Item 1. Description of Business
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Business in general
Elite Group Inc. (the “Company”) was formed in the State of Nevada on May 21, 2013. Our initial business intention was to sell books utilizing internet, and grow customer base by selling unique editions of books. On January 26, 2016, as a result of a private transaction, whereby 2,000,000 shares of common stock, has been cancelled by the former CEO and 2,020,000 shares of common stock have been issued to Terrence Tecco, a change of control of the Company occurred.
On February 6, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) that had the effect of designating 999,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company’s board of directors.
On July 22, 2016, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation that had the effect of changing the name of the corporation to Elite Group, Inc. (previously Elite Books, Inc.) and designating 74,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company’s board of directors.
General strategy
The Company plans to acquire water properties for the oilfield service sector. Management specializes in the acquisition of assets relating to the management of oilfield water used in upstream oil and gas operations. Management's objective is to acquire and consolidate water processing assets in prolific oil and gas exploration areas. Management believes it will accomplish its goal to maximize shareholder value through strategic acquisitions, effective business model design and economies of scale to a fragmented industry. The Company will control the entire process from wellhead to the final destination and use the most environmental friendly practices in all aspects of our operations to protect and conserve the environment for future generations.
Recent Developments
TCA Global Master Credit Fund, L.P.
On December 18, 2015, the Company issued the Convertible Note in favor of TCA Global Master Credit Fund, L.P. ("TCA"). The maturity date of the Convertible Note was June 18, 2016, and the Convertible Note bears interest at a rate of sixteen and one-half percent (16.5%) per annum. The Convertible Note is convertible, at TCA's option upon an event of default, into shares of the Company’s common stock, par value $0.001 per share (the "Common Stock") at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the date of conversion. The Convertible Note may be prepaid in whole or in part at the Company’s option without penalty.
LG Capital Funding, LLC.
On April 19, 2016, the Company entered into a convertible note payable with LG Capital Funding, LLC. The $40,700 note payable includes $3,700 of original issuance discount and bears interest at an 8% per annum interest rate. The note matures on April 19, 2017 and may only be repaid within 180 days of issuance date with prepayment penalties ranging from 18% to 48% of principal. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the twenty (20) days preceding the date of conversion.
On June 19, 2016, the Company entered into a convertible note payable with LG Capital Funding, LLC. The $40,700 note payable includes $3,700 of original issuance discount and bears interest at a 8% per annum interest rate. The note matures on June 19, 2017 and may only be repaid within 180 days of issuance date with prepayment penalties ranging from 18% to 48% of principal. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the twenty (20) days preceding the date of conversion.
Mammoth Corporation Convertible Debenture Agreement
On July 29, 2016, the Company entered into a convertible note payable with Mammoth Corporation. The $27,500 note payable includes $6,000 of original issuance discount. The note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the issuance of 300,000 shares of the Company common stock issued on August 2, 2016.
Our Properties
The Company holds one Salt Water Disposal (Kypo) property in oil and gas land located in Carrizo Springs, Texas, acquired on August 17, 2015, pursuant to Lease Agreement dated the same.
Oil and Gas Industry-Specific Disclosures
As described in greater detail above, the Company has only recently begun its oil and gas business operations. Accordingly, the disclosure required by Subpart 1200 of Regulation S-K (Section 229.1200 of this chapter) is not applicable to our Company as of the date hereof. The Company has obtained Leases in the Eagle Ford Formation in South Texas consisting of 675 gross acres of undeveloped acreage.
Competition
The oil and gas industry is highly competitive. Our competition is comprised of junior and senior oil and gas companies, including several oil and gas companies that are listed on national exchanges such as the New York Stock Exchange and Nasdaq, independent producers and institutional and individual investors. We will compete with these parties to, among other things:
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acquire oil and gas properties, or leases for such properties, in the United States;
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rent or purchase equipment needed to process water disposal.
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hire, as consultants or as full time employees, persons with the technical know-how to explore oil and gas properties and to extract oil and gas from such properties;
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obtain equity and debt financing from investors; and
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acquire other materials necessary to operate on these properties.
As a start-up company that has only recently begun implementing our business plan, many of the oil and gas companies with which we will compete with have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquiring oil and gas interests of merit or on exploring or developing their oil and gas properties. This advantage could enable our competitors to acquire oil and gas properties of greater quality and interest to prospective investors who may choose to finance their additional exploration and development. Such competition could adversely impact our ability to attain the financing necessary for us to acquire further oil and gas interests or explore and develop our current or future oil and gas properties.
Government Regulation
The Company has only recently begun implementing its business plan and has not yet begun the exploration of the Texas Properties. Once the Company commences exploration and exploitation activities on the Texas Properties or any other property, the Company will become subject to a wide range of laws and regulations. Virtually all aspects of the oil and gas industry are subject to a vast array of federal and state laws and regulations. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. It may be expected that in the future, new laws and regulations will be adopted that will limit certain operations and/or increase the costs of such operations. These laws and regulations either presently require or in the future may require, among other things:
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acquiring various permits before drilling commences;
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enjoining some or all of the operations of facilities deemed not in compliance with permits;
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restricting the types, quantities and concentration of various substances that can be released into the environment in connection with oil and gas and natural gas drilling, production and transportation activities;
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limiting or prohibiting drilling activities in certain locations lying within protected or otherwise sensitive areas; and
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requiring remedial measures to mitigate pollution from our operations.
All of our planned operations involving the exploration for and extraction of gas and oil will be subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of stream and fresh water sources, odor, noise, dust, and other environmental protection controls adopted by federal, state and local governmental authorities as well as the right of adjoining property owners. We may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed exploration for or extraction of oil and/or gas may have upon the environment. All requirements imposed by any such authorities may be costly, time consuming, and may delay commencement or continuation of exploration or extraction operations. In conducting our business plan, we may become subject to certain of the rules and regulations promulgated under each of the following:
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Mineral Leasing Act of 1920, as amended;
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Mineral Leasing Act for Acquired Lands of 1947, as amended;
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Oil and Gas Pollution Act of 1990, as amended;
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Federal Water Pollution Control Act of 1972, as amended;
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Resource Conservation and Recovery Act of 1976, as amended;
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Clean Air Act of 1963, as amended; and
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Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.
Compliance with these laws can be costly; the regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability. Moreover, public interest in the protection of the environment has increased significantly in recent years, notwithstanding the widely recognized public demand for “energy independence.” No assurance can be given that compliance with these laws or with newly imposed or changed laws will not adversely affect the economic viability of any oil and gas properties we may acquire in the future.
Intellectual Property
We do not own or license any material intellectual property in connection with the operation of our business.
Employees
As of March 31, 2017, we had one full time (1) employee. Any site work is handled by contract labor. Our Chief Executive Officer’s business experiences are described in the section entitled “Management.”
How to Obtain our SEC Filings
We file annual, quarterly, and special reports, proxy statements, and other information with the Securities Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC’s website at www.sec.gov.
Our investor relations department can be contacted at our principal executive office located at 4760 Preston Road, #244-114, Frisco, Texas, 75,034. The telephone number of our principal executive offices is (469) 777-3370. Our web site is www.elitegroupenergy.com
Item 1A.
Item 1A. Risk Factors
Not applicable to emerging growth companies.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not applicable to emerging growth companies.
Item 2.
Item 2. Description of Property
The Company holds one Salt Water Disposal (Kypo) property in oil and gas land located in Carrizo Springs, Texas, acquired on August 17, 2015, pursuant to Lease Agreement dated the same. The Kypo SWD is being repaired and should be completed and available to process water in 2016.
We do not own any real estate or other properties.
Item 3.
Item 3. Legal Proceedings
We know of no legal proceedings to which we are a party or to which any of our property is the subject which are pending, threatened or contemplated or any unsatisfied judgments against us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Note applicable.
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters
The following table sets forth for the periods indicated the high and low bid quotations for our common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions.
As of July 15, 2017, the last reported price of our common stock quoted on the OTCQB was $0.005 per share. The OTCQB prices set forth above represent inter-dealer quotations, without adjustment for retail mark-up, mark-down or commission, and may not represent the prices of actual transactions.
Number of Holders
As of August 16, 2017, the 161,612,753 issued and outstanding shares of common stock were held by a total of 23 shareholders of record.
As of March 31, 2017, the 89,960,093 issued and outstanding shares of common stock were held by a total of 23 shareholders of record.
Dividends
No cash dividends were paid on our shares of common stock during the fiscal year ended March 31, 2017 and we do not foresee declaring any cash dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
Settlement of LG Capital convertible notes payable
On May 3, 2017, the Company fully retired a convertible note totaling $40,700 from LG Capital. 17,646,362 shares of common stock of the Company were converted and shares sold into the market.
Mammoth Capital convertible notes payable
In May and June 2017, the Mammoth Capital converted $32,888 of principal balance of convertible notes payable into 29,400,000 shares of common stock.
Settlement Agreement with Rockwell Capital Partners
On April 26, 2017, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“Rockwell”), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $46,000 (the “Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
On April 26, 2017, the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida (the “Manatee Court”), entered an order (the “Rockwell Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement between the Company and Rockwell. The Company issued 30,436,500 Settlement shares to Rockwell to reduce certain outstanding liabilities through May 11, 2017.
There were 161,612,753 shares of common stock issued and outstanding as of August 16, 2017.
Purchase of our Equity Securities by Officers and Directors
On January 26, 2016, Vesna Pesic (“Seller”) and Terrence Tecco (“Purchaser”) entered into a Stock Purchase Agreement (“Stock Purchase Agreement”), pursuant to which Seller sold 2,000,000 shares of the common stock of the Company owned by Seller to Purchaser. Pursuant to the sale of shares of Common Stock from Seller to Purchaser, the Seller issued 2,020,000 shares of Common Stock in the name of the Purchaser. The Purchaser’s pledged 2,020,000 shares of Common Stock and the grant of a security interest and lien with respect thereto in favor of TCA Fund Management Group.
Other Stockholder Matters
None.
Item 6.
Item 6. Selected Financial Data
Not applicable to emerging growth companies.
INDEX OF FINANCIAL INFORMATION
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Elite Group, Inc
We have audited the accompanying balance sheets of Elite Group, Inc (f/k/a Elite Books, Inc.) as of March 31, 2017 and 2016, and the related statements of operations, stockholders’ deficit, and cash flows for the years ended March 31, 2017 and 2016. Elite Group Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Elite Group, Inc as of March 31, 2017 and 2016 and the results of its operations and its cash flows for years ended March 31, 2017 and 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had accumulated deficit of $18,288,078 as of March 31, 2017, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
ELITE GROUP INC.
f/k/a Elite Books, Inc.
BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
ELITE GROUP INC.
f/k/a Elite Books, Inc.
STATEMENTS OF STOCKHOLDERS' DEFICIT
The accompanying notes are an integral part of these consolidated financial statements.
ELITE GROUP INC.
f/k/a Elite Books, Inc.
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these condensed consolidated financial statements.
ELITE GROUP INC.
f/k/a Elite Books, Inc.
Notes To The Audited Financial Statements
For the Year Ended March 31, 2017
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Elite Group Inc. (the “Company”) is a corporation, registered in the State of Nevada on May 21, 2013. We are a company at its start up stage. Our business intention was to sell books utilizing the internet, and grow customer base by selling unique editions of books. Currently, we plan to acquire water properties for the oilfield service sector. Management specializes in the acquisition of assets relating to the management of oilfield water used in upstream oil and gas operations. Management's objective is to acquire and consolidate water processing assets in prolific oil and gas exploration areas. Management believes it will accomplish its goal to maximize shareholder value through strategic acquisitions, effective business model design and economies of scale to a fragmented industry. The Company will control the entire process from wellhead to the final destination and use the most environmental friendly practices in all aspects of our operations to protect and conserve the environment for future generations.
As a result of a private transaction, on January 26, 2016, the control block of stock of this company, represented by 2,000,000 shares of common stock, were cancelled by Vesna Pesic, and 2,020,000 shares of common stock were issued to Terrence Tecco, and a change of control of the Company occurred.
On February 6, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) that had the effect of changing the name of the corporation to Elite Group, Inc. and designating 999,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company’s board of directors.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
Accounting Basis
The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted a calendar year end.
Cash and Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s promissory note obligations approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar risk.
We account for our derivative financial instruments, consisting solely of certain stock purchase warrants that contain non-standard anti-dilutions provisions and/or cash settlement features, and certain conversion options embedded in our convertible instruments, at fair value using level 3 inputs. We determine the fair value of these derivative liabilities using the Black-Scholes option pricing model when appropriate, and in certain circumstances using binomial lattice models or other accepted valuation practices.
When determining the fair value of our financial assets and liabilities using the Black-Scholes option pricing model, we are required to use various estimates and unobservable inputs, including, among other things, contractual terms of the instruments, expected volatility of our stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue will be recognized when it is realized or realizable and earned. Specifically, revenue will be recognized when all of the following criteria are met: (1) Persuasive evidence of an arrangement exists; (2) Service has occurred, customer acceptance has been achieved; (3) Our selling price to the buyer is fixed and determinable; and (4) Collection is reasonably assured. The Company recognizes revenue when services have been provided and collection is reasonably assured.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, the Company has not adopted a stock option plan and has not granted any stock options.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common share equivalents outstanding as of March 31, 2017.
Comprehensive Income
The Company has established standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable, the Company would disclose this information on its Statement of Shareholders’ Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. The Company has not had any significant transactions that are required to be reported in other comprehensive income.
Recent Accounting Pronouncements
In February 2016, FASB issued ASU-2016-02, "Leases (Topic 842)." The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for the Company beginning January 1, 2019, including interim periods within that fiscal year. We are currently evaluating the impact of adopting the new guidance of the consolidated financial statements.
In January 2016, the Financial Accounting Standards Board ("FASB"), issued Accounting Standards Update ("ASU") 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this standard.
In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods. The adoption of this standard will not have any impact on the Company's financial position, results of operations and disclosures.
NOTE 3 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. The Company currently has limited working capital, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
NOTE 4 - CONVERTIBLE PROMISSORY NOTES PAYABLE
Convertible promissory notes, including accrued interest, at March 31, 2017 and 2016 are as follows:
TCA Global Master Credit Fund, L.P.
On January 26, 2016, the Company issued the Convertible Note in favor of TCA Global Master Credit Fund, L.P. ("TCA"). The maturity date of the Convertible Note was June 18, 2016, and the Convertible Note bears interest at a rate of sixteen and one-half percent (16.5%) per annum. The Convertible Note is convertible, at TCA's option upon an event of default, into shares of the Company’s common stock, par value $0.001 per share (the "Common Stock") at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the date of conversion. The Convertible Note may be prepaid in whole or in part at the Company’s option without penalty.
Furthermore, the Company shall pay $2,000 on the first day of each third month during the term. The fee shall increase by $500 for each subsequent line of credit increase with a cap of $2,500.
At any time and from time to time while this Convertible Note is outstanding, the principal and accrued interest may be, at the sole option of TCA upon an Event of Default, convertible into shares of the Company's common stock. The note is convertible into shares of common stock at a price equal to a variable conversion price of eighty-five percent (85%) of the volume-weighted averages the five (5) days preceding the date of conversion.
On March 31, 2017, the Company accepted and agreed to a debt purchase agreement, whereby Mammoth Corporation acquired $100,000 convertible note payable in exchange for $115,000 (see Mammoth Corporation below).
The balance as of March 31, 2017 and 2016 amount to $507,758 and $523,833 comprised of principal balance amounted to $400,000 and $500,000 and accrued interest of $170,758 and $23,833, respectively.
As of March 31, 2017, the six-month term of the agreement has expired and the obligations continues to be outstanding The Company has accrued default interest at a rate of 18% as of December 31, 2016.
LG Capital Funding, LLC.
On April 19, 2016, the Company entered into a convertible note payable with LG Capital Funding, LLC. The $40,700 note payable includes $5,700 of original issuance discount and financing costs and and bears interest at a 8% per annum interest rate. The note matures on April 19, 2017 and may only be repaid within 180 days of issuance date with prepayment penalties ranging from 18% to 48% of principal. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the twenty (20) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest and financing costs in the amount of $14,468 and $5,700 during the period ending March 31, 2017, respectively. On October 28, 2016, the Company accepted and agreed to a debt purchase agreement, whereby Mammoth Corporation acquired the $40,700 convertible note payable and accrued interest in exchange for $68,743 (see Mammoth Corporate below).
On June 19, 2016, the Company entered into a convertible note payable with LG Capital Funding, LLC. The $40,700 note payable includes $5,700 of original issuance discount and financing costs and bears interest at an 8% per annum interest rate. The note matures on June 19, 2017 and may only be repaid within 180 days of issuance date with prepayment penalties ranging from 18% to 48% of principal. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the twenty (20) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $27,133 and $5,700 during the year ending March 31, 2017, respectively.
In the year ended March 31, 2017, the lender converted the $40,700 of principal and $1,849 into 22,358,211 shares of common stock at a fair market value of $97,601 and recorded an extinguishment of debt expense of $55,053.
The balance as of March 31, 2017 amount to $363 comprised of accrued interest of $363.
Mammoth Corporation
On November 18, 2015, the Company entered into a convertible note payable with Mammoth Corporation. The $17,300 note payable note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. The note is due on demand and the default rate is 18% per annum interest. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of market price. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount in the amount of $17,300 during the year ended March 31, 2017, respectively. In the year ended March 31, 2017, the lender converted the $7,313 of principal in exchange for 4,500,000 shares common stock payable at a fair market value of $11,250 and recorded an extinguishment of debt expense of $3,937. The principal balance as of March 31, 2017 amounted to $9,987.
On July 29, 2016, the Company entered into a convertible note payable with Mammoth Corporation. The $27,500 note payable includes $6,000 of original issuance discount. The note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the five (5) lowest closing price averages the fifteen (15) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $13,760 and $4,699 during the year ended March 31, 2017, respectively. The balance as of March 31, 2017 amount to $18,459 comprised of principal balance amounted to $27,500 net of remaining debt discount of $6,740 and original issue discount of $2,301, respectively.
On September 28, 2016, the Company entered into a convertible note payable with Mammoth Corporation. The $50,000 note payable includes $13,190 of original issuance discount. The note payable includes advances to the Company of $7,500 on September 28, 2016, additional advances of $8,040 in October 2016 and $2,300 on January 17, 2017. The note is due upon the Company closing a debt or equity transaction in excess of $100,000 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the issuance of 300,000 shares of the Company common stock. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the lowest market price one year preceding the date of the conversion notice. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $14,329 and $6,316 during the year ended March 31, 2017, respectively. The balance as of March 31, 2017 amount to $28,751 comprised of principal balance amounted to $50,000 net of remaining debt discount of $14,575 and original issue discount of $6,674, respectively.
On October 28, 2016, the Company entered into a $68,743 convertible note payable with Mammoth Corporation. The note payable is a balance of $62,493 of principal and accrued interest assigned from the April 29, 2016 LG Capital Funding, LLC note payable and includes $6,250 of original issuance discount. The note is due one year upon issuance October 28, 2017 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of market price six months preceding the date of the conversion notice. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $5,675 and $2,637 during the year ended March 31, 2017, respectively. The balance as of March 31, 2017 amount to $57,356 comprised of principal balance amounted to $68,743 net of remaining debt discount of $7,775 and original issue discount of $3,613, respectively.
On March 31, 2017, the Company entered into a $115,000 convertible note payable with Mammoth Corporation. The note payable is a balance of $100,000 of principal assigned from the November 18, 2016 TCA note payable and includes $10,000 of original issuance discount and $5,000 in financing costs. The note is due one year upon issuance March 31, 2018 and no further interest shall accrue as long as the note is not in default. Default rate is 18% per annum interest. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of market price. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The balance as of March 31, 2017 amount to $0 comprised of principal balance amounted to $115,000 net of remaining debt discount of $105,000 and original issue discount of $10,000, respectively.
Auctus Fund, LLC.
On January 31, 2017, the Company entered into a convertible note payable with Auctus Fund, LLC. The $65,000 note payable includes $8,750 of original issuance discount. The note is due one year upon issuance November 1, 2017 and bears interest at a 12% rate per annum. The note is collateralized by the reservation of shares of the Company common stock equivalent to 700% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the volume-weighted averages the twenty-five (25) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $8,938 and $1,390 during the year ended March 31, 2017, respectively. The balance as of March 31, 2017 amount to $11,567 comprised of principal balance amounted to $65,000 and accrued interest of $1,239 and net of remaining debt discount of $47,312 and original issue discount of $7,360, respectively.
Crown Bridge Partners
On March 29, 2017, the Company entered into a convertible note payable with Crown Bridge Partners, LLC up to $105,000 in principal. On March 31, 2017, a $35,000 tranche includes $6,000 of original issuance discount and $2,000 of financing costs. The note is due one year upon issuance of each tranche and bears interest at a 12% rate per annum. The note is collateralized by the reservation of shares of the Company common stock equivalent to 100% of convertible shares. The note is convertible into shares of common stock at a price equal to a variable conversion price of fifty percent (50%) of the volume-weighted averages the twenty-five (25) days preceding the date of conversion. The fair value of the note has been determined by using the Black-Scholes pricing model with an expected life of one (1) year. The Company recorded amortization of debt discount and original discount interest in the amount of $159 and $33 during the year ended March 31, 2017, respectively. The balance as of March 31, 2017 amount to $192 comprised of principal balance amounted to $35,000 and accrued interest of $23 and net of remaining debt discount of $28,841 and original issue discount of $5,967, respectively.
NOTE 5 - RELATED PARTIES
Advances
From time to time, the Company has received advances from certain of its officers and shareholders to meet short-term working capital needs. For the years ended March 31, 2017 and 2016, a total of $41,917 and $4,894 advances from related parties is outstanding, respectively. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.
Officer Agreements
On January 28, 2016, the Company entered into an employment agreement, effective February 15, 2016, with the Company's Chief Executive Office whereby the Company provides for compensation of $10,000 per month. A total salary of $120,000 and $15,000 expensed during the year ended March 31, 2017 and 2016, respectively. The total balance due to the Chief Executive Officer for accrued salaries at March 31, 2017 and 2016, was $15,000 and $0, respectively. Furthermore, the Company agreed to issued the Chief Executive Officer 20 million shares of common stock valued at $15,200,000 recorded as common stock payable and subsequently issued the shares on August 2, 2016.
NOTE 6 - EQUITY
Common shares
The Company had authorized 999,000,000 and 75,000,000 common shares as of March 31, 2017 and 2016 and the Company had 89,960,093 and 2,799,999 common shares issued and outstanding, respectively. The common shares entitle the holder thereof to one vote per share on all matters coming before the shareholders of our company for a vote.
On February 6, 2017, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) that had the effect of changing the name of the corporation to Elite Group, Inc. and designating 999,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company’s board of directors.
On July 22, 2016, the Company filed with the Secretary of State of Nevada Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) that had the effect of changing the name of the corporation to Elite Group, Inc. and designating 74,000,000 shares of the authorized capital stock of the Company as common stock, par value $0.001 and 1,000,000 shares of the authorized capital stock of the Company as preferred stock, par value $0.001, with the powers, preferences and rights, and the qualifications, limitations and restrictions designated by the Company’s board of directors.
The Company issued the following equity instruments during the year ended March 31, 2017:
On July 14, 2016, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“Rockwell”), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $56,000 (the “Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company. The Company issued 4,359,333 Settlement shares to Rockwell to reduce the $56,000 outstanding liability (See Note 7).
In conjunction with the settlement agreement, the Company issued 75,000 shares of common stock at a fair market value of $22,500 to Rockwell for fees related to the Settlement Agreement.
On July 27, 2016, the Company issued 100,000 shares of common stock at a fair market value of $25,000 to Mammoth Corporation in conjunction with the financing.
On November 11, 2016, the Company entered into a Settlement Agreement and Stipulation with Rockwell pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $49,500 (the “November 2016 Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
Rockwell purchased the obligations and accounts payable from certain vendors of the Company. In the year ended March 31, 2017, the Company issued 16,461,500 Settlement shares to Rockwell to reduce the $49,500 outstanding liability (See Note 7).
In conjunction with the settlement agreement, the Company issued 250,000 shares of common stock at a fair market value of $3,500 to Rockwell for fees related to the Settlement Agreement.
On January 31, 2017, the Company entered into a Settlement Agreement and Stipulation with Rockwell, pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $39,500 (the “January 2017 Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company. The Company issued 23,341,300 Settlement shares to Rockwell to reduce certain outstanding liabilities through March 31, 2017 (See Note 7).
On August 2, 2016, the Company issued 20,000,000 shares of common stock to the Company's CEO in accordance with the employment agreement dated January 28, 2016. The Company previously accrued the share issuance as a common stock payable at March 31, 2016.
In the year ended March 31, 2017, the Company issued 22,358,211 shares in exchange for the conversion of $40,700 and $1,848 accrued interest of convertible notes to LG Capital Funding, LLC., a third party, at a fair market value of $97,601 and recorded an extinguishment of debt expense of $55,053.
On March 29, 2017, the Company agreed to exchange $7,313 of convertible notes to Mammoth Capital, a third party, at a fair market value of $11,250 and recorded an extinguishment of debt expense of $3,937 during the year ended March 31, 2017. The issuances was recorded as a common stock payable as of March 31, 2017 and 4,500,000 shares were issued on April 10, 2017.
The Company issued the following equity instruments during the year ended March 31, 2016:
On December 18, 2015, as a result of a private transaction, whereby 2,000,000 shares of the Company's common stock, has been cancelled by the former Chief Executive Officer and 2,020,000 shares of common stock have been issued to the current Chief Executive Officer. The transaction effectuated a change of control and the proceeds from a convertible debenture in the amount of $390,500 which has been recorded an offsetting discount of common stock to equity.
On December 18, 2015, the Company issued 139,750 shares of common stock in accordance with the TCA Advisory agreement (See note 7).
On February 16, 2016, the Company issued 75,000 at a fair market value of $93,750 for professional services.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2016, the amounts reported for cash, accrued interest and other expenses, notes payables, and derivative liability approximate the fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2017:
The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:
Convertible Debentures
The derivative liabilities related to the embedded conversion feature were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company neither owns nor leases any real or personal property. An office space has been leased on a month by month basis.
The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.
Consulting Agreements
On December 18, 2015, the Company entered into an advisory services agreement with TCA Global Master Fund (“Consultants”) for investment banking services. In consideration, the Company shall issue the Consultant $250,000 in the form of restricted shares of the Company common stock. The issuance of shares are subject to an anti-dilution share issuances to the extent the cash proceeds from the share issuances are inadequate to satisfy the $250,000 fee. The Company issued 139,750 shares of common stock at closing valued at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the agreement date. As of March 31, 2017, an additional issuance of 30,724,478 shares with a fair market value of $248,868 are required to satisfied the advisory agreement whereby an additional financing costs has been recorded to common stock payable. The Company recorded $105,055 and $393,813 of advisory services stock-based financing costs for the year ended March 31, 2017 and 2016, respectively.
Settlement Agreement with Rockwell Capital Partners
On July 14, 2016, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“Rockwell”), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $56,000 (the “Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
On July 14, 2016, the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida (the “Manatee Court”), entered an order (the “Rockwell Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement between the Company and Rockwell. The Company issued 4,359,333 Settlement shares to Rockwell to reduce certain outstanding liabilities through March 31, 2017 resulting in a loss on debt extinguishment of $68,814.
Settlement Agreement with Rockwell Capital Partners
On November 11, 2016, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“Rockwell”), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $49,500 (the “November 2016 Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
On November 12, 2016, the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida (the “Manatee Court”), entered an order (the “Rockwell Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the November 2016 Settlement Agreement between the Company and Rockwell. The Company issued 16,461,500 Settlement shares to Rockwell to reduce certain outstanding liabilities through March 31, 2017 resulting in a loss on debt extinguishment of $79,286
Settlement Agreement with Rockwell Capital Partners
On January 31, 2017, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“Rockwell”), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $39,500 (the “January 2017 Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company. The Company issued 23,341,300 Settlement shares to Rockwell to reduce certain outstanding liabilities through March 31, 2017 resulting in a loss on debt extinguishment of $49,803.
NOTE 9 - INCOME TAXES
As of March 31, 2017, and 2016, the Company had net operating loss carry forwards of approximately $18,225,077 and $451,743, respectively, that may be available to reduce future years’ taxable income in varying amounts through 2035. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
The provision for Federal income tax consists of the following:
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
NOTE 10 - SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) the Company has analyzed its operations subsequent to March 31, 2017 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than those specified below.
TCA Convertible Debenture Agreement
As of March 31, 2017, the six-month term of the agreement has expired and the obligations continues to be outstanding which is a nonpayment of the obligation of the Senior Secured Revolving Credit Facility dated December 18, 2015 (see Note 3).
Mammoth Capital convertible notes payable
In May and June 2017, the Mammoth Capital converted $32,888 of principal balance of convertible notes payable into 29,400,000 shares of common stock.
Settlement Agreement with Rockwell Capital Partners
On April 26, 2017, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“Rockwell”), pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $46,000 (the “Settlement Amount”) of past-due obligations and accounts payable of the Company. Rockwell purchased the obligations and accounts payable from certain vendors of the Company.
On April 26, 2017, the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida (the “Manatee Court”), entered an order (the “Rockwell Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement between the Company and Rockwell. The Company issued 30,436,500 Settlement shares to Rockwell to reduce certain outstanding liabilities through May 11, 2017.
Convertible Debenture Agreement Adar Bay
On April 25, 2017, the Company entered into a convertible note payable with Adar Bays, LLC. The $50,000 note payable bears interest at a 12% per annum interest rate. The note matures on December 25, 2017.
Convertible Debenture Agreement GS Capital Partner, LLC
On May 12, 2017, the Company entered into a convertible note payable with GS Capital Partners, LLC. The $51,700 note payable bears interest at a 8% per annum interest rate. The note matures on May 12, 2018. The note is convertible into shares of common stock at a price equal to a variable conversion price of sixty percent (60%) of the volume-weighted averages the fifteen (15) days preceding the date of conversion.
Convertible Debenture Agreement Crown
On May 19, 2017, the Company entered into additional draw of the Crown Bridge Partners, LLC convertible debenture agreement in the amount of $44,500 (see Note 4). The note is due one year upon issuance of each tranche and bears interest at a 12% rate per annum.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
CURRENT BUSINESS OPERATIONS
The Company plans to concentrate its development efforts in the Eagle Ford Formation in South Texas. We believe such opportunities exist in the United States with the recent improvements in water disposal. We have only recently begun our planned business operations. To date our operations have primarily been devoted to forming the entity and developing our business plan. We have several properties under contract and have completed most of the financing for these acquisitions.
The following table provides selected financial data about us for the fiscal years ended March 31, 2017 and March 31, 2016. For detailed financial information, see the audited Financial Statements included in this report.
RESULTS OF OPERATIONS
We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
FISCAL YEAR ENDED MARCH 31, 2017 COMPARED TO MARCH 31, 2016.
Our net loss for the year ended March 31, 2017 was $2,463,501 compared to a net loss of $15,795,965, during the year ended March 31, 2016. Our loss was attributable to financing and administrative costs and professional fees incurred compared to nominal business activity in the prior year.
This change in net loss was primarily the result of the following:
Revenue
We recognized $0 of revenue during the year ended March 31, 2017 compared to $200 of revenue during the year ended March 31, 2016. The decrease in revenue of $200 was attributable to a change in our business plan that requires completion of future acquisitions and additional financial resources.
Operating expenses
We incurred operating expenses of $394,917 during the year ended March 31, 2017 compared to $15,342,056 of operating expenses during the year ended March 31, 2016. Our operating expenses also consisted of general and administrative fees of $350,658 in the year ended March 31, 2017 compared to $45,206 in the year ended March 31, 2016 related to office, compliance and professional fees. The primary expense in the year ended March 31, 2016 was $15,200,000 of employee stock based compensation attributable to 20 million shares due to our Chief Executive Officer in accordance with an employment agreement dated January 26, 2016 and furthermore, we incurred expense of $93,750 for stock issuances for professional and advisory services.
Other Income (Expense)
We incurred interest expense of $743,943 and $23,833 and financing costs of $152,613 and $36,463 related to our convertible debenture in the year ended March 31, 2017 and 2016, respectively. Additionally, the change in fair value of the Company’s derivative instruments amounted to a loss of $569,807 and $190,763 of amortization of debt discount during the period. The Company also issued 66,520,344 shares of common stock on the conversion of LG convertible debt and settlement shares to Rockwell to reduce certain outstanding liabilities through March 31, 2017 resulted in an aggregate loss on debt extinguishment of $258,453.
Furthermore, the Company into an advisory services agreement with TCA Global Master Fund for investment banking services. The Company shall issue $250,000 in the form of restricted shares of the Company common stock. The issuance of shares are subject to an anti-dilution share issuances to the extent the cash proceeds from the share issuances are inadequate to satisfy the $250,000 fee. The Company issued 139,750 shares of common stock at closing valued at a price equal to eighty-five percent (85%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the agreement date. As of March 31, 2017, an additional issuance of 30,864,198 shares with a fair market value of $248,868 are required to satisfied the advisory agreement whereby an additional financing costs has been recorded to common stock payable. The Company recorded $152,613 and $393,813 of stock-based financing costs for the year ended March 31, 2017 and 2016, respectively.
Net Losses
Our net loss for the fiscal year ended March 31, 2017 was $2,463,501 compared to a net loss of $15,795,965 during the year ended March 31, 2016 due to the factors discussed above.
Weighted average number of shares
The weighted average number of shares outstanding was 24,868,365 and 2,848,859 for the years ended March 31, 2017 and 2016, respectively. The weighted average number of shares is an average calculation incorporating changes to the shares outstanding within the period reported.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016
As of March 31, 2017, and 2016, we had $27,222 and $17 of cash and cash equivalents.
We have experienced losses of $2,463,501 and $15,795,965 for the fiscal years ended March 31, 2017 and 2016, respectively, and have an accumulated deficit of $18,288,078 at March 31, 2017. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. There is no assurance that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and exploration of our leases. These conditions raise substantial doubt about our ability to continue as a “going concern”.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and, or, the private placement of convertible debt and/or issuance of common stock.
Because of the Company’s history of losses, its independent auditors, in the reports on the financial statements for the year ended March 31, 2017 and 2016, expressed substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
Cash Flows from Operating Activities
We have generated negative cash flows from operating activities.
We have generated negative cash flows from operating activities. For the year ended March 31, 2017, net cash flows used in operating activities was $152,608 consisting primarily of a net loss of $2,463,501, offset by the amortization of financing costs of $66,649, amortization of Original Discount Issuance of $26,474, amortization of debt discount of $190,763, non-cash stock compensation of $153,155 and a change in derivative liability of $569,807 and debt discount feature at issuance of $565,358 and non-cash loss on extinguishment of debt of $258,453, an increase of $198,824 in accounts payables and accrued liabilities, an increase of $80,010 of accrued officer salary and an increase of $150,400 in accrued interest payable.
For the year ended March 31, 2016, net cash flows used in operating activities was $16,345 consisting of a net loss of $15,795,965, offset by non-cash stock compensation of $15,687,563 and amortization of financing costs of $34,963, an increase of $18,261 in accounts payables and accrued liabilities, an increase of $15,000 of accrued officer salary and an increase of $23,833 in accrued interest payable.
Cash Flows from Investing Activities
For the year ended March 31, 2017, net cash flows used in investing activity was $45,000 for equipment. We neither used nor generated cash from investing activities in the year ended March 31, 2016.
Cash Flows from Financing Activities
For the year ended March 31, 2017 and 2016, net used provided by financing activities was $224,813 and $13,474, respectively, consisting of $211,290 in the issuance of convertible debentures, offset by $6,500 of financing costs in the year ended March 31, 2017 and $12,680 of net proceeds from the issuance of a $500,000 convertible debenture in the year ended March 31, 2016. Furthermore, loans from shareholders amounted to $20,023 and $794 in the year ended March 31, 2017 and 2016, respectively.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to the acquisition of assets. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
MATERIAL COMMITMENTS
As of the date of this Annual Report, we do not have any material commitments.
GOING CONCERN
The independent auditors' audit report accompanying our March 31, 2017 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
OFF-BALANCE SHEET ARANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
SIGNIFCANT ACCOUNTING POLICIES
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Recently Issued Accounting Pronouncements.
We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our net results of operations, financial position, or cash flows.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 8.
Item 8. Financial Statements and Supplementary Data
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures
Management’s Report on Internal Controls over Financial Disclosure Controls and Procedures
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2017 using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of March 31, 2017, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
1.
We do not have an Audit Committee - While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
2.
We did not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements.
3.
We did not maintain appropriate cash controls - As of March 31, 2017, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.
4.
We did not implement appropriate information technology controls - As at March 31, 2017, the Company retains copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2017 based on criteria established in Internal Control- Integrated Framework issued by COSO.
System of Internal Control over Financial Reporting
Although our Company is unable to meet the standards under COSO because of the limited funds available to a company of our size and stage of development, we are committed to improving our financial organization. As funds become available, we will undertake to: (1) create a position to segregate duties consistent with control objectives, (2) increase our personnel resources and technical accounting expertise within the accounting function (3) appoint one or more outside directors to our board of directors who shall be appointed to the audit committee of our Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and (4) prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of March 31, 2017, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons of the Company
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and titles of our officers and directors are as follows:
Biographical Information and Background of officer and director
Mr. Tecco’s market and management experience began as a registered representative for Merrill Lynch in the Canton, Ohio office holding Series 7 and Series 22 licenses. After his tenure with Merrill Lynch he became Vice President of Buckhorn Oil Company with offices in Houston, Texas and Columbus, Ohio; where his duties included raising capital for drilling and land acquisitions. During his tenure as Vice President of Buckhorn Oil Company he over saw the drilling and completion of over l50 producing Oil Wells.
Mr. Tecco has gained some of his vast experience in the public markets by representing RieChad USA as Vice President. While he was VP with RieChad his duties included, but were not limited to, being in charge of mergers and acquisitions. Most recently, since July of 2000, as President of KPV Holdings; Mr. Tecco has participated in multiple business projects that assisted private companies with reverse mergers into public entities. Mr. Tecco was a long time member of the American Association of Petroleum Landman. He is a graduate of Kent State University with a degree in Bachelor of Finance in Business Administration and he also attended graduate school at The Ohio State University and has over twenty years’ experience in the oil and gas industry and the public markets
Michael Fasci is a 30 year veteran in the finance sector having served as an officer and director of many public and private companies. He is a seasoned operator across various industries and has served in both CEO and CFO capacities for both growth and turnaround situations. Mike began his career as a field engineer and then manager of various remediation filtration and environmental monitoring projects globally before focusing his efforts on the daily operations, accounting and financial reporting and SEC compliance of the numerous companies he has served. Mike studied Electrical Engineering at Northeastern University and maintains his qualification as an Enrolled Agent of the Internal Revenue Service.
AUDIT COMMITTEE
We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we have no operations, at the present time, we believe the services of a financial expert are not warranted.
Item 11.
Item 11. Executive Compensation
The following tables set forth certain information about compensation paid, earned or accrued for services by our President, and Secretary (collectively, the “Named Executive Officers”) for fiscal years ended in March 31, 2017 and March 31, 2016:
No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by us for the benefit of our officer or director or employees.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides certain information regarding the ownership of our common stock, as of August 16, 2017 and as of the date of the filing of this annual report by:
•
each of our executive officers;
•
each director;
•
each person known to us to own more than 5% of our outstanding common stock; and
•
all of our executive officers and directors and as a group
The percent of class is based on 161,612,753 shares of common stock issued and outstanding as of the date of this annual report.
Item 13.
Item 13. Certain Relationships and Related Transactions
During the year ended March 31, 2017, we had not entered into any transactions with any officer or director, or persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last three fiscal years.
As of March 31, 2017, and 2016, our Chief Executive Officer and certain shareholders and a director had loans outstanding of $24,917 and $4,894, respectively, to the Company to provide working capital for its business operations. The loan is unsecured, non-interest bearing and due on demand.
Item 14.
Item 14. Principal Accountant Fees and Services
During fiscal year ended March 31, 2017 and 2016, we incurred approximately $5,500 and $5,500 in fees to our principal independent accountants for professional services rendered.
PART IV
Item 15.
Item 15. Exhibits
The following exhibits are included as part of this report by reference:
3.1
Articles of Incorporation, as amended
3.2
Certificate of Change filed with the Nevada Secretary of State, dated
3.3
Bylaws
10.1
Employment Agreement, dated January 26, 2016, by and between the Company and Terrence Tecco (incorporated herein)
31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
31.2
Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
32.1
Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
101.INS
XBRL Instance Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.SCH
XBRL Taxonomy Extension Schema
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, on August 17, 2017.
By:
/s/ Terrence Tecco
Dated: August 18, 2017
Name:
Terrence Tecco
Title:
Director and (Principal Executive Officer)
By:
/s/ Michael Fasci
Dated: August 18, 2017
Name:
Michael Fasci
Title:
Director