CEO, for the purpose of entering into the MBO Agreement. Pursuant to the MBO Agreement, the Company sold, transferred and assigned to Aurum 75% of the shares of capital stock of the MMMM Mining Subsidiaries for cash consideration of $10 plus the assumption by Aurum of all liabilities of the MMMM Mining Subsidiaries. The Company retained a 25% equity interest in the MMMM Mining Subsidiaries. Effective on September 15, 2019, the Company divested 6% of its equity interest in the MMMM Mining Subsidiaries to an unaffiliated third party for nominal consideration in the amount of $2000, represented by a note payable reducing its equity interest from 25% to 19%. Other than its minority equity interest, the Company has no control nor any involvement in the management or operations of the former MMMM Mining Subsidiaries.
NOTE 4 – EQUITY PURCHASE AGREEMENT
The Company entered into an Equity Purchase Agreement, dated as of October 1, 2018 (the “Equity Purchase Agreement”), with Crown Bridge Partners, LLC, an institutional investor (“Crown Bridge”) pursuant to which the Company agreed to issue to Crown Bridge shares of the Company’s Common Stock, $0.001 par value (the “Common Stock”), in an amount up to $5,000,000 (the “Equity Line”), subject to the Company filing a registration statement with the SEC to register the shares of Common Stock underlying the Equity Line, as follows: (1) 8,000,000 Put Shares to be issued to Crown Bridge upon purchase from the Company from time to time pursuant to the terms and conditions of the Equity Purchase Agreement; and (2) 1,428,571 shares of Common Stock to be issued by the Company to Crown Bridge as a commitment fee.
The Company does not intend to pursue the financing under the Equity Line with Crown Bridge and the registration statement registering the Put Shares and Commitment Shares is no longer current.
NOTE 5 – ACQUISTION OF WHOLLY OWNED SUBSIDIARIES
On April 24, 2019, the Company filed a Form 8-K reporting that effective on April 16, 2019, the Company completed the closing of the two separate Share Exchange Agreements with unaffiliated third parties, dated March 22, 2019, pursuant to which the Company acquired 100% of the capital stock of NuAxess 2, Inc., a newly-organized Delaware corporation, and PR345, Inc., a newly organized Texas corporation. Pursuant to these Agreements, the Company acquired all of the capital stock of NuAxess and P3R45 in exchange for the issuance to the shareholders of NuAxess and PR345 shares of newly authorized Series C and D Convertible Preferred Stock, par value $0.10 per share (the “New Preferred Stock”). The Shares of Series D Convertible Preferred Stock have beneficial ownership limitation provisions. The transaction was valued at $80,000 and as a result a loss on acquisition in the amount of $76,900 was recorded
NOTE 6 – SHARE EXCHANGE AND ASSIGNMENT AGREEMENT
On April 16, 2019, the Company entered into a Share Exchange and Assignment Agreement (the “MBO Agreement”) with Aurum, LLC (“Aurum”), a newly formed Nevada corporation organized by Sheldon Karasik for the purpose of entering into the MBO Agreement thereby acquiring 75% of the capital stock of the MMMM Mining Subsidiaries from the Company. On the date of closing, the Company made a payment of $100,000 to Aurum for the operations of the MMMM Mining Subsidiaries and agreed to make additional payments subject to the terms and conditions of the MBO Agreement. In connection with the MBO Agreement, Aurum agreed to assume all of the liabilities of the MMMM Mining Subsidiaries, which were disclosed to the Company as totaling approximately $96,673. As a result of this transaction, a loss of $403,327 was recorded.
NOTE 7 – CONVERTIBLE DEBT
On or about November 27, 2018, the Company issued a convertible promissory note to a institutional investor for the principal sum of $63,000, together with interest at 12% per annum, with a maturity date of November 27, 2019 (the “Note”). The Note was convertible at any time during the period beginning 180 days following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into shares of Common Stock at a Variable Conversion Price, which is equal to 58% multiplied by the Market Price (as defined below), representing a discount rate of 42% Market Price” is defined as the average of the lowest two (2) Trading Prices for the Company’s Common Stock during the preceding 15 trading day period prior to the Conversion Date. The Company paid $3,000 as a fee which is recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.1770 was $131,158 using a binomial pricing model and was calculated as a derivative liability discount to the Note. That amount is recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs and amounts discussed immediately below), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the Note. Because of the derivative nature of the $131,158 valuation of the conversion feature, $71,158 is recorded as an expense in the current period and reported as a loss on issuance of convertible debt. An accredited investor acquired the note from the institutional investor, with the consent of the Company, in consideration for the payment of the outstanding principal, accrued interest and prepayment penalty in the aggregate amount of $96,816. The Company then issued a replacement convertible promissory note payable to acquiring institutional investor for the principal sum of $96,816 with identical terms to the original note (interest at 12% per annum, maturity date of November 27, 2019, conversion rights and conversion price.) This transaction was treated as an extinguishment and reissuance of the original note and resulted in accelerated recognition of interest expense for original issue discount debt discount of $1,471, interest expense for derivative liability debt discount of $26,425 and a loss on extinguishment in the amount of $29,943.
The conversion feature of the replacement note represents an embedded derivative. A derivative liability with an intrinsic value of $0.1775 was $292,344 using a binomial pricing model and was calculated as a derivative liability discount to the Note. That amount is recorded as a new contra-note payable amount, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the Note. Because of the derivative nature of the $292,344 valuation of the conversion feature, $195,528 is recorded as an expense in the current period and reported as a loss on issuance of convertible debt.
During the nine-months ended June 30, 2020, $14,371 of regular interest and $32,993 of derivative liability discount was expensed. During the six-months ended March 31, 2019, $2,527 of regular interest, $995 of original issue discount and $19,890 of derivative liability discount was expensed.
On or about April 25, 2019, the Company issued a convertible promissory note to another third-party institutional investor for the principal sum of $75,000, together with interest at the rate of 12%per annum, with a maturity date of April 25, 2020. The investor had the right at any time during the period beginning 180 days following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price equal 58% multiplied by the Market Price, representing a discount rate of 42%, in which Market Price is the average of the lowest two Trading Prices for the Company’s Common Stock during the preceding 20 trading day period including the Conversion Date. The Company paid $1,250 in original issue discount and $3,000 as a fee both of which are recorded as a debt discount and being amortized over the life of the loan.
On December 5, 2019, the investor elected to convert $7,000 of principal and $460 of accrued interest into 781,916 shares of common stock at a price of $0.009541.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.1062 was $139,348 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $139,348 valuation of the conversion feature, $69,348 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the nine-months ended June 30, 2020, $8,095 of regular interest, $2,500 of original issue discount, and $35,000 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about April 29, 2019, the Company issued a convertible promissory note to another institutional investor for the principal sum of $66,000, together with interest at the rate of 12% per annum, with a maturity date of April 29, 2020. Jefferson has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 58% multiplied by the Market Price (representing a discount rate of 42%), in which Market Price is the average of the lowest two Trading Prices for the Company’s Common Stock during the preceding 20 trading day period including the Conversion Date. The Company paid $6,000 in original issue discount and $3,000 as a fee both of which are recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.1510 was $175,334 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $175,334 valuation of the conversion feature, $118,334 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $7,291 of regular interest, $4,500 of original issue discount, and $28,500 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019
On or about May 7, 2019, the Company issued a convertible promissory note to another institutional investor for the principal sum of $50,000, together with interest at the rate of 12% per annum, with a maturity date of May 7, 2020. The investor had the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 60% multiplied by the Market Price (representing a discount rate of 40%), in which Market Price is the average of the lowest two Trading Prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date. The Company paid $3,500 as a fee which is recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.1607 was $131,162 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $131,162 valuation of the conversion feature, $84,662 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $5,244, of regular interest, $1,750 of original issue discount, and $23,250 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about May 17, 2019, the Company issued a convertible promissory note to another institutional investor for the principal sum of $50,000, together with interest at the rate of 12% per annum, with a maturity date of February 17, 2020. The investor has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 58% multiplied by the Market Price, representing a discount rate of 42%, in which Market Price is the lowest bid price for the Company’s Common Stock during the preceding 20 trading day period including the Conversion Date. The Company paid $5,000 as a fee which is recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0902 was $76,989 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $76,989 valuation of the conversion feature, $31,989 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
On January 21, 2020, another third-party institutional investor assumed this loan.
During the period ended June 30, 2020, $6,707, of regular interest, $2,536 of original issue discount, and $22,826 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about May 21, 2019, the Company issued a convertible promissory note to an institutional investor for the principal sum of $110,000, together with interest at the rate of 8% per annum, with a maturity date of November 21, 2019. The investor has the right at any time during the period beginning 180 days following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 60% multiplied by the Market Price, representing a discount rate of 40%, in which Market Price is the lowest bid price for the Company’s Common Stock during the preceding 20 trading day period including the Conversion Date. The Company paid $5,000 as a fee which is recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0765 was $138,861 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $138,861 valuation of the conversion feature, $38,861 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $18,649, of regular interest, $2,826 of original issue discount, and $28,261 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On November 21, 2019, the note entered Maturity Date Default as a result the interest rate on the outstanding balance increased to 18%.
On or about June 11, 2019, the Company issued a convertible promissory note to another institutional investor for the principal sum of $70,000, together with guaranteed interest at the rate of 15% per annum with a six-month minimum, with a maturity date of September 11, 2019. The investor has the right if the note is defaulted to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 50% multiplied by the Market Price, representing a discount rate of 50%, in which Market Price is the lowest trading price for the Company’s Common Stock during the preceding 30 trading day period prior to the Conversion Date. The Company paid $20,000 in original issue discount which is recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0631 was $122,694 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $122,694 valuation of the conversion feature, $72,694 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
On September 25, 2019, a third-party institutional investor acquired the $70,000 note dated June 11, 2019, with the consent of the Company, paying the outstanding principal, accrued interest and prepayment penalty in the aggregate amount of $95,760. The Company then issued a replacement convertible promissory note payable to third-party purchaser for the principal sum of $95,760 with interest at 10% per annum, a maturity date of September 25, 2020, granting the purchaser the right at any time to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to the lesser of 60% multiplied by the average of the two lowest trading prices during the 20 trading days preceding the date of the note, or the average of the two lowest trading prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date. This transaction was treated as an extinguishment of the original note and resulted in recognition a loss on extinguishment in the amount of $49,762.
The conversion feature of this replacement note represents an embedded derivative. A derivative liability with an intrinsic value of $0.04407 was $145,522 using a binomial pricing model and was calculated as a derivative liability discount to the Note. That amount is recorded as a new contra-note payable amount, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the Note. Because of the derivative nature of the $145,522 valuation of the conversion feature, $49,762 is recorded as an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended March 31, 2020, the holder of the note elected to convert $25,000 in principal and $4,473 of accrued interest into 33,562 shares of common stock
During the period ended June 30, 2020, $6,406 of regular interest and $47,880 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about July 1 2019, the Company issued a convertible promissory note to another institutional investor for the principal sum of $112,500, together with interest at the rate of 12% per annum with a maturity date of December 25, 2020, which investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 60% multiplied by the Market Price, representing a discount rate of 40%, in which Market Price is the average of the two lowest trading prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date. The Company paid fees of $122,500 which was recorded as a debt discount and being amortized over the life of the loan
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0696 was $182,517 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $182,517 valuation of the conversion feature, $82,517 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $9,976, of regular interest, $4,167 of original issue discount, and $33,333 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about July 12 2019, the Company issued a convertible promissory note to another institutional investor for the principal sum of $75,000, together with interest at the rate of 12% per annum with a maturity date of April 12, 2020, which investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 50% multiplied by the Market Price, representing a discount rate of 50%, in which Market Price is the lowest trading price (average of the two lowest closing bid prices) for the Company’s Common Stock during the preceding 25 trading day period prior to the Conversion Date. The Company paid $7,500 in original issue discount, fees of $2,750 and issued warrants valued at $27,911 all of which are recorded as a debt discount and being amortized over the life of the loan
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0416 was $91,496 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $91,496 valuation of the conversion feature, $54,656 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $8,381 of regular interest, $27,819 of original issue discount, and $24,515 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about August 13 2019, the Company issued a convertible promissory note to an institutional investor for the principal sum of $225,000, together with interest at the rate of 10% per annum with a maturity date of February 13, 2020, which investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to the lower of $0.08 and 60% of the average of the two lowest closing bid prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date. The Company paid $22,500 in original issue discount and fees of $7,500 which are recorded as a debt discount and being amortized over the life of the loan. Additionally, the Company issued warrants valued at $479,670, this amount is also recorded as a debt discount, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. As a result of this cap, $284,670 is recorded as an expense and reported as a loss on issuance of convertible debt.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0754 was $642,857 using a binomial pricing model and was calculated as a derivative liability discount to the note. Because the entire note now was fully discounted by the amounts above, the $642,857 is recorded as an expense in the current period and reported as a loss on issuance of convertible debt.
On February 13, 2020 this note entered into maturity date default. As a result, interest increased to 18% and a default premium principal was added to the outstanding principal in the amount of $94,900 as was recognized as financing fees.
During the period ended March 31, 2020, the holder of the note elected to convert $51,188 of default premium principal and 18,963 of accrued interest into 70,942 shares of common stock.
During the period ended June 30, 2020, $29,499, of regular interest and $166,304 of original issue was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about August 29 2019, the Company issued a convertible promissory note to an institutional investor for the principal sum of $55,000, together with interest at the rate of 8% per annum with a maturity date of August 28, 2020, which investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is 60% of the average of the two lowest closing bid prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date. The Company paid $5,000 in original issue discount and fees of $2,500 which are recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.05368 was $84,403 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $84,403 valuation of the conversion feature, $36,903 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $3,046, of regular interest and $3,602 of original issue and $22,815 of derivative liability discount was expensed. There was no corresponding expense during the period ended September 30, 2018.
During the period ended March 31, 2020, the holder of the note elected to convert $15,000 of principal and $646 of accrued interest into 15,591 shares of common stock.
On or about October 1, 2019, the Company issued a convertible promissory note to an institutional investor for the principal sum of $94,000, together with interest at the rate of 10% per annum with a maturity date of September 30, 2020. The investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 60% multiplied by the Market Price (representing a discount rate of 50%), in which Market Price is the lowest closing bid price for the Company’s Common Stock during the preceding 20 trading day period including the Conversion Date.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.04487 was $210,363 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $210,363 valuation of the conversion feature, $116,363 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $7,031, of regular interest and $46,871 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019
On or about November 12, 2019, the Company issued a convertible promissory note to an institutional investor for the principal sum of $59,400, together with interest at the rate of 12% per annum with a maturity date of November 12, 2020. The investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to the lesser of 60% multiplied by the Market Price (representing a discount rate of 50%), in which Market Price is the average of the two lowest closing bid prices for the Company’s Common Stock during the 20 trading day period prior to the date of the note, or 60% multiplied by the Market Price (representing a discount rate of 40%), in which Market Price is the average of the two lowest closing bid prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0483 was $125,504 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $125,504 valuation of the conversion feature, $75,504 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $4,574, of regular interest, $3,596 of original issue discount and $19,126 of derivative liability discount was expensed. There was no corresponding expense during the period ended March 31, 2019
On or about December 20, 2019, the Company issued a convertible promissory note to an institutional investor for the principal sum of $33,333, together with interest at the rate of 10% per annum with a maturity date of February 13, 2020. The investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to the lower of $0.02 and 60% of the average of the two lowest closing bid prices for the Company’s Common Stock during the preceding 20 trading day period including the Conversion Date. The Company paid $8,333 in original issue discount and fees which are recorded as a debt discount and being amortized over the life of the loan. Additionally, the Company issued warrants valued at $98,000, this amount is also recorded as a debt discount, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. As a result of this cap, $73,000 is recorded as an expense and reported as a loss on issuance of convertible debt.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $0.0179 was $29,833 using a binomial pricing model and was calculated as a derivative liability discount to the note. Because the entire note now was fully discounted by the amounts above, the $29,833 is recorded as an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $1,846, of regular interest and $23,964 of original issue discount was expensed. There was no corresponding expense during the period ended March 31, 2019
On or about January 17, 2020, the Company issued a convertible promissory note to an institutional investor for the principal sum of $50,000, together with interest at the rate of 10% per annum with a maturity date of October 11, 2020. The investor has the right has the right at any time following 180 days of the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to the lower of $0.02 and 50% of the average of the two lowest trading prices for the Company’s Common Stock during the preceding 30 trading day period prior to the Conversion Date.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $4.94 was $247,000 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $247,000 valuation of the conversion feature, $197,000 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $2,260, of regular interest and $13,806 of derivative liability was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about January 20, 2020, the Company issued a convertible promissory note to an institutional investor for the principal sum of $115,000, together with interest at the rate of 8% per annum with a maturity date of January 11, 2021. The Company paid $15,000 in original issue discount and fees which are recorded as a debt discount and being amortized over the life of the loan. The investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 60% of the average of the two lowest closing prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $4.58 was $438,917 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $438,917 valuation of the conversion feature, $338,917 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $4,114, of regular interest, $2,869 of original issue discount and $19,126 of derivative liability was expensed. There was no corresponding expense during the period ended March 31, 2019.
On or about March 3, 2020, the Company issued a convertible promissory note to an institutional investor for the principal sum of $112,750, together with interest at the rate of 12% per annum, and a default interest amount of 24%, with a maturity date of January 11, 2021. The Company paid $12,750 in original issue discount and fees which are recorded as a debt discount and being amortized over the life of the loan. Additionally, the Company issued warrants valued at $32,214, this amount is also recorded as a debt discount, but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The investor has the right has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal 60% of the average of the two lowest closing prices for the Company’s Common Stock during the preceding 20 trading day period prior to the Conversion Date.
The conversion feature of the note represents an embedded derivative. A derivative liability with an intrinsic value of $3.64 was $271,345 using a binomial pricing model and was calculated as a derivative liability discount to the note. That amount is recorded as a new contra-note payable amount (similar to the recorded transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Because of the derivative nature of the $271,345 valuation of the conversion feature, $203,560 is recorded was an expense in the current period and reported as a loss on issuance of convertible debt.
During the period ended June 30, 2020, $4,472, of regular interest, $3,449 of original issue discount and $5,200 of derivative liability was expensed. There was no corresponding expense during the period ended March 31, 2019.
NOTE 8 – COMMON AND PREFERRED STOCK
Upon formation of the Company, the authorized capital consisted of 2,000,000 shares of common stock, par value $0.05. In 1953, the Company increased the authorized capital to 3,000,000 shares of common stock and in 1985, the authorized capital was again increased to 10,000,000 shares of common stock. In 2014 the Company increased the authorized capital stock to 100,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.10.
On February 23, 2020, the Company implemented a 1 for 100 reverse stock split of its outstanding common stock (the “Reverse Split”).
During the year ended September 30, 2018, the Company issued 5,760,000 shares of common stock for cash of $224,100; 1,275,000 shares of common stock for cash of $55,000 that were unissued as of September 30, 2018; 300,000 shares of common stock for services valued at $45,500; and 500,000 shares of common stock for reimbursement of mineral claim fees. Additionally, 280,000 warrants were issued for directors’ fees at an exercise price of $0.02 and a term of two years. The fair value of the warrants was estimated using the Black Scholes Option Price Calculation. The following assumptions were made to value the warrants on the date of issuance: strike price of $0.02, risk free interest rate of 1.99%, expected life of two years, and expected volatility of 495.28%. The fair value of the warrants totaled $39,194 at the issuance date and this amount was recorded as equity. Also, during the period 60,000 options were exercised at a price of $.02 for cash in the amount of $1200.00
During the three month period ended December 31, 2018, the Company issued 2,650,000 shares of common stock for cash of $119,000; 1,275,000 shares that were paid for but unissued as of September 30, 2018; 200,000 shares of common stock for services valued at $50,000; 110,000 shares for directors’ fees valued at $22,000; and 4,000,000 shares for settlement of accumulated officers’ fees valued at $80,000.
During the three-month period ended March 31, 2019, the Company issued 1,958,000 shares of common stock for cash of $74,000; 1,000,000 shares of common stock for services valued at $230,000; 200,000 shares for officers’ fees valued at $4,000 and 1,428,571 shares valued at $100,000 for prepaid financing fees.
Additionally, in 2016, former management of the Company negotiated a contract with M6 Limited, a stock promotion company, in which M6 would collectively receive an advanced payment of 4.3 million shares of Company common stock for certain promotional services. M6 itself received 2 million shares, an affiliated company, Maximum Harvest LLC, received 1.3 million shares and an affiliate of M6, Hahn M. Nguyen, received 1 million shares. In 2018, current management determined that it was not in the best interest of the Company to pursue the services and therefore terminated the contract with M6. The 4.3 million shares of common stock have been rescinded and returned.
On March 21, 2019, the Company filed a Certificate of Designation amending the Articles of Incorporation and designating the rights and restrictions of 1 share of Series B Super Voting Preferred Stock, par value $0.10 per share (the “Series B Preferred Stock”), pursuant to resolutions approved by the Board of Directors (the “Board”) on November 5, 2018. On March 21, 2019, the Company issued to Sheldon Karasik, the Chief Executive Officer, President and Chairman of the Board, the one share of Series B Preferred Stock in exchange for $0.16, which price was based on the closing price of the Company’s Common Stock as of November 5, 2018 of $0.16, the date the issuance was approved by the Board. Sheldon Karasik, as the holder of the Series B Preferred Stock, is entitled to vote together with the holders of the Company’s Common Stock upon all matters that may be submitted to holders of Common Stock for a vote, and on all such matters, the share of Series Voting Preferred Stock shall be entitled to that number of votes equal to 51% of the total number of votes that all issued and outstanding shares of Common Stock and all other securities of the Company are entitled to, as of any such date of determination, on a fully diluted basis. The Company filed the Certificate of Designation with the Secretary of State of Idaho on March 21, 2019.
On April 2, 2019, the Company filed two Certificates of Designation amending the Articles of Incorporation and designation the rights and restrictions of 400,000 shares of Series C Convertible Preferred Stock, par value $0.10 and 400,000 shares of Series D Convertible Preferred Stock, par value $0.10 pursuant to two separate Share Exchange Agreements, see Note 5.
On April 8, 2019, the Company filed a Certificates of Designation amending the Articles of Incorporation and designation the rights and restrictions of 25,000 shares of Series E Convertible Preferred Stock, par value $0.10.
On August 14, 2019, the Company approved for issuance 200,000 shares of common stock valued at $19,400 for investor relations, which shares are on the balance sheet as shares to be issued.
During the three-month period ended December 31, 2019, the Company authorized for issuance 66,666 shares of common stock valued at $2,158 for investor relations, these are on the balance sheet as shares to be issued.
On December 5, 2019, the Company issued 781,916 shares of common stock for the conversion of debt in the principal sum of $7,000 and accrued interest of $460 at a conversion price of $0.009541.
During the three month period ended March 31, 2020, the Company issued 5,000 shares of common stock for services and recorded an additional 5,000 shares as “to be issued” for a total value of $40,000; 130,094 shares of common stock for the conversion of principal of $68,287, accrued interest of $13,342 and financing fees of $1,750.
During the three-month period ended June 30, 2020, the Company issued 57,565 shares of Common Stock for convertible debt principal of $7,894, accrued interest of $2,306 and $850 of financing fees.
In addition, during the three-month period ended June 30, 2020, the Company approved the execution of consulting services agreements with six unrelated persons/entities, none of whom were affiliates of the Company. Pursuant to these agreements, the Company agreed to the issuance of 11,500 shares of a new series of convertible preferred stock, each share of which is convertible into 50 shares of Common Stock. As of the date of this report, none of the shares of the new series of convertible preferred stock have been issued.
The following warrants were outstanding at June 30, 2020:
|
Warrant Type
|
|
Warrants
Issued and
Unexercised
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
|
|
Warrants
|
|
|
1,000,000
|
|
|
$
|
0.05
|
|
|
December 2021
|
|
|
Warrants
|
|
|
500,000
|
|
|
$
|
0.10
|
|
|
December 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
535,714
|
|
|
$
|
0.07
|
|
|
July 2024
|
|
|
Warrants
|
|
|
4,945,055
|
|
|
$
|
0.08
|
|
|
August 2024
|
|
|
Warrants
|
|
|
3,333,333
|
|
|
$
|
0.02
|
|
|
December 2024
|
|
|
Warrants
|
|
|
8,054
|
|
|
$
|
7.00
|
|
|
March 3, 2025
|
|
NOTE 9 – RELATED PARTY TRANSACTIONS
During the year ended September 30, 2016 the Company issued a note payable to a family member of an officer in the amount of $15,000. $3,000 was converted to 300,000 shares of common stock and $5,000 was repaid in cash. The note bears interest at a rate of 10% beginning on July 24, 2016, the balance of principal and interest at June 30, 2020 and September 30, 2019 was $10,515 and $9,727, respectively.
Also, during the year ended September 30, 2016, the Company through its wholly owned subsidiary, Nomadic Gold Mines, Inc., entered into a lease agreement with option to purchase with Ben Porterfield, a related party. See Note 3.
During the year ended September 30, 2017 the Company issued two notes payable to Premium Exploration Mining in the amount of $35,000 and $15,000 each having an interest rate of 5%, the balance of principal and interest at June 30, 2020 and September 30, 2019 was $62,649 and 58,772, respectively, the companies had directors in common at the time of the transaction.
A family member of a former officer provided investor relations consulting services and other administrative functions to the Company, $10,000 was paid in cash for consulting during the period ended December 31, 2018, no such payments were made during the period ended June 30, 2020.
On March 21, 2019, we filed a Certificate of Designation amending our Articles of Incorporation and designating the rights and restrictions of 1 share of our Series B Super Voting Preferred Stock, par value $0.10 per share (the “Series B Preferred Stock”), pursuant to resolutions approved by our Board of Directors (the “Board”) on November 5, 2018. On March 21, 2019, we issued to Sheldon Karasik, our Chief Executive Officer, President and Chairman of the Board, the one share of our Series B Preferred Stock in exchange for $0.16,which price was based on the closing price of our Common Stock as of November 5, 2018 of $0.16, the date the issuance was approved by our Board. Sheldon Karasik, as the holder of our Series B Preferred Stock, is entitled to vote together with the holders of our Common Stock upon all matters that may be submitted to holders of our Common Stock for a vote, and on all such matters, the share of Series Voting Preferred Stock shall be entitled to that number of votes equal to 51% of the total number of votes that all issued and outstanding shares of Common Stock and all other securities of the Company are entitled to, as of any such date of determination, on a fully diluted basis. The Company filed the Certificate of Designation with the Secretary of State of Idaho on March 21, 2019.
NOTE 10 – INCOME TAXES
Topic 740 in the Accounting Standards Codification (ASC 740) prescribes recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December31, 2018 the Company had taken no tax positions that would require disclosure under ASC 740.
The Company files income tax returns in the U.S. federal jurisdiction and the State of Idaho. The Company is currently in arrears in filing their federal and state tax returns, both jurisdictions statute of limitations of three years does not begin until the tax returns are filed.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
Significant components of the deferred tax assets at an anticipated tax rate 21% for the period ended June 30, 2020 and September 30, 2019 are as follows:
|
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
|
Net operating loss carryforwards
|
|
|
10,112,036
|
|
|
|
7,079,690
|
|
|
Deferred tax asset
|
|
|
2,456,737
|
|
|
|
1,819,944
|
|
|
Valuation allowance for deferred asset
|
|
|
(2,456,737
|
)
|
|
|
(1,819,944
|
)
|
|
Net deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
At June 30, 2020 and September 30, 2019, the Company has net operating loss carryforwards of approximately $10,112,036 and $7,079,690 which will begin to expire in the year 2031. The change in the allowance account from September 30, 2019 to June 30, 2020 was $636,793.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowered the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the December 31, 2017 fiscal year using a Federal Tax Rate of 21%. The remeasurement of the deferred tax assets resulted in a $68,010 reduction in tax assets to $885,961 from an estimate of $953,971 that the assets would have been using a 35% effective tax rate.
NOTE 11 – SUBSEQUENT EVENTS
Subsequent to the period ended June 30, 2020, the Company issued approximately 1 million shares of common stock upon the conversion of certain convertible notes discussed under Note 7 above.
The Company anticipates the issuance of the 11,500 shares of the new series of convertible preferred stock to the six unrelated and unaffiliated third-party consultants and service providers before the end of August 2020, which is discussed in Note 9 above.
Effective on August 18, 2020, the Company executed a Series H Securities Purchase Agreement (“Series H SPA”) with a third-party accredited investor (“Investor”) in consideration for which the Company issued the Investor 5,000 shares of Series H Convertible Preferred Stock, upon the closing of which the Company will receive gross proceeds of $25,000. As part of the transaction, the Company has submitted for filing with the State of Idaho a Certificate of Designations of Preferences and Rights of the Series H Convertible Preferred Stock (the “Series H Certificate of Designations”). The Series H SPA and Series H Certificate of Designations are attached as Exhibits 10.4 and 10.5 hereto.
The Company is not aware of any other material subsequent events through the date of this filing that require disclosure or recognition in these financial statements.
