ITEM 1. BUSINESS.
We were incorporated in the State of Nevada on March 22, 2013 under the name Lightcollar, Inc. On March 22, 2015, we changed our name to EMS Find, Inc. (“EMS Find”). Effective March 31, 2015, we entered into a Share Exchange Agreement with the sole shareholder of EMS Factory, Inc., a Pennsylvania corporation (“EMS Factory”), and following the closing under the Share Exchange Agreement, EMS Factory became a wholly-owned subsidiary of the Company, with the former stockholder of EMS Factory owning approximately 35% of the outstanding shares of common stock of the combined company. The Company developed and is marketing a B2B & B2C on-demand mobile platform, designed to connect health care providers and consumers to a network of medical transport companies. Effective July 27, 2017, we changed our name to Integrated Ventures, Inc. to reflect our plan to expand our operations by the acquisition of additional operating companies. Our offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006.
On April 6, 2016, we completed the sale of our subsidiary Viva Entertainment Group, Inc. (“Viva Entertainment”) to Black River Petroleum Corp., a Nevada publicly-traded company (“Black River”), at a closing where, in exchange for all sale of all of the outstanding shares of Viva Entertainment, Black River issued to the Company its 10% promissory note in the principal amount of $100,000, due December 31, 2016.
Overview
Initially, the Company was only focused on development of on-demand mobile transportation platform, designed to connect health care providers and consumers to a network of medical transport companies throughout the United States and Canada and, on the internet and through mobile applications, and to provide specialized online marketing solutions for these businesses that boost customer awareness and merchant visibility on the internet and through mobile applications. Our mobile and internet platform designed to facilitate and speed up connection of health care providers and the public with medical transportation providers for the benefit of the patients.
The Company has recently determined to expand its mobile technology operations to acquisitions of or partnering with revenue generating companies, primarily in the healthcare, e-commerce, mobile technologies, transportation and consumer goods markets that have a seasoned management team, solid operating histories, minimum debt, high growth potential and tangible assets, designed to mitigate investor risk. We would work with these companies to finance and expand their operations with growth capital. We will require additional capital for this effort, and there is no assurance that such capital will be available to enable us to expand the scope of our operations into this new area.
On Demand Mobile Transportation Platform for Health Care Industry
The Company has developed and markets on-demand mobile platform that connects health care providers (social workers, caregivers, ER nurses, case managers, discharge nurses, etc.) located or affiliated with health care facilities (hospital, nursing home, home care agency, dialysis center, cancer treatment center, hospice, emergency room centers, etc.) and public (patient, friends, family) with pre-screened, nearby transportation providers to schedule non-emergent transport (ALS, BLS, Wheelchair) in timely and efficient manner, enabling users (hospitals, medical offices, dialysis centers, nursing homes, home care agencies and other medical providers) and the public to schedule medical transportation in a timely and efficient way based on the type of medical transportation that best fits each patient's needs.
The EMS Find App works on any smart device including smart phones, tablets or laptops. The app is available in iOS, Android and desktop versions. Upon acceptance of job, transportation automatically pays EMS Find $5 - $10 per trip via credit card. Patients without insurance coverage will have access to a discounted rate (credit card or cod), pre-negotiated for their benefit. Each accepted trip, results in revenue of $250 - $400 (ALS/BLS Ambulance Transport) and $50 - $95 (Wheelchair Transport) to the transportation provider. All billing is done by the transportation provider. Each user/requestor can submit a request, cancel and track (real time) each trip by accessing Job Screen. In addition, the transportation provider can log in and access Job Screen to see which jobs are still available to accept, as well cancel or refer/forward job once it was accepted.
In early 2017, we expanded our platform by offering on-demand taxi-like services by integrating our application with transportation providers like UBER and LYFT
On February 21, 2017, the Company and Epic MD Technologies, LLC, Doral, Florida (“EpicMD”), executed a Licensing Agreement, which provided for a partnership with a goal to integrate and jointly develop a mobile and web-based software application designed to provide claims adjudication, insurance verification, scheduling, dispatching and management services mainly to B2B clients such as major healthcare plans and transportation companies. The target markets identified under the Licensing Agreement, within the defined geographic region, are as follows: all healthcare facilities (hospitals, hospital clinics, free-standing clinics, hospices, and hospital systems) and all medical transport companies (private medical transport and/or state or county medical transport).
The new platform that is being developed is to be jointly owned and marketed under the name of EpicMD. According to the terms of the Licensing Agreement, both companies retain rights to use and market the new platform independently, throughout all of North America. EpicMD has agreed to pay a 3% commission of gross EpicMD software revenue and partnership fees to the Company for any business acquired by the EpicMD that is a direct outcome of the Company’s introduction of a new client to EpicMD.
Emergency Medical Transportation
Ambulances help rescue injured or medically ill patients by transporting them to medical treatment centers with adequate medical services, such as monitoring of health condition and administration of drugs. This service is provided with the help of healthcare professionals and medical equipment installed in the ambulance. The global ambulance services market based on the mode of transport has been segmented into: ground ambulance services, air ambulance services and water ambulance services. On the basis of emergency type, the global market has been segmented as: emergency ambulance services and non-emergency ambulance services.
Ambulance services, emergency and non-emergency, are provided to patients based on the medical condition and emergency of transportation. Ambulances are equipped with various types of medical equipment to cater to the need of patients by providing first-line treatment. Based on the type of equipment installed in ambulances, the ambulance services market is segmented into advanced life support (“ALS”) ambulance services and basic life support (“BLS”) ambulance services.
A BLS ambulance provides patients with basic medical equipment and services and is equipped with medical devices such as automatic external defibrillator oxygen delivery devices, pulse oximetry and blood pressure monitoring equipment. Medical services are provided by emergency medical practitioners and partially-trained personnel in a BLS ambulance. BLS ambulance services are usually provided to patients with complex fractures, medical or surgical patients, discharge for home or some sub-acute care facilities and psychiatrist patients.
Patients seeking immediate medical help are provided with emergency ambulance services as their critical medical condition demands medical treatment at an initial stage (before reaching the hospital). Emergency ambulances are incorporated with emergency siren and lights that enable the vehicle to avoid traffic and reach quickly at the hospital. Emergency ambulances are generally equipped with advanced life support systems and are staffed with medical professionals who are able to provide first-line treatment including drug administration and monitoring.
Non-Emergency Medical Transportation
Non-emergency medical transportation services is comprised of both private and municipal operators that basically provide transportation alongside medical care for patients by ground. These services most often than not are provided during a medical emergency, but they are not restricted to such instances; they are also provided for non - emergency medical transportation services. It is a known fact that non-emergency medical transportation services is highly essential for disadvantaged Medicaid recipients, for the elderly, for those who have form or disability or the other and those with low incomes who have no form of transportation to access healthcare services when the need arises.
According to data provided by Community Transportation Association, about 3.6 million Americans miss or delay medical care services simply because they lack appropriate means of transportation to get to their medical appointments. Medicaid provides a non - emergency medical transportation benefit that pays for the least expensive and suitable way of conveying people to their appointments whether by taxi, van, public transport or mileage reimbursement.
People with chronic health conditions, such as arthritis, asthma, cancer, cardiovascular disease, chronic obstructive pulmonary disease and diabetes et al, in many cases need medical care services on a regular basis. Statistics show that the treatment of chronic conditions account for three-quarters of all United States healthcare expenses. For instance, in 2009, the Center for Disease Control estimated that 78% of the adult population age 55 and older has at least one of these chronic conditions. In addition, it was projected that states will add more than a half a million adults who have serious behavioral health issues that impair their everyday functioning to the Medicaid population. These people of course will need the services of non-emergency medical transportation to access life sustaining treatments and health care services. According to National Institutes Of Health, for the large percentage of the 20 million adults with chronic kidney disease who are undergoing dialysis three times a week, use of non - emergency transportation services providers is a reliable way to transport them to their appointments. Statistics available from Department of Health and Human Services show that 66 percent of dialysis patients rely on others for transportation to their appointments, only 8 percent depend on public transportation or taxi services, and 25.3 percent drove or walked to the clinic themselves.
On-Demand Transportation
In the last five years, technology has radically transformed ground non-emergency transportation for the better. Cloud technologies, big data analytics, GPS-tracking and mobile apps have been connected to a virtual, scalable and cost-effective fleet of drivers and their vehicles. UBER and LYFT are market leaders within this new model of transportation which allows for tracking, insights, efficiencies, and increased levels of service as never before possible.
Quality of service in the non-emergency medical transportation (NEMT) field in the Company’s view has been hindered by inadequate technology, outdated business models, inconsistent and unprofessional medical transportation providers, and virtually non-existent transparency for the customer. The Ems Find App supports a full array of NEMT management services to our customers. Services include, but are not limited to:
o member eligibility verification,
o call center services,
o member appointment reminders and surveys,
o third-party transportation provider credentialing,
o trip dispatching and monitoring,
o customer complaint management,
o installation of and training for customers and healthcare providers for trip management portals and
o mileage reimbursement.
Planned Acquisition Strategy
We plan to expand our operations to focus on investing in both private and public companies in the following business sectors: healthcare, medicinal cannabis cultivation, on-demand transportation, technology, manufacturing and distribution of the consumer goods. The Company does not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, acquires various types of business. We plan also to evaluate intellectual property and technology assets for potential acquisition.
We do not intend to restrict our search to any specific business, industry, or geographical location, and we may participate in a business venture of any kind or nature. We may seek business opportunities with entities that have recently commenced operations, or that wish to utilize the public marketplace in order to raise additional capital to expand into new products or markets, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
We anticipate that the search for additional businesses to acquire will be complex and will involve risks. We believe that there may be some firms seeking the perceived benefits of a publicly registered corporation. Such perceived benefits may include, among other things, facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, and providing liquidity (subject to compliance with and restrictions of applicable laws) for all shareholders. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
We have, and will continue to have, limited capital with which to provide the owners of business opportunities with any significant cash or other assets. However, we believe we will be able to offer owners of certain acquisition candidates the opportunity to acquire an interest in a publicly registered company without incurring the cost and time required to conduct an initial public offering, subject to compliance
Our officer and consultants will analyze new business opportunities. We intend to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present affiliations and relationships of our officers and directors, or by our shareholders. In analyzing prospective business opportunities, we will consider such matters as:
o available technical, financial and managerial resources;
o working capital and other financial requirements;
o history of operations, if any;
o prospects for the future, and the nature of present and expected competition;
o quality and experience of management services which may be available and the depth of that management;
o potential for further research, development, or exploration;
o potential for growth, expansion and profit; and
o perceived public recognition of name identification, products and services.
Our CEO expects to meet personally with management and key personnel of the acquisition as part of the "due diligence" investigation. To the extent possible, we intend to utilize written reports and personal investigations to evaluate the above factors. We will rely upon the efforts of our officers and directors in implementing in evaluating candidates. We do not anticipate hiring outside consultants or advisors, except for our legal counsel and accountants. As of the date of this report, we do not have any contracts or agreements with any outside consultants and none are contemplated.
Acquisition Structure
In implementing a structure for a particular business acquisition, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business.
In some circumstances, as a negotiated element of its transaction, we may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. If such registration occurs, it will be undertaken by the surviving entity after we have successfully consummated a merger or acquisition. The issuance of substantial additional securities and their potential sale into the trading market may have a depressive effect on the value of our securities.
Competition
The healthcare industry, in which the Company is a very small factor, is highly competitive, and competition among service and healthcare providers has intensified in recent years. We compete directly with such companies as UBER, LYFT, Veyo, Circulation, and RoundTrip, which are much larger and better financed transportation providers. We are an insignificant participant in the business of seeking acquisitions of small private and public entities. A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing an acquisition.
Government Regulation
The healthcare industry is subject to numerous federal and state laws, regulations and rules including, among others, those related to government healthcare program participation requirements, various licensure and accreditation standards, reimbursement for patient services, health information privacy and security rules, and government healthcare program fraud and abuse provisions. Firms that are found to have violated any of these laws and regulations may be excluded from participating in government healthcare programs and subjected to significant fines or penalties.
Research and Development
We have not spent any amounts on research and development activities during the year ended June 30, 2017. We anticipate that we will not incur any expenses on research and development over the next 12 months. Our planned expenditures on our operations or a acquisition are summarized under the section of this annual report entitled “Management’s Discussion and Analysis of Financial Position and Results of Operations.”
Environmental Regulations
We do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.
Employees and Employment Agreements
At present, we have no employees other than our sole officer who devotes approximately 40 hours a week to our business. We presently do not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, we may adopt such plans in the future. There are presently no personal benefits available to any officers, directors or employees.
Property
Our business offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006. Our telephone number is (215) 613-1111. Our lease provides for a monthly rental of $700 and expires September 1, 2016. The lease will continue month-to-month after the expiration. We believe that our existing facilities are suitable and adequate and that we have sufficient capacity to meet our current anticipated needs.
Available Information
All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Risks Relating to Our Business
AN INVESTMENT IN THE COMPANY MUST BE CONSIDERED SPECULATIVE.
We cannot assure you that you will realize a return on your investment or that our stockholders will not lose their investments in the Company in their entirety. In the event we are forced to dissolve or commence insolvency proceedings, any proceeds from the liquidation of our assets will be distributed to our stockholders only after the satisfaction of the claims of our creditors. Your ability to recover all or any portion of an investment in our capital stock will depend upon the amount of the dissolution proceeds.
WE HAVE NOT HAD OPERATIONS OF ANY SIGNIFICANCE SINCE INCEPTION AND WILL BE REQUIRED TO RAISE SUBSTANTIAL AMOUNTS OF CAPITAL
We will have to obtain significant additional capital, in addition to the capital proposed to be raised in this offering, to continue with development of our proposed business. There is no assurance that we will be able to obtain sufficient capital to implement our proposed business plan. The Company may not have sufficient resources to fully develop any new products unless it is able to raise additional financing. The Company can make no assurances these required funds will be available on favorable terms, if at all. The failure to raise capital when needed, will adversely affect our business, financial condition and results of operations, and could force the Company to reduce or cease operations.
RAISING ADDITIONAL CAPITAL MAY CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS, RESTRICT OUR OPERATIONS OR REQUIRE US TO RELINQUISH RIGHTS.
We may seek additional capital through a combination of private and public equity offerings, debt financings collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, current stockholders’ ownership interest in the Company will be diluted. In addition, the terms may include liquidation or other preferences that materially adversely affect their rights as a stockholder. Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.
THE MOBILE APPLICATION INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE, AND OUR SUCCESS DEPENDS UPON THE FREQUENT ENHANCEMENT OF EXISTING PRODUCTS AND TIMELY INTRODUCTION OF NEW PRODUCTS THAT MEET OUR CUSTOMERS’ NEEDS.
Customer requirements for mobile application products are rapidly evolving and technological changes in our industry occur rapidly. To keep up with new customer requirements and distinguish us from our competitors, we must frequently introduce new products and enhancements of existing products. Enhancing existing products and developing new products is a complex and uncertain process. It often requires significant investments in research and development (“R&D”). Furthermore, we may not be able to launch new or improved products before our competition launches comparable products. Any of these factors could cause our business or financial results to suffer.
IF WE FAIL TO CONTINUE TO INTRODUCE NEW PRODUCTS THAT ACHIEVE BROAD MARKET ACCEPTANCE ON A TIMELY BASIS, WE WILL NOT BE ABLE TO COMPETE EFFECTIVELY AND WE WILL BE UNABLE TO INCREASE OR MAINTAIN SALES AND PROFITABILITY.
Our future success depends on our ability to develop and introduce new products and product enhancements that achieve broad market acceptance. If we are unable to develop and introduce new products that respond to emerging technological trends and customers’ mission critical needs, our profitability and market share may suffer. The process of developing new technology is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends, our business could be harmed. We are active in the identification and development of new product and technology services and in enhancing our current products. However, in the enterprise mobility solutions industry, such activities are complex and filled with uncertainty. If we expend a significant amount of resources and our efforts do not lead to the successful introduction of new or improved products, there could be a material adverse effect on our business, profitability, financial condition and market share.
WE FACE COMPETITION FROM NUMEROUS SOURCES AND COMPETITION MAY INCREASE.
We believe that barriers to entry are not significant and start-up costs are relatively low, so that we expect significant competition in the future. New competitors may be able to launch new businesses similar to ours, and current competitors may replicate our business model, at a relatively low cost. If competitors with significantly greater resources than ours decide to replicate our business model, they may be able to quickly gain recognition and acceptance of their business methods and products through marketing and promotion. We may not have the resources to compete effectively with current or future competitors.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY IN WHICH WE ARE A SMALL ENTERPRISE COMPARED TO OUR COMPETITORS.
Our revenue is indirectly dependent on the healthcare industry and could be affected by changes in healthcare spending and policy. The healthcare industry is subject to changing political, regulatory and other influences. The PPACA made major changes in how healthcare is delivered and reimbursed, and increased access to health insurance benefits to the uninsured and underinsured population of the United States. The healthcare industry, in which the Company is a very small factor, is highly competitive, and competition among service and healthcare providers has intensified in recent years. Substantially all of our competitors and potential are much larger and better financed companies.
WE CONDUCT BUSINESS IN A HEAVILY REGULATED INDUSTRY AND IF WE FAIL TO COMPLY WITH THESE LAWS AND GOVERNMENT REGULATIONS, WE COULD INCUR PENALTIES OR BE REQUIRED TO MAKE SIGNIFICANT CHANGES TO OUR OPERATIONS OR EXPERIENCE ADVERSE PUBLICITY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.
The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we may provide and bill for services and our payors may collect reimbursement from governmental programs and private payors, our contractual relationships with our clients and vendors, our marketing activities and other aspects of our operations. Of particular importance are:
· the federal Anti-Kickback Statute that prohibits the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback, rebate or other remuneration for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or leasing of items or services covered, in whole or in part, by any federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
·
the criminal healthcare fraud provisions of HIPAA and related rules that prohibit knowingly and willfully executing a scheme or artifice to defraud any healthcare benefit program or falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;
· the federal False Claims Act that imposes civil and criminal liability on individuals or entities that knowingly submit false or fraudulent claims for payment to the government or knowingly making, or causing to be made, a false statement in order to have a false claim paid, including qui tam or whistleblower suits;
· reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare or Medicaid programs;
· similar state law provisions pertaining to anti-kickback, self-referral and false claims issues, some of which may apply to items or services reimbursed by any third-party payor, including commercial insurers; and
· state laws that prohibit general business corporations, such as us, from practicing medicine, controlling physicians' medical decisions or engaging in some practices such as splitting fees with physicians.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our operations could be indirectly affected through our clients’ activities. The laws, regulations and standards governing the provision of healthcare services may change significantly in the future, and any new or changed healthcare laws, regulations or standards could materially adversely affect our business.
WE ARE INCREASINGLY DEPENDENT ON WIRELESS SERVICE AND INFRASTRUCTURE AND INFORMATION TECHNOLOGY SYSTEMS (CYBER SECURITY).
As a provider of a mobile application, we rely upon technology systems and infrastructure. In particular, we are heavily dependent and reliant on availability of technology from Apple (iOS phones) and Google (Android phones and geo locating services). Our operations are potentially vulnerable to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events such as computer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software. Likewise, data privacy breaches by employees and others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. There can be no assurance that our efforts will prevent significant breakdowns, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition of the Company. In addition, significant implementation issues may arise if we consolidate and outsource certain computer operations and application support activities.
Our systems are an integral part of our customers’ business operations. It is critical for our customers, that our systems provide a continued and uninterrupted performance. Customers may be dissatisfied by any system failure that interrupts our ability to provide services to them. Sustained or repeated system failures would reduce the attractiveness of our services significantly and could result in decreased demand for our services.
WE DEPEND HEAVILY ON OUR CHIEF EXECUTIVE OFFICER, AND HIS DEPARTURE COULD HARM OUR BUSINESS.
The expertise and efforts of Steve Rubakh, our Chief Executive Officer, are critical to the success of our business. The loss of Mr. Rubakh’s services could significantly undermine our management expertise and our ability to operate our Company.
THE REVENUES AND RESULTS OF OUR OPERATIONS MAY BE SIGNIFICANTLY AFFECTED BY PAYMENTS RECEIVED BY OUR HEALTH CARE CLIENTS’ MANAGED FACILITIES FROM THE GOVERNMENT AND THIRD-PARTY PAYORS.
A significant source of revenues for health care industry companies for which we would provide services is from government healthcare programs, principally Medicare and Medicaid. Changes in these government programs in recent years have resulted in limitations on reimbursement and, in some cases, reduced levels of reimbursement for healthcare services. Payments from federal and state government healthcare programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities. If the rates paid or the scope of services covered by government payors are reduced, there could be a material adverse effect on our business, financial condition and results of operations.
Risks Relating Generally to Commercial Applications of Our Technology
AT THIS TIME THERE IS NO UNIVERSAL MARKET ACCEPTANCE OF OUR PROPOSED PRODUCTS.
We cannot assure you that we will be successful in commercializing one or more of the potential applications of our B2B & B2C on-demand mobile platform technology, or that, if commercial acceptance is obtained by us, our operations will be profitable. The telehealth market is relatively new and unproven, and it is uncertain whether it will achieve and sustain high levels of demand, consumer acceptance and market adoption. We are seeking strategic alliances, government contracts and other distribution and marketing channels; however, we cannot assure you that any significant degree of market acceptance will result, and that acceptance, if achieved, will be sustained for any significant period or that product life cycles will be sufficient (or substitute products developed) to permit the Company to recover start-up and other associated costs. Our goal is to achieve or sustain market acceptance would have a material adverse effect on our business, financial conditions, and results of operations.
WE MAY NOT BE ABLE TO RESPOND QUICKLY ENOUGH TO CHANGES IN TECHNOLOGY AND TECHNOLOGICAL RISKS, AND TO DEVELOP OUR INTELLECTUAL PROPERTY INTO COMMERCIALLY VIABLE PRODUCTS.
Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our planned products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. We cannot provide assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products will not become obsolete. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly.
OUR GROWTH IS DEPENDENT IN LARGE PART ON THE SUCCESS OF OUR STRATEGIC RELATIONSHIPS WITH THIRD PARTIES.
In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our client and partner organizations and technology and content providers. Identifying potential clients, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to, or utilization of, our products and services. If we are unsuccessful in establishing or maintaining our relationships with third party clients and users, our ability to compete in the marketplace or to grow our revenue could be impaired and our results of operations may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased client use of our applications or increased revenue.
WE WILL RELY ON DATA CENTER PROVIDERS, INTERNET INFRASTRUCTURE, BANDWIDTH PROVIDERS, THIRD-PARTY COMPUTER HARDWARE AND SOFTWARE, OTHER THIRD PARTIES AND OUR OWN SYSTEMS FOR PROVIDING SERVICES TO OUR CLIENTS AND USERS, AND ANY FAILURE OR INTERRUPTION IN THE SERVICES PROVIDED BY THESE THIRD PARTIES OR OUR OWN SYSTEMS COULD NEGATIVELY IMPACT OUR RELATIONSHIPS WITH CLIENTS, ADVERSELY AFFECTING OUR BRAND AND OUR BUSINESS.
We plan to serve all of our clients and users from data centers. The owners of data center facilities have no obligation to enter into their agreements with us on commercially reasonable terms, or at all. If we are unable to negotiate favorable agreements on commercially reasonable terms, we will be required utilize data center facilities, and we may incur significant costs and possible service interruption in connection with doing so. Problems faced by our third-party data center locations with the telecommunications network providers with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among their clients, including us, could adversely affect the experience of our clients.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND OTHER PROPRIETARY RIGHTS, WE COULD BE FORCED TO CEASE OPERATIONS.
There can be no assurance that we will succeed in our applications for U.S. patents covering our B2B & B2C on-demand mobile platform technology we plan to use or, if granted a U.S. patents, that we will be able to prevent misappropriation or infringement of patents that may be issued to us.
WE MAY IN THE FUTURE BE SUBJECT TO INTELLECTUAL PROPERTY (e.g., PATENTS, COPYRIGHTS, TRADEMARKS AND TRADE SECRETS) RIGHTS CLAIMS, WHICH ARE COSTLY TO DEFEND, AND COULD REQUIRE US TO PAY DAMAGES AND COULD LIMIT OUR ABILITY TO USE CERTAIN TECHNOLOGIES IN THE FUTURE.
Our technologies, when developed and included in commercial products, may not be able to withstand any third-party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert resources and attention.
In addition, third parties may initiate litigation against us alleging infringement of their intellectual property rights. With respect to any intellectual property rights claim, we may have to pay damages or discontinue the practices found to be in violation of a third party’s rights. We may have to seek a license to continue such practices, which may not be available on reasonable terms and may significantly increase our operating expenses. A license to continue such practices may not be available to us at all. As a result, we may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative non-infringing technology or practices could require significant effort and expense. If we cannot obtain a license to continue such practices or develop alternative technology or practices for the infringing aspects of our business, we may be forced to limit our product and service offerings and may be unable to compete effectively. Any of these results could harm our brand, operating results or could otherwise harm our business.
Risks Related to Our Common Stock and its Market
BECAUSE CERTAIN EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK, OTHER STOCKHOLDERS' VOTING POWER MAY BE LIMITED.
Steve Rubakh, our Chief Executive Officer, owns and/or controls a majority of the voting power of our common stock. As a result, Mr. Rubakh will have the ability to control all matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. This stockholder may make decisions that are averse to your interests. See our discussion under the caption “Principal Stockholders” for more information about ownership of our outstanding shares.
WE DO NOT HAVE A MAJORITY OF INDEPENDENT DIRECTORS ON OUR BOARD AND THE COMPANY HAS NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted any of these other corporate governance measures and since our securities are not yet listed on a national securities exchange, we are not required to do so. If we expand our board membership in future periods to include additional independent directors, we may seek to establish an audit and other committee of our board of directors. It is possible that if our Board of Directors included a number of independent directors and if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurance that internal corporate decisions were being made by disinterested directors. In evaluating our Company, our current lack of corporate governance measures should be borne in mind.
OUR SHARE PRICE IS VOLATILE AND MAY BE INFLUENCED BY NUMEROUS FACTORS THAT ARE BEYOND OUR CONTROL.
Market prices for shares of mobile technology companies such as ours are often volatile. The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
·
fluctuations in stock market prices and trading volumes of similar companies;
·
general market conditions and overall fluctuations in U.S. equity markets;
·
sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
·
discussion of us or our stock price by the press and by online investor communities; and
·
other risks and uncertainties described in these risk factors.
WE HAVE NO CURRENT PLANS TO PAY DIVIDENDS ON OUR COMMON STOCK AND INVESTORS MUST LOOK SOLELY TO STOCK APPRECIATION FOR A RETURN ON THEIR INVESTMENT IN US.
We do not anticipate paying any further cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.
OUR COMMON STOCK IS DEEMED TO BE “PENNY STOCK,” WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO DISCLOSURE AND SUITABILITY REQUIREMENTS.
Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. Penny stocks are stock:
· With a price of less than $5.00 per share;
· That are not traded on a “recognized” national exchange;
· Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or
· In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $10.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million.
Broker-dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker-dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. Many brokers have decided not to trade “penny stocks” because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the “penny stock rules” for any significant period, there may develop an adverse impact on the market, if any, for our securities.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Disclosure under Item 1B is not required of smaller reporting companies.
ITEM 2.
ITEM 2. PROPERTIES.
Our business offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006. Our telephone number is (215) 350-2255. Our lease is currently on a month-to-month basis and requires a monthly rental of $700. We believe that our existing facilities are suitable and adequate and that we have sufficient capacity to meet our current anticipated needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Except as stated below, there are no pending legal proceedings in which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficiary of more than 5% of any class of our voting securities is a party adverse to us or has a material interest adverse to us.
On October 14, 2016, the Supreme Court of the State of New York County of Kings, in regards to LG Capital Funding, LLC v. EMS Find, Inc., issued a judgment against EMS Find, Inc. in favor of LG Capital Funding, LLC, in the amount of $135,202, which includes principal and interest (calculated as of September 29, 2016), in regards to the convertible promissory note dated October 22, 2015. The judgment includes an Information Subpoena with Restraining Notice, which addressed the EMS Find, Inc. bank account at TD Bank. As of the date of this filing, $1,304 was garnished.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is traded over-the-counter market and has been quoted on the OTCQB, since approximately April 24, 2015, under the symbol "EMSF.” The quotations in the table below reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.
Holders
As of September 1, 2017, there were 12 holders of record of our common stock. This number does not include stockholders for whom shares were held in “nominee” or “street” name.
Dividend Distributions
We have not declared or paid any cash dividends on our common stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, for the development of our business.
Securities Authorized for Issuance under Equity Compensation Plans
Not applicable.
Recent Sales of Unregistered Securities
On July 1, 2016, the Board of Directors of the Company approved compensation for the Company’s CEO, Steve Rubakh, on a quarterly basis through the issuance of 30,000 shares of Series B Preferred Stock. For the year ended June 30, 2017, the Company issued 150,000 shares of Series B preferred stock to Steve Rubakh valued at $725,400.
Penny Stock
Our common stock is considered "penny stock" under the rules the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
·
contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
·
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
·
contains a toll-free telephone number for inquiries on disciplinary actions;
·
defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
·
contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
·
bid and offer quotations for the penny stock;
·
the compensation of the broker-dealer and its salesperson in the transaction;
·
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and
·
monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
Related Stockholder Matters
None.
Issuer Purchases of Equity Securities
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in this Annual Report and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.
GENERAL
We were incorporated in the State of Nevada on March 22, 2013 under the name Lightcollar, Inc. On March 22, 2015, we changed our name to EMS Find, Inc., and in May 2017, we changed our name to Integrated Ventures, Inc. Our offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006.
Effective March 31, 2015, we entered into a Share Exchange Agreement with the sole shareholder of EMS Factory, Inc., a Pennsylvania corporation (“EMS Factory”), and following the closing under the Share Exchange Agreement, EMS Factory became a wholly-owned subsidiary of the Company. As of the second quarter of 2015, EMS Factory discontinued operations.
The Company develops and markets B2B & B2C on-demand mobile platform, designed to connect health care providers and consumers to a network of medical transport companies throughout the United States and Canada and, on the internet and through mobile applications, and plans to provide specialized online marketing solutions for these businesses that boost customer awareness and merchant visibility on the internet and through mobile applications. The Company has recently determined to expand its business operations to acquisitions of or partnering with revenue generating companies, primarily in the healthcare, e-commerce, mobile technologies, transportation and consumer goods markets that have a seasoned management team, solid operating histories, minimum debt, high growth potential and tangible assets, designed to mitigate investor risk. The Company intends to work with these companies to finance and expand their operations with growth capital. We will require additional capital for this effort, and there is no assurance that such capital will be available to enable us to expand the scope of our operations into this new area.
On April 6, 2016, we completed the sale of our subsidiary Viva Entertainment Group, Inc. (“Viva Entertainment”) to Black River Petroleum Corp., a Nevada publicly-traded company (“Black River”), at a closing where, in exchange for all sale of all of the outstanding shares of Viva Entertainment, Black River issued to the Company its 10% promissory note in the principal amount of $100,000, due December 31, 2016. We gave no effect to the note receivable from this transaction in our financial statements, pending collection of the note and completion of the transaction. We discontinued consolidation of the accounts of Viva Entertainment effective April 6, 2016, In connection with the sale, Viva Entertainment’s Chief Executive Officer, Johnny Falcones (“Falcones”), a member of our Board of Directors, resigned from all positions at our Company and was elected as the sole director and President and Chief Executive Officer of Black River, to manage the development and marketing of Viva Entertainment’s over the top (IPTV/OTT) application for connected TV’s, desktop computers, tablets, and smart phones.
FINANCIAL OPERATIONS REVIEW
Since our inception through June 30, 2017, we have generated approximately $1.1 million in revenue. Revenues to date have been generated substantially from the now discontinued Ambulance services, which we have discontinued to focus on new revenue sources.
We are incurring increased costs as a result of being a publicly-traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We also have paid compensation through the issuance of shares of our common stock and warrants, the valuation of which has resulted in significant stock-based compensation. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies and will require us to comply with these rules. These new rules and regulations have will increase our legal and financial compliance costs and have made some activities more time-consuming and costly. In addition, these new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.
To fund future operations, we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot be certain that anticipated additional financing will be available to us on favorable terms, or at all.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2017 COMPARED TO YEAR ENDED JUNE 30, 2016
Revenues
We did not have any operating revenues for the years ended June 30, 2017 and 2016.
Operating Expenses
General and administrative expenses decreased $2,318,011 to $1,035,762 for the year ended June 30, 2017 from $3,353,773 for the year ended June 30, 2016. The decrease was primarily due to the reduction of stock-based compensation in fiscal year 2016 when we issued warrants to officers and directors. The decrease in general and administrative expenses in the current year was partially offset by increases in professional fees and executive compensation.
Research and development expenses decreased $98,561 to $21,636 for the year ended June 30, 2017 from $120,197 for the year ended June 30, 2016. The decrease resulted from the Company’s new strategy to expand its mobile technology operations to acquisitions of or partnering with revenue generating companies, rather than internal research and development programs.
Depreciation and amortization expense is currently not material to our operations. Depreciation and amortization expense was $0 and $47 for the years ended June 30, 2017 and 2016, respectively.
Other Income (Expense)
For the year ended June 30, 2017, our other income totaled $1,390,273, comprised of interest and other income of $2,408, realized gain on sale of marketable securities of $136,664, unrealized gain on marketable securities of $240,800, and change in fair value of derivative liability of $2,707,896, partially offset by interest expense of $656,421, loss on disposition of property and equipment of $4,870 and loss on extinguishment of debt of $1,036,204. By comparison, our other expense totaled $1,556,566 for the year ended June 30, 2016, comprised of amortization of interest expense of $477,566, change in fair value of derivative liability of $1,056,145 and loss on disposition of property and equipment of $22,855.
The realized gain on sale of marketable securities resulted from recognizing the gain on sale of the investment in Viva Entertainment of $106,000 in fiscal year 2017 by recording a convertible promissory note and accrued interest receivable from Viva Entertainment. Pursuant to multiple conversions during April 2017 through June 2017, the Company converted $33,128 principal of the Viva Note and $2,205 accrued interest receivable into a total of 173,809,000 common shares of Viva Entertainment. In subsequent sales of Viva Entertainment stock, the Company received net proceeds of $52,800 and recorded a realized gain on sale of marketable securities of $30,664.
As of June 30, 2017, the Company held a total of 86,000,000 common shares of Viva Entertainment, recorded at market value of $253,998. In recording the $253,998 market value of as of June 30, 2017, the Company recorded an unrealized gain on marketable securities of $240,800.
The increase in our interest expense, which includes the amortization of debt discount and original issue discount, resulted from the increase in our convertible notes payable during the current fiscal year.
The inputs used to estimate fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
The significant increase in loss on extinguishment of debt in the current fiscal year resulted from multiple conversions of convertible notes payable into shares of our common stock where the conversion price was substantially lower than the current market price of the common shares issued in the conversions. We reported no loss on conversion of debt into common stock in the year ended June 30, 2016.
Net Income (Loss)
As a result, our net income was $332,875 for the year ended June 30, 2017 compared to net loss of $5,030,583 for the year ended June 30, 2016.
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of June 30, 2017, our current liabilities exceeded our current assets by $208,630 and we had a total stockholders’ deficit of $207,930. Included in our current liabilities was a derivative liability of $226,731, which we do not anticipate will require the outlay of cash.
As of June 30, 2017, the Company had $15,691 in cash, not sufficient to fund our operations for the next twelve months. However, we have converted two notes receivable from Viva Entertainment Group into shares of Viva Entertainment Group’s common stock and have sold a significant portion of the shares into the market to raise capital for our operations, including those shares we held as trading securities as of June 30, 2017. We have transferred a total of approximately $570,000 to our operating bank account, substantially all subsequent to June 30, 2017, to fund the development of our business.
We have also improved our liquidity through the reduction in our convertible debt. As of June 30, 2017, we had convertible notes payable before debt discount of $88,776. Through multiple conversions of convertible notes payable subsequent to June 30, 2017, $42,276 of the convertible notes payable was extinguished.
Sources and Uses of Cash
We used net cash in operating activities of $265,683 in the year ended June 30, 2017 as a result of our net income of $332,875, non-cash expenses totaling $2,418,165, and increases in accounts payable of $18,353, due to related party of $16,971 and accrued expenses of $41,156, offset by non-cash gains totaling $3,085,360, increase in prepaid expenses of $6,934 and increase in accrued interest receivable of $909.
By comparison, we used net cash in operating activities of $478,013 in the year ended June 30, 2016 as a result of our net loss of $5,030,583, increase in deposits of $700 and decrease in due to related party of $97,539, partially offset by non-cash expenses totaling $4,609,201 and increases in accounts payable of $5,065 and accrued expenses of $36,543.
During the year ended June 30, 2017, net cash provided by investing activities was $52,800, comprised of proceeds from the sale of marketable securities. We had no net cash used in or provided by investing activities for the year ended June 30, 2016.
We had net cash provided by financing activities of $226,600 for the year ended June 30, 2017, comprised of proceeds from convertible notes payable. For the year ended June 30, 2016, net cash provided by financing activities was $434,144, comprised of proceeds from convertible notes payable of $200,500, proceeds from related party of $178,644 and proceeds from sale of common stock of $55,000.
We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.
Going Concern
The Company has not generated any operating revenues, has recurring losses from operations, a working capital deficiency as of June 30, 2017 of $208,630, and used net cash in operations of $265,683 and $478,013 for the years ended June 30, 2017 and 2016, respectively. In addition, as of June 30, 2017, the Company had an accumulated deficit of $4,826,882. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.
There can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Based on the Company's current resources, the Company will not be able to continue to operate without additional immediate funding. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 1 to our financial statements. The following is a summary of those accounting policies that involve significant estimates and judgment of management.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.
Accounting for Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, and, in the case of our convertible notes payable, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments require 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, 2017 and 2016, the amounts reported for cash, note receivable, accrued interest receivable, note payable, accounts payable, due to related party and accrued expenses approximate 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 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
· 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
· 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.
Our marketable securities are measured at fair value on a recurring basis and estimated as follows:
Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Disclosure under Item 7A is not required of smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INTEGRATED VENTURES, INC.
(FORMERLY EMS FIND, INC.)
Leigh J. Kremer, CPA
Certified Public Accountant
Member NJCPA, PCAOB
Phone (732) 222-4422
27 Beach Road, Suite C05B
Monmouth Beach, NJ 07750
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Integrated Ventures, Inc. (formerly EMS Find, Inc.)
We have audited the accompanying balance sheets of Integrated Ventures, Inc. (formerly EMS Find, Inc.) as of June 30, 2017 and 2016, and the related statements of operations, stockholders’ deficit, and cash flows for the years ended June 30, 2017 and 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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 designed audit procedures, 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 Integrated Ventures, Inc. (formerly EMS Find, Inc.) as of June 30, 2017 and 2016, and the results of its operations and its cash flows for the two years in the period ended June 30, 2017, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Leigh J. Kremer, CPA
Monmouth Beach, N.J.
September 14, 2017
See notes to financial statements
See notes to financial statements
Integrated Ventures, Inc.
(formerly EMS Find, Inc.)
Statements of Stockholders’ Deficit
For the Years Ended June 30, 2017 and 2016
See notes to financial statements
See notes to financial statements
Integrated Ventures, Inc.
(formerly EMS Find, Inc.)
Notes to Financial Statements
Years Ended December 31, 2017 and 2016
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Integrated Ventures, Inc. (the "Company," "we," "our," or "EMS Find") was incorporated in the State of Nevada on March 22, 2011, under the name of Lightcollar, Inc. On March 20, 2015, the Company amended its articles of incorporation and changed its name from Lightcollar, Inc. to EMS Find, Inc. On May 30, 2017, Integrated Ventures, Inc. (“Integrated Ventures”), a Nevada corporation, was formed as a wholly owned subsidiary of the Company. Pursuant to an Agreement and Plan of Merger dated May 30, 2017, Integrated Ventures was merged into the Company, with the Company being the surviving corporation and changing its name to Integrated Ventures, Inc.
On March 31, 2015, the Company signed the share exchange agreement with EMS Factory, Inc. ("EMS Factory"), a company incorporated under the laws of the State of Pennsylvania, and the shareholder of EMS Factory (the "Selling Shareholder") pursuant to a share exchange agreement by and among the Company, EMS Factory and the Selling Shareholder. The Company acquired 100% of the issued and outstanding securities of EMS Factory in exchange for the issuance of 10,000,000 shares of the Company's restricted Common Stock, par value $0.001 per share and 500,000 shares of the Company's Series A Preferred Stock, par value $0.001. As a result of the Agreement the Selling Shareholder acquired up to 49% of the voting rights of Company's currently issued and outstanding shares of common stock. Upon completion of the agreement, EMS Factory became a wholly-owned subsidiary and the Company acquired the business and operations of EMS Factory. As of the second quarter of 2015, EMS Factory discontinued operations.
On October 21, 2015, the Company formed Viva Entertainment Group, Inc. ("Viva Entertainment,") a Delaware corporation, as a wholly-owned subsidiary. Viva Entertainment was formed to manage the development and marketing of it's over the top ("IPTV/OTT") application for connected TVs, desktop computers, tablets and smart phones. On April 6, 2016, the Company sold Viva Entertainment to Black River Petroleum Corp. ("Black River."
The Company transitioned its operations from acting as a licensed ambulance provider to providing medical transportation information and acting as an intermediary coordinating dispatch services for providers, patients and medical transport companies. The Company is designing, developing, marketing, and operating software assets mainly in the on-demand mobile healthcare sector, and plans to expand its mobile technology operations to acquisitions of or partnering with revenue generating companies, primarily in the healthcare, e-commerce, mobile technologies, transportation and consumer goods markets. There is no assurance that the required additional capital for this effort will be available to enable us to expand the scope of our operations into this area.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in non-interest-bearing accounts that currently do not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company had cash balances of $15,691 and $1,974 as of June 30, 2017 and 2016, respectively.
Marketable Securities
The marketable security investments of the Company include common shares of Viva Entertainment received in the conversion of a convertible note receivable from Viva. These marketable securities are included in current assets in the balance sheet, are classified as trading securities, and reported at fair value based on quoted market prices. Changes in the fair value of the investments during the period are recorded as unrealized gains or losses in other (income) expense in the statements of operations. Realized gains on the sale of marketable securities are included in other (income) expense in the statements of operations.
Property and Equipment Held for Sale
Property and equipment held for sale as of June 30, 2016 consisted of ambulances and medical equipment stated at cost, which was disposed of in fiscal year 2017.
Accounting for Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, and, in the case of our convertible notes payable, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Stock-Based Compensation
The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options, warrants and other equity based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition provisions ASC Topic 505-50. The Company estimates the fair value of stock options and warrants at the grant date by using the Black-Scholes option-pricing model.
The Company accounts for non-employee share-based awards based upon ASC 505-50, "Equity-Based Payments to Non-Employees." ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
Revenue Recognition
The Company's revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition ("SAB 104"), and other applicable revenue recognition guidance under US GAAP. Sales revenue is recognized for our retail and wholesale customers when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured - generally when products are shipped to the customer and services are rendered, except in situations in which title passes upon receipt of the products by the customer. In this case, revenues are recognized upon services rendered.
Income Taxes
The Company adopted the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2017, tax years 2016 and 2015 remains open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
The Company adopted ASC 740-10, “Definition of Settlement in FASB Interpretation No. 48,” (“ASC 740-10”), which was issued on May 2, 2007. ASC 740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms “ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying financial statements.
Income (Loss) Per Share
Basic net income or loss per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income or loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as “in-the-money” stock options and warrants, convertible debt and convertible preferred stock, were exercised or converted into common stock. Equivalent shares are not utilized when the effect is anti-dilutive.
As of June 30, 2017, dilutive common stock equivalent shares which may dilute future earnings per share include 239,047,400 common shares issuable upon conversion of convertible notes payable. As of June 30, 2016, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share.
The common shares used in the computation of basic and diluted net income (loss) per share are reconciled as follows:
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments require 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, 2017 and 2016, the amounts reported for cash, note receivable, accrued interest receivable, note payable, accounts payable, due to related party and accrued expenses approximate 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 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
· 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
· 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.
Our marketable securities are measured at fair value on a recurring basis and estimated as follows:
Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:
During the years ended June 30, 2017 and 2016, the Company had the following activity in its derivative liability:
Reclassifications
Certain amounts in the financial statements for the year ended June 30, 2016 have been reclassified to conform to the presentation for the year ended June 30, 2017.
Recently Issued Accounting Pronouncements
In July 2017, the FASB issued Accounting Standards Update ("ASU") 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception." Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, "Distinguishing Liabilities from Equity," because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-4, "Intangibles - Goodwill and Other (Topic 350): "Simplifying the Test for Goodwill Impairment." This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.
In January 2017, the FASB issued ASU No. 2017-1, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
2. GOING CONCERN
The Company has not generated any operating revenues, has recurring losses from operations, a working capital deficiency as of June 30, 2017 of $208,630, and used net cash in operations of $265,683 and $478,013 for the years ended June 30, 2017 and 2016, respectively. In addition, as of June 30, 2017, the Company had an accumulated deficit of $4,826,882. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.
There can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Based on the Company's current resources, the Company will not be able to continue to operate without additional immediate funding. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
3. RELATED PARTY TRANSACTIONS
On August 5, 2015, Shang Fei resigned from the Company as a board member and surrendered his 500,000 shares of Series A Preferred Stock which the Company had issued to him in March 2015. Mr. Shang Fei also has provided the Company with $260,000 of capital of which $210,000 and a prior loan for expenses of $19,015 were converted into 212,050 shares of common stock.
On September 25, 2015, the Company authorized the issuance of 125,000 shares of common stock as part of an agreement with Daniel Grillo (“Grillo”), a director of the Company, for services from September 25, 2015 through March 31, 2016. The shares were valued at $177,500 based on the market price of the Company’s common stock on the date of issuance.
On October 28, 2015, Viva Entertainment, then a subsidiary of the Company, entered into an employment agreement with Johnny Falcones (“Falcones”), for the period October 28, 2015 through December 31, 2018. Falcones was issued on January 2, 2016, warrants to purchase 3,000,000 shares of common stock of the Company, with an exercise price of $0.74 and an expiration date of January 2, 20121. The common stock of the Company current price on the date of the issuance was $0.47. The warrants were valued at $0.383 using a Black-Scholes calculation. The Company recorded an expense of $1,149,000 in the year ended June 30, 2016. Additionally, Falcones would receive three year warrants to purchase up to 5% of the common stock of Viva Entertainment, at an exercise price of $0.50, which were exercisable in the event that Viva Entertainment was spun out of the Company. Furthermore, Falcones was to receive 375,000 shares of common stock of the Company on a monthly basis, starting on February 1, 2016, for a period of four months, for an aggregate total of 1,500,000 shares of common stock of the Company. On April 6, 2016, as part of the sale of Viva Entertainment, these warrants held by Falcones were cancelled and his employment agreement terminated. The Company issued 500,000 shares to Falcones in April 2016, valued at $105,000 based on the market price of the Company’s common stock on the date of issuance.
On January 2, 2016, the Company issued 3,000,000 warrants for common stock of the Company to Steve Rubakh, the Company’s President and Chief Executive Officer, as a compensation incentive. The warrants were to mature on January 2, 2021 and had an exercise price of $0.74 and a cashless exercise option. The common stock of the Company current price on the date of issuance was $0.47. The warrants were valued at $0.383 using a Black-Scholes calculation. The Company recorded a stock-based compensation expense of $1,149,000 in the year ended June 30, 2016. The warrants were surrendered by Steve Rubakh in June 2017 and cancelled.
On March 15, 2016, the Company issued 242,424 shares of common stock to Sophia Rubakh, a relative of Steve Rubakh, in consideration of various consulting, administrative and marketing services provided to the Company. The shares were valued at $50,909 based on the market price of the Company’s common stock on the date of issuance.
On June 1, 2016, the Company entered into a convertible promissory note with Steve Rubakh, converting $81,364 of payables to Steve Rubakh into the note. The note was non-interest bearing and matured on December 1, 2016. The note had a conversion rate of $0.03 per share. The closing price of the Company’s common stock on the previous day was $0.08. On June 27, 2016, Steve Rubakh converted the principal of $81,364 into 2,712,133 shares of common stock. The conversion price was $0.03 whereas the current stock price was $0.14 therefore, a loss of $298,335 was recorded. Additionally, amortization of debt discount expense of $61,134 was recorded as of the date of conversion.
As of June 30, 2016, 120,000 common shares were issuable to Steve Rubakh for compensation. The shares were issued to him during fiscal year ended June 30, 2017.
On July 1, 2016, the Board of Directors of the Company agreed with Steve Rubakh to reduce his compensation to $75,000 per year and to terminate the monthly issuance of 30,000 shares of common stock and in exchange, Steve Rubakh is to receive 30,000 shares of Series B Preferred Stock on a quarterly basis. For the year ended June 30, 2017, the Company authorized the issuance of 150,000 shares of Series B preferred stock as part of Steve Rubakh's compensation package. Stock-based compensation of $725,400 was recorded.
On July 1, 2016, the Board of Directors of the Company agreed with Steve Rubakh to convert $6,000 of accrued compensation into 300,000 shares of common stock, at a conversion rate of $0.02 per share. The current price of the common stock was $0.125, therefore, a loss on conversion of $31,500 was recorded.
On February 14, 2017, the Board of Directors of the Company agreed with Steve Rubakh to convert $31,216 of accrued compensation into 12,486,400 shares of common stock, at a conversion rate of $0.0025 per share.
On February 14, 2017, 6,618,400 shares of common stock valued at $16,546 were issued to Steve Rubakh to reimburse him for payments made by him to a vendor.
Due to related parties, primarily shareholders, was $20,216 and $31,476 at June 30, 2017 and 2016, respectively.
Included in accrued expenses at June 30, 2017 and 2016 were amounts payable to Steve Rubakh for accrued compensation of $28,568 and $24,084, respectively.
4. NOTE RECEIVABLE AND MARKETABLE SECURITIES
On April 6, 2016, the Company completed the sale of its subsidiary, Viva Entertainment Group, Inc. (“Viva Entertainment”), to Black River Petroleum Corp., a Nevada publicly-traded company (“Black River”), at a closing where, in exchange for all sale of all of the outstanding shares of Viva Entertainment, Black River issued to the Company its 10% (15% default rate) promissory note in the principal amount of $100,000, due December 31, 2016 (the “Viva Note”). The Company gave no effect to the Viva Note in its financial statements, pending collection of the note and completion of the transaction. We discontinued consolidation of the accounts of Viva Entertainment effective April 6, 2016.
On February 27, 2017, the Viva Note was in default and no repayments to the Company had been made. On that date, the parties entered into an addendum to the Viva Note, establishing the principal amount at $100,000 and accrued interest at $6,000. Terms of the Viva Note were also amended to allow the Company to convert the unpaid principal and interest into common shares of Viva Entertainment using a Variable Conversion Price equal to 50% of the lowest one day Trading Price for the Viva Entertainment common stock during the twenty Trading Day period ending on the last complete Trading Day prior to the Conversion Date. Effective February 27, 2017, the Company recognized a gain of $106,000 on the April 6, 2016 sale of its investment in Viva Entertainment and recorded a note receivable of $100,000 and accrued interest receivable of $3,000.
On April 4, 2017, the Company and Global Opportunity Group LLC (“Global”), a lender, entered into a Purchase, Exchange and Escrow Agreement whereby the Company assigned $50,000 principal and $3,000 accrued interest of the Viva Note to Global in extinguishment of a convertible promissory note payable to Global dated March 28, 2017 with a principal balance of $18,150 and accrued interest payable of $35. The Company recognized a gain on extinguishment of debt of $34,815.
These common shares of Viva Entertainment were initially recorded at their cost basis, as determined by the principal balance of the Viva Note and accrued interest converted, and are classified as trading securities in the Company’s financial statements, and subsequently reported at fair value based on quoted market prices. Changes in the fair value of the marketable securities are recorded as unrealized gains or losses in other (income) expense in the statements of operations. Realized gains on the sale of marketable securities are included in other (income) expense in the statements of operations.
Pursuant to multiple conversions during April 2017 through June 2017, the Company converted $33,128 principal of the Viva Note and $2,205 accrued interest payable into a total of 173,809,000 common shares of Viva Entertainment. As of June 30, 2017, the Viva Note had a principal balance of $16,872 and accrued interest of $1,519 outstanding.
Total net proceeds from the sale of Viva Entertainment common stock were $52,800 and the Company recorded a realized gain on sale of marketable securities of $30,664.
As of June 30, 2017, the Company held a total of 86,000,000 common shares of Viva Entertainment, recorded at market value of $253,998. The Company recorded total unrealized gains on marketable securities of $240,800 during the year ended June 30, 2017.
On March 28, 2017, Viva Entertainment issued the Company a convertible promissory note in the principal amount of $8,935 as consideration for the Company’s payment to a vender on behalf of Viva Entertainment. The note bears interest at 8% and matures on March 31, 2018. The note is convertible into common shares of Viva Entertainment at an exercise price of 40% of the lowest trading price during the ten trading days ending on the trading date prior to the conversion notice.
On June 30, 2017, the Company entered into a Purchase and Exchange Agreement with Viva Entertainment and Global Opportunity Group LLC (“Global”) pursuant to which the Company assigned the $8,985 principal balance and $184 accrued interest receivable to Global in payment of a convertible promissory note payable to Global with a principal balance of $11,992 and accrued interest payable of $280 (see Note 5).
5. NOTES PAYABLE
Notes payable, all classified as current, consist of the following:
Note Payable
On October 22, 2015, the Company entered into a Securities Purchase Agreement ("Purchase Agreement"), dated as of October 22, 2015, with LG Capital Funding, LLC ("LG"), pursuant to which the Company sold LG a convertible note in the principal amount of $125,000 (the first of four such Convertible Notes each in the principal amount of $125,000 provided for under the Purchase Agreement), bearing interest at the rate of 8% per annum (the "Convertible Note"). Each of the Convertible Notes issuable under the Purchase Agreement provides for a 15% original issue discount ("OID"), such that the purchase price for each Convertible Note is $106,250, and at each closing LG is entitled to be paid $6,000 for legal and other expenses. The Convertible Note provides LG the right to convert the outstanding balance, including accrued and unpaid interest, of such Convertible Note into shares of the Company's common stock at a price ("Conversion Price") for each share of common stock equal to 80% of the lowest trading price of the common stock as reported on the National Quotations Bureau for the OTCQB exchange on which the Company's shares are traded or any exchange upon which the common stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer agent. The Convertible Note was payable, along with interest thereon, on October 22, 2016 and was in default. The convertible note had an OID of 15%, which was recorded at $18,750 and which has been fully amortized. The Company recorded a debt discount of $44,643, which has also been fully amortized.. As of June 30, 2016, the Company had recorded a derivative liability of $573,157.
On October 14, 2016, the Supreme Court of the State of New York County of Kings, in regard to LG Capital Funding, LLC v. EMS Find, Inc., issued a judgment against EMS Find, Inc. in favor of LG Capital Funding, LLC, in the amount of $135,202, which includes principal and interest (calculated as of September 29, 2016), in regard to the convertible promissory note dated October 22, 2015. The judgment includes an Information Subpoena with Restraining Notice, which addressed the EMS Find, Inc. bank account at TD Bank. As of the date of this filing, $1,304 was garnished. As a result of the judgment, the conversion feature of the note was eliminated and therefore, the associated derivative liability was extinguished. As of June 30, 2017, the debt has been recorded as a note payable of $125,000, a current liability in the balance sheet, and $21,621 of interest has been accrued.
Convertible Notes Payable
On December 3, 2015, the Company issued the second convertible note to LG for $125,000. The Company recorded an OID of 15%, or $18,750, and which has been fully amortized. The Company recorded a debt discount of $85,165, which has been fully amortized. The Company sold $60,000 principal of the note to Global Opportunity Group, LLC (“Global”) on August 18, 2016, $40,000 principal of the note and $462 accrued interest to GPL Ventures, LLC (“GPL”) on December 15, 2016 and sold $50,000 principal of the note (including a $25,000 penalty added to principal) to Global on February 21, 2017. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On July 21, 2016, the Company issued a convertible promissory note with Old Main Capital, LLC (“Old Main”) for $33,333. The note matures on July 21, 2017 and bears interest at 10%. The convertible promissory note provided for an OID of $3,333, a deduction of $1,250 for Old Main’s legal fees, and $2,500 for Old Main’s legal fees related to the equity purchase agreement. Therefore, the net proceeds to the Company was $26,250. The Company recorded a debt discount of $33,333. The debt discount and OID have been fully amortized. The conversion price is the lower of 65% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. On April 20, 2017, the Company and Old Main entered into a Settlement Agreement & Mutual Release with respect to this note, resulting in penalties of $22,667 added to the note principal to bring the principal balance to $56,000 and requiring a principal payment of $30,000, which payment was financed by the issuance of a new convertible promissory to Global. Pursuant to multiple conversions during April and May 2017, the remaining principal of $26,000 was extinguished through the issuance of 14,106,143 shares of the Company’s common stock and accrued interest payable of $2,574 was written off.
On July 25, 2016, the Company entered into an equity purchase agreement with River North Equity, LLC (“River North”) for up to $2,000,000. On July 25, 2016, the Company entered into a convertible promissory note with River North for $33,333. The convertible promissory note had a maturity date of March 29, 2017 and bears interest at 10%. The convertible promissory note provided for an OID of $3,333, a deduction of $4,000 for River North’s legal fees, and a debt discount of $33,333. The conversion price is the lower of 65% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. On February 1, 2017, River North converted $2,036 principal and $1,744 accrued interest into 2,643,876 common shares of the Company. On April 20, 2017, the Company and River North entered into a Settlement Agreement & Mutual Release with respect to this note, resulting in penalties of $17,955 added to the note principal to bring the principal balance to $49,252 and requiring a principal payment of $30,000, which payment was financed by the issuance of a new convertible promissory to Global. On June 2, 2017, River North converted $14,592 principal into 8,634,266 common shares of the Company, resulting in a principal balance of $4,660 as of June 30, 2017. As of June 30, 2017, the OID and the debt discount had been fully amortized and there was accrued interest payable of $1,236. The Company has recorded a derivative liability of $12,535 as of June 30, 2017.
On August 10, 2016, the Company issued a convertible promissory note with Global for $16,500. The convertible promissory note has a maturity date of August 10, 2017 and bears interest at 12%. The convertible promissory note provided for an OID of $1,500, a deduction of $1,000 for Global’s legal fees, and a debt discount of $16,500. The Company received net proceeds of $15,000. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the conversion date. Additionally, the Company issued 165,000 five-year warrants for common stock with an exercise price of $0.15 per share, subject to certain adjustments, and a cashless exercise option. The Company sold $16,500 of the principal of the note to Howard Schraub (“Schraub”) on March 16, 2017 and wrote off accrued interest payable of $1,063. As of June 30, 2017, the OID and the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On August 18, 2016, Global purchased $60,000 of the December 2015 LG convertible promissory note. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the conversion date. The acquisition was in two tranches, $30,000 each, thirty days apart. In multiple conversions during August 2016 through January 2017, Global converted $68,593 principal (including a penalty of $8,593 added to principal), $101 accrued interest payable and $5,000 in fees into 12,472,222 shares of the Company’s common stock. The replacement note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On August 23, 2016, the Company issued a convertible promissory note with EMA Financial, LLC (“EMA”), for $33,000. The convertible promissory note had a maturity date of August 23, 2017 and bears interest at 16%. The convertible promissory note provided for an OID of $3,300, a deduction of $3,000 for EMA’s legal fees, and a debt discount of $33,000. The Company received net proceeds of $29,700. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. In April 2017, penalties totaling $8,249 were added to the note principal. Pursuant to multiple conversions in March and April 2017, EMA converted the entire principal of $41,249 into 25,157,579 shares of the Company’s common stock and wrote off $3,172 accrued interest payable. As of June 30, 2017, the OID and the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On October 6, 2016, the Company issued a convertible promissory note with EMA for $33,000. The note matures on October 6, 2017 and bears interest at 12%. A debt discount of $33,000 was recorded. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. Pursuant to multiple conversions in May and June 2017, EMA converted principal of $24,084 into 48,800,000 shares of the Company’s common stock, resulting in a principal balance of $8,916 as of June 30, 2017. As of June 30, 2017, $30,606 of the debt discount had been amortized, and there was accrued interest of $2,677. The Company has recorded a derivative liability of $25,368 as of June 30, 2017.
On December 2, 2016, the Company issued a convertible promissory note with Global for $18,700. The note matures on December 2, 2017 and bears interest at 12%. The convertible promissory note provided for an OID of $1,700; therefore, the net proceeds to the Company was $17,000. A debt discount of $18,700 was recorded. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. As of June 30, 2017, $978 of the OID had been amortized, $15,822 of the debt discount had been amortized and there was accrued interest of $1,297. The Company has recorded a derivative liability of $47,634 as of June 30, 2017. Additionally, the Company issued 82,500 five-year warrants for common stock with an exercise price of $0.15 per share, subject to certain adjustments, and a cashless exercise option.
On December 13, 2016, the Company issued a convertible promissory note with GPL for $10,000. The note matures on July 13, 2017 and bears interest at 12%. A debt discount of $10,000 was recorded. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. As of June 30, 2017, $9,387 of the debt discount had been amortized, and there was accrued interest of $658. The Company has recorded a derivative liability of $24,876 as of June 30, 2017.
On December 15, 2016, GPL purchased $40,000 principal and $462 accrued interest of the December 2015 LG convertible promissory note. The replacement convertible promissory note with GPL for $40,462 matures on July 15, 2017 and bears interest at 10%. A debt discount of $40,462 was recorded. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. Pursuant to three conversions in December 2016 through February 2017, GPL converted $1,270 principal into 12,700,000 shares of the Company’s common stock. On May 12, 2017, the Company and GPL entered into a Settlement and Release Agreement pursuant to which the remaining principal of $39,192 and accrued interest payable of $1,604 were extinguished. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On February 13, 2017, the Company issued a convertible promissory note with Global for $10,000. The note matures on February 13, 2018 and bears interest at 2%. The convertible promissory note provides for an OID of $1,000. Therefore, the net proceeds to the Company was $9,000. A debt discount of $10,000 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. As of June 30, 2017, $375 of the OID had been amortized, $3,753 of the debt discount had been amortized and there was accrued interest of $75. The Company has recorded a derivative liability of $22,661 as of June 30, 2017. Additionally, the Company issued 333,333 seven-year warrants for common stock with an exercise price of $0.01 per share, subject to certain adjustments, and a cashless exercise option.
On February 21, 2017, Global purchased $50,000 principal of the December 2015 LG convertible promissory note. The $50,000 replacement note matures on February 21, 2018 and interest does not accrue prior to an event of default or the maturity date. A debt discount of $50,000 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to four conversions in February 2017 through March 2017, Global converted $34,159 principal and $2,000 in fees into 17,923,000 shares of the Company’s common stock. On April 25, 2017, the Company sold the remaining $15,841 principal to Schraub. As of June 30, 2017, the debt discount had been fully amortized.
On March 16, 2017, Schraub purchased $16,500 principal of the August 10, 2016 Global convertible promissory note. The $16,500 replacement note matures on March 16, 2018 and bears interest at 12%. A debt discount of $16,500 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in March and April 2017, Schraub converted the entire principal of $16,500 and $400 in fees into 8,000,557 shares of the Company’s common stock. As of June 30, 2017, the debt discount had been fully amortized and accrued interest of $57 was written off. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On March 28, 2017, the Company issued a convertible promissory note with Schraub for $16,500. The note matures on March 28, 2018 and bears interest at 10%. A debt discount of $16,500 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. As of June 30, 2017, $4,250 of the debt discount had been amortized and there was accrued interest of $425. The Company has recorded a derivative liability of $42,814 as of June 30, 2017. Additionally, the Company issued 605,000 seven-year warrants for common stock with an exercise price of $0.01 per share, subject to certain adjustments, and a cashless exercise option. These warrants were surrendered to the Company and cancelled on May 8, 2017.
On March 28, 2017, the Company issued a convertible promissory note with Global for $18,150. The note matures on March 28, 2018 and bears interest at 10%. The convertible promissory note provides for an OID of $1,750. Therefore, the net proceeds to the Company was $16,400. A debt discount of $18,150 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Additionally, the Company issued 605,000 seven-year warrants for common stock with an exercise price of $0.01 per share, subject to certain adjustments, and a cashless exercise option. On April 4, 2017, the Company and Global entered into a Purchase, Exchange and Escrow Agreement pursuant to which $18,150 principal and $35 accrued interest payable were extinguished through assignment to Global of $50,000 of the Viva Entertainment note receivable (see Note 4). As of June 30, 2017, the OID and debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017. The warrants were surrendered to the Company and cancelled pursuant to the Purchase, Exchange and Escrow Agreement.
On April 4, 2017, the Company issued a convertible promissory note with Schraub for $20,000. The note matures on April 4, 2018 and bears interest at 10%. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. As of June 30, 2017, $4,767 of the debt discount had been amortized and there was accrued interest of $477. The Company has recorded a derivative liability of $50,843 as of June 30, 2017. Additionally, the Company issued 750,000 seven-year warrants for common stock with an exercise price of $0.01 per share, subject to certain adjustments, and a cashless exercise option. These warrants were surrendered to the Company and cancelled on May 8, 2017.
On April 13, 2017, the Company issued a convertible promissory note with Global for $30,000 to partially fund the settlement with Old Main discussed above. The note matures on April 13, 2018 and bears interest at 10%. A debt discount of $30,000 was recorded. The conversion price is 50% of the lowest traded price for the twenty-five consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in April and May 2017, Global converted $18,284 principal and $1,200 in fees into 11,134,000 shares of the Company’s common stock. On June 6, 2017, the Company sold the remaining $11,716 principal to Schraub. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On April 25, 2017, Schraub purchased a convertible promissory note from Global with a principal balance of $15,841. The note matures on March 28, 2018 and is non-interest bearing. A debt discount of $15,841 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in April and May 2017, Schraub converted the entire principal of $15,841 and $500 in fees into 9,777,933 shares of the Company’s common stock. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On May 16, 2017, the Company issued a convertible promissory note with Global for $30,000 to partially fund the settlement with River North discussed above. The note matures on May 16, 2018 and bears interest at 10%. A debt discount of $30,000 was recorded. The conversion price is 50% of the lowest traded price for the twenty-five consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in June 2017, Global converted $18,009 principal and $1,200 in fees into 18,109,000 shares of the Company’s common stock. On June 30, 2017, the Company and Global entered into a Purchase, Exchange and Escrow Agreement and Cancellation pursuant to which the remaining principal of $11,991 and $280 accrued interest payable were extinguished through the exchange with Global of a note receivable from Viva Entertainment with a principal balance of $8,985 and accrued interest receivable of $184 (see Note 4). As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On June 6, 2017, Schraub purchased a convertible promissory note from Global with a principal balance of $11,716. The note matures on March 13, 2018 and bears interest at 10%. A debt discount of $11,716 was recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in June 2017, Schraub converted the entire principal of $11,716 and $600 in fees into 19,053,500 shares of the Company’s common stock. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
As detailed above, during the year ended June 30, 2017, a total of 208,512,076 shares of the Company’s common stock, valued at $1,368,751, were issued in conversion of $292,332 note principal, $1,845 accrued interest payable, $10,900 in fees, $27,736 in penalties, $5,709 adjustment to debt discount and $1,030,229 loss on conversion of debt into common stock.
6. STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has 20,000,000 shares of Preferred Stock authorized.
Series A Preferred Stock
On March 10, 2015, the Company, with the approval of a majority vote of its Board of Directors, approved the filing of a Certificate of Designation establishing the designations, preferences, limitations and relative rights of 1,000,000 shares of the Company's Series A preferred stock (the "Series A Designation" and the "Series A Preferred Stock"). The terms of the Certificate of Designation of the Series A Preferred Stock, which was filed with the State of Nevada on March 12, 2015, include the right to vote in aggregate, on all shareholder matters equal to 1,000 votes per share of Series A Preferred Stock. The shares of Series A Preferred Stock are not convertible into shares of common stock.
On March 23, 2015, the Company issued 50,000 shares of Series A Preferred Stock in consideration for services on the Company's Board of Directors.
On March 31, 2015, the Company issued 450,000 shares of Series A Preferred Stock in consideration for services on the Company's Board of Directors.
On March 31, 2015, the Company issued 500,000 shares of Series A Preferred Stock as part of the share exchange agreement with EMS Factory, Inc.
On August 5, 2015, Shang Fei resigned from the Company as a board member and surrendered his 500,000 shares of Series A Preferred Stock which the Company had issued to him in March 2015.
Series B Preferred Stock
On December 21, 2015, the Company filed a Certificate of Designation for its new Series B Convertible Preferred Stock with the State of Nevada following approval by the board of directors of the Company. Five Hundred (500,000) Thousand shares of the Company's authorized preferred stock are designated as the Series B Convertible Preferred Stock (the "Series B Preferred Stock"), par value of $0.001 per share and with a stated value of $0.001 per share (the "Stated Value"). Holders of Series B Preferred Stock shall be entitled to receive dividends, when and as declared by the Board of Directors out of funds legally available therefor. At any time and from time to time after the issuance of shares of the Series B Preferred Stock, each issued share of Series B Preferred Stock is convertible into One (100) Hundred shares of Common Stock ("Conversion Ratio"). The holders of the Series B Preferred Stock shall have the right to vote together with holders of Common Stock, on an as "converted basis", on any matter that the Company's shareholders may be entitled to vote on, either by written consent or by proxy. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Series B Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series B Preferred Stock an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable prior to any distribution or payment shall be made to the holders of any junior securities.
On July 1, 2016, the Board of Directors of the Company agreed to compensate Steve Rubakh on a quarterly basis through the issuance of 30,000 shares of Series B Preferred Stock. For the year ended June 30, 2017, the Company issued 150,000 shares of Series B preferred stock to Steve Rubakh valued at $725,400.
Common Stock
During the year ended June 30, 2017, the Company issued a total of 227,976,876 shares of its common stock, including 60,000 shares issuable at June 30, 2016.
On July 1, 2016, 300,000 shares of common stock valued at $37,500 were issued to Steve Rubakh for accrued compensation.
On February 14, 2017, 12,486,400 shares of common stock valued at $31,216 were issued to Steve Rubakh for accrued compensation.
On February 14, 2017, 6,618,400 shares of common stock valued at $16,546 were issued to Steve Rubakh to reimburse him for payments of $16,546 made by him to a vendor.
As detailed in Note 5, during the year ended June 30, 2017, a total of 208,512,076 shares of the Company’s common stock, valued at $1,368,751, were issued in conversion of $292,332 note principal, $1,845 accrued interest payable, $10,900 in fees, $27,736 in penalties, $5,709 adjustment to debt discount and $1,030,229 loss on conversion of debt into common stock.
During the year ended June 30, 2016, the Company issued a total of 4,286,737 shares of its common stock, including 1200,000 shares issuable as of June 30, 2015.
On July 22, 2015, the Company sold 48,245 shares of common stock for $55,000 cash.
On July 30, 2015, the Company issued 26,885 shares of common stock for debt converted of $31,466.
On August 6, 2015, the Company issued to Shang Fei, a former board member, 17,606 shares of common stock for debt converted of $19,015 and 194,444 shares of common stock for debt converted of $210,000, for a total of 212,050 shares of common stock. See Note 4.
On September 25, 2015, the Company authorized the issuance of 125,000 shares of common stock as part of an agreement with Grillo, a director of the Company, for services from September 25, 2015 through March 31, 2016 valued at $177,500.
On March 15, 2016, the Company issued 242,424 shares of common stock to Sophia Rubakh, a relative of Rubakh, in consideration of various consulting administrative and marketing services provided to the Company. The shares were issued with a value of $0.21 per share, or $50,909.
On April 25, 2016, the Company issued 500,000 shares of common stock to Falcones as compensation for his services. The shares were issued with a value of $0.21 per share or $105,000.
On June 27, 2016, Rubakh converted his convertible promissory note in the amount of $81,364 into 2,712,133 shares of common stock. The conversion price was $0.03 per share whereas the current stock price was $0.14 per share, therefore, a loss of $298,335 was recorded.
For the year ended June 30, 2016, the Company authorized the issuance of 360,000 shares of common stock as part of Rubakh's compensation package, of which 300,000 shares were issued and 60,000 shares were issuable at June 30, 2016. Stock-based compensation of $489,117 was recorded.
7. WARRANTS
The Company has granted warrants to officers and directors. Warrant activity for officers and directors for the years ended June 30, 2017 and 2017 is as follows:
On January 2, 2016, the Company issued 3,000,000 warrants to Steve Rubakh as a compensation incentive. The warrants were to expire on January 2, 2021. The exercise price was $0.74 and the warrant had a cashless exercise option. The warrants were valued at $1,149,000 using a Black-Scholes calculation and recorded as compensation expense. The warrants were surrendered by Steve Rubakh in June 2017 and cancelled.
On January 2, 2016, the Company issued 3,000,000 warrants to Falcones as a compensation incentive. The warrants were to expire on January 2, 2021. The exercise price was $0.74 and the warrant had a cashless exercise option. The warrants were valued at $1,149,000 using a Black-Scholes calculation. As part of the April 6, 2016 sale of Viva Entertainment, these warrants were cancelled effective the date of issuance, therefore there was no expense recorded related to the issuance.
The Company has granted warrants to non-employee lenders in connection with the issuance of certain convertible promissory notes, certain of which were subsequently surrendered to the Company and cancelled. See Note 5. Warrant activity for these warrants for the years ended June 30, 2017 and 2016 is as follows:
The warrants were valued at the grant date using a Black-Scholes calculation. During the years ended June 30, 2017 and 2016, stock-based compensation totaling $20,844 and $10,320 was recorded for the warrants.
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of filing of this report, there were no pending or threatened lawsuits, except as stated below.
On October 14, 2016, the Supreme Court of the State of New York County of Kings, in regard to LG Capital Funding, LLC v. EMS Find, Inc., issued a judgment against EMS Find, Inc. in favor of LG Capital Funding, LLC, in the amount of $135,202, which includes principal and interest (calculated as of September 29, 2016), in regards to the convertible promissory note dated October 22, 2015. The judgment includes an Information Subpoena with Restraining Notice, which addressed the EMS Find, Inc. bank account at TD Bank. As of the date of this filing, $1,304 was garnished.
9. INCOME TAXES
For the years ended June 30, 2016 and 2015, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances.
As of June 30, 2017, the Company has net operating loss carry forwards of approximately $644,000 that expire through the year 2035. The Company’s net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.
The Company’s income tax expense (benefit) differs from the “expected” tax expense (benefit) for Federal income tax purposes (computed by applying the United States Federal tax rate of 34% to income (loss) before income taxes), as follows:
The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.
The tax years 2014 through 2017 remain open to examination by federal agencies and other jurisdictions in which it operates.
The tax effect of significant components of the Company’s deferred tax asset at June 30, 2017 and 2016, respectively, are as follows:
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Because of the historical earnings history of the Company, the net deferred tax assets for 2017 were fully offset by a 100% valuation allowance.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
Subsequent to June 30, 2017, the Company issued a total of 99,704,003 shares of its common stock to various lenders in a multiple conversions of convertible promissory note principal totaling $42,276. Pursuant to these conversions, the following convertible notes payable were extinguished in full (see Note 5): River North $4,660; Global $18,700; EMA $8,916 and GPL $10,000.
In July 2017, the Company converted the remaining principal balance of the convertible note receivable balance from Viva Entertainment (see Note 4) and received a total of 84,250,000 common shares of Viva Entertainment. The Company subsequently sold a total of 170,250,000 common shares of Viva Entertainment and received additional net proceeds of approximately $554,000.
In a cashless exercise in July 2017, a warrant holder partially exercised its warrant receiving 9,421,000 shares of the Company’s common stock.
On July 5, 2017, the Company loaned Viva Entertainment $50,000 in the form of a convertible promissory note. The note bears interest at 10% and matures on July 5, 2018. The note is convertible into common shares of Viva Entertainment at an exercise price of 40% of the lowest trading price during the ten trading days ending on the trading date prior to the conversion notice. On August 1, 2017, the Company converted the $50,000 principal of the note into 55,555,555 restricted common shares of Viva Entertainment.
On August 21, 2017, the Board of Directors of the Company approved a 1-for-50 reverse split of the Company’s common stock, effective upon approval by the Financial Industry Regulatory Authority (“FINRA”).
On August 31, 2017, the Company issued 17,361,111 shares of its common stock to an officer in payment of $15,625 accrued compensation.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management's Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. A material weakness is a deficiency, or a 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. We have identified the following material weaknesses:
1.
As of June 30, 2017, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
2.
As of June 30, 2017, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls and engaged an outside financial consultant to lessen the issue of segregation of duties over accounting, financial close procedures and controls over financial statement disclosure. Accordingly, management has determined that this control deficiency constitutes a material weakness.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2017, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
Changes in Internal Control Over Financial Reporting.
There have been no changes in the Company's internal control over financial reporting through the date of this report or during the quarter ended June 30, 2017, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Independent Registered Accountant's Internal Control Attestation.
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 Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Corrective Action.
Management plans to address the structure of the Board of Directors and discuss adding an audit committee during fiscal year 2018.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following table sets forth the names and positions of our current executive officers and directors.
Biographies of Directors and Executive Officers
Steve Rubakh has been our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and a Director since April 1, 2015. Mr. Rubakh founded EMS Factory, Inc., in 2011, where he oversaw the day to day operations and assisted in building and creating a vision for the company. At the end of 2014, Mr. Rubakh took the company to the next stage by initiating the development of the on-demand mobile application and platform on which the Company strategy is now based. In 2003, he founded Power Sports Factory, Inc., and served as the President until 2010. Prior to founding Power Sports Factory, Mr. Rubakh was the founder of International Parking Concepts specializing in providing services to the hospitality industry. Mr. Rubakh attended both Community College of Philadelphia and Temple University majoring in business administration.
Corporate Governance
Directors are elected at the annual stockholder meeting or appointed by our Board of Directors and serve for one year or until their successors are elected and qualified. When a new director is appointed to fill a vacancy created by an increase in the number of directors, that director holds office until the next election of one or more directors by stockholders. Officers are appointed by our Board of Directors and their terms of office are at the discretion of our Board of Directors.
Committees of our Board of Directors
Audit Committee. Our Board of Directors plans to establish an Audit Committee, the members of which shall be considered as independent under the standards for independence for audit committee members established by the NYSE. The Audit Committee will operate under a written charter.
Other Committees. The Board does not have standing compensation or nominating committees. The Board does not believe a compensation or nominating committee is necessary based on the size of the Company, the current levels of compensation to corporate officers and voting control by our major stockholder. The Board will consider establishing compensation and nominating committees at the appropriate time.
Stockholder Communications
The Board has not established a formal process for stockholders to send communications, including director nominations, to the Board; however, the names of all directors are available to stockholders in this report. Any stockholder may send a communication to any member of the Board of Directors, in care of the Company, at 73 Buck Road, Suite 2, Huntingdon Valley, PA 19006 (Attention: Secretary). Director nominations submitted by a stockholder will be considered by the full Board. Due to the infrequency of stockholder communications to the Board, the Board does not believe that a more formal process is necessary. However, the Board will consider, from time to time, whether adoption of a more formal process for such stockholder communications has become necessary or appropriate.
Other Information about our Board of Directors
During our fiscal year ended June 30, 2017, our Board of Directors acted by written consent 14 times.
We do not have a formal policy on attendance at meetings of our shareholders; however, we encourage all Board members to attend shareholder meetings that are held in conjunction with a meeting of our Board of Directors.
Board Role in Risk Oversight
Our Board has overall responsibility for risk oversight with a focus on the most significant risks facing our Company. Not all risks can be dealt with in the same way, and it is the Board’s responsibility to evaluate the potential adverse impact of risks faced by the Company and the resources allocated to avoid or mitigate the potential adverse impact.
Risk Assessment in Compensation Programs
The responsibility of the Board is to assess the Company’s compensation programs to identify potential risks arising from the Company’s compensation policies and practices that are reasonably likely to have a material adverse effect on the Company.
Directors’ and Officers’ Liability Insurance
The Company does not have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.
Director Compensation
We compensate directors as per specific agreements with each director. In fiscal year 2016, we issued Daniel Grillo 125,000 shares of common stock as compensation for his services. Director compensation to Steve Rubakh is included in the total compensation discussed in Item 11, Executive Compensation.
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(1) On September 25, 2015, the Company authorized the issuance of 125,000 shares of the Company’s common stock as part of an agreement with Daniel Grillo, a director of the Company, for services from September 25, 2015 through March 31, 2016. The shares were valued at $177,500 based on the market price on the date of issuance.
Section 16(a) Compliance by Officers and Directors
Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, together with written representations received by us from applicable parties that no Form 5 was required to be filed by such parties, all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed all such required reports during and with respect to our fiscal year ended June 30, 2017, except as follows.
Mr. Steve Rubakh, our CEO filed on September 19, 2016, a late Form 4 that reported the following transactions: the acquisition on June 27, 2016, through debt conversion, of 2,712,133 shares of common stock; the sale on August 30, 2016, of 10,500 shares of common stock; the sale on August 31, 2016 of 10,000 shares of common stock; and the sale on September 7, 2016 of 309,612 shares of common stock. On June 23, 2017, Mr. Rubakh filed a late Form 4 that reported the following transactions: the issuance to him on February 14, 2017 by the Company of 6,618,400 shares of common stock in conversion by Mr. Rubakh of outstanding debt of the Company; the issuance to Mr. Rubakh of 12,487,400 shares of common stock on February 14, 2017 by the Company in conversion by Mr. Rubakh of accrued payroll debt; the sale on March 31, 2017 of 608,085 shares of common stock; and the sale on April 25, 2017 of 231,116 shares of common stock. On August 3, 2017, Mr. Rubakh filed a Form 5 that reported five issuances to him by the Company of 30,000 shares each of Series B Preferred Stock on August 29, September 1 and November 1, 2016, and on February 22 and May 2, 2017.
Code of Ethics
We plan to adopt a revised Code of Ethics designed to deter wrongdoing and promote honest and ethical conduct, full, fair and accurate disclosure, compliance with laws, prompt internal reporting and accountability to adherence to the Code of Ethics.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
General
We have one executive officer, who is currently our only employee. On July 1, 2016, the Board of Directors of the Company agreed with Steve Rubakh to reduce his compensation to $75,000 per year and to terminate a prior arrangement to issue 30,000 shares of common stock each month, and in exchange, Steve Rubakh is to receive 30,000 shares of Series B Preferred Stock on a quarterly basis.
On July 29, 2017, the Board of Directors of the Company approved a change to the compensation of Steve Rubakh, increasing his annual salary to $125,000 and retaining the issuance of 30,000 shares of Series B Preferred Stock on a quarterly basis.
The following summary compensation table sets forth information concerning compensation for services rendered in all capacities, including that of director, during fiscal years 2017 and 2016 awarded to, earned by or paid to our executive officer.
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(1) Mr. Rubakh was appointed as CEO, CFO and Director on April 1, 2015.
(2) For the year ended June 30, 2017, the Company authorized the issuance of 150,000 shares of Series B preferred stock as part of Steve Rubakh's compensation package. Stock-based compensation of $725,400 was recorded, based on the market price of the Company’s common stock on an “as converted” basis.
Accrued compensation payable to Steve Rubakh at June 30, 2017 was $28,568.
Board of Directors Policy on Executive Compensation
Executive Compensation
Our executive compensation philosophy is to provide competitive levels of compensation by recognizing the need for multi-discipline management responsibilities, achievement of our Company’s overall performance goals, individual initiative and achievement, and allowing our Company to attract and retain management with the skills critical to its long-term success. Management compensation is intended to be set at levels that we believe is consistent with that provided in comparable companies. Our Company’s compensation programs will be designed to motivate executive officers to meet annual corporate performance goals and to enhance long-term stockholder value. Our Company's executive compensation has four major components: base salary, performance incentive, incentive stock options and other compensation. Our executive officer is not paid a base salary at this time, but is receiving stock compensation only.
Executive Base Salaries
Base salaries are determined by evaluating the various responsibilities for the position held, the experience of the individual and by comparing compensation levels for similar positions at companies within our principal industry. We plan to review our executives’ base salaries and determine increases based upon an officer’s contribution to corporate performance, current economic trends and competitive market conditions.
Performance Incentives
We plan to utilize performance incentives based upon criteria relating to performance in special projects undertaken during the past fiscal year, contribution to the development of new products, marketing strategies, manufacturing efficiencies, revenues, income and other operating goals to augment the base salaries received by executive officers.
Incentive Stock Options
Our Company plans to utilize stock options as a means to attract, retain and encourage management and to align the interests of executive officers with the long-term interest of our Company’s stockholders.
Benefits and Other Compensation
At this time, our Company does not offer a health plan to its executive officers or employees.
Retirement and Post-Retirement Benefits
Our Company does not offer at this time a post-retirement health plan to its executive officers or employees unless it is included in an employment agreement directly entered between employee and us.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information regarding the beneficial ownership of the Company’s common stock (and preferred stock) as of August 28, 2017, for:
i. each person or entity who, to our knowledge, beneficially owns more than 5% of our common stock;
ii. each executive officer and named officer;
iii. each director; and
iv. all of our officers and directors as a group.
Except as indicated in the footnotes to the following table, the persons named in the table has sole voting and investment power with respect to all shares of common stock and preferred stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: c/o 73 Buck Road, Suite 2, Huntingdon Valley, PA 19006.
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(1)
Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power to the shares of the Company's common stock.
(2)
As of August 28, 2017, a total of 369,753,151 shares of the Company's common stock are outstanding. For each Beneficial Owner listed, any options exercisable within 60 days have been also included for purposes of calculating their percent of class.
(3)
Officer and director.
(4)
Mr. Rubakh owns 33,166,629 shares of common stock directly, and 180,000 shares of Series B Convertible Preferred Stock directly, convertible into 18,000,000 shares of common stock. Mr. Rubakh also owns all of the outstanding 500,000 shares of super-voting Series A Preferred stock.
(5)
The Series A preferred stock is not convertible into common stock, but is representative of 500,000,000 shares of common stock solely for voting purposes.
(6)
The Series B preferred stock is convertible into 18,000,000 shares of common stock, and the holder has the right to vote, together with holders of Common Stock, on an as "converted basis".
Changes in Control
None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
On January 2, 2016, the Company issued 3,000,000 warrants for common stock of the Company to Steve Rubakh, the Company’s President and Chief Executive Officer, as a compensation incentive. The warrants were to mature on January 2, 2021 and had an exercise price of $0.74 and a cashless exercise option. The warrants were surrendered by Steve Rubakh in June 2017 and cancelled
On July 1, 2016, the Board of Directors of the Company agreed with Steve Rubakh to reduce his compensation to $75,000 per year and to terminate the monthly issuance of 30,000 shares of common stock and in exchange, Steve Rubakh is to receive 30,000 shares of Series B Preferred Stock on a quarterly basis. For the year ended June 30, 2017, the Company authorized the issuance of 150,000 shares of Series B preferred stock as part of Steve Rubakh's compensation package. Stock-based compensation of $725,400 was recorded.
On July 1, 2016, the Board of Directors of the Company agreed with Steve Rubakh to convert $6,000 of accrued compensation into 300,000 shares of common stock, at a conversion rate of $0.02 per share. The current price of the common stock was $0.125, therefore, a loss on conversion of $31,500 was recorded.
On February 14, 2017, the Board of Directors of the Company agreed with Steve Rubakh to convert $31,216 of accrued compensation into 12,486,400 shares of common stock, at a conversion rate of $0.0025 per share.
On February 14, 2017, 6,618,400 shares of common stock valued at $16,546 were issued to Steve Rubakh to reimburse him for payments made by him to a vendor.
Due to related parties, primarily shareholders, was $20,216 at June 30, 2017.
Included in accrued expenses at June 30, 2017 was $28,568 payable to Steve Rubakh for accrued compensation.
Director Independence
We currently have no independent directors as that term is defined in Rule 4200 of Nasdaq’s listing standards.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
For the years ended June 30, 2017 and 2016, the aggregate fees billed by Leigh J. Kremer, CPA for professional services rendered for the audit (including quarterly review) of our annual consolidated financial statements included in our annual report on Form 10-K were $17,000 and $12,500, respectively. Audit fees consist of amounts billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagement
Audit-Related Fees
For the years ended June 30, 2017 and 2016, no audit-related fees were billed by Leigh J. Kremer, CPA. Audit-related fees consist of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees.”
Tax Fees
Tax fees consist of professional services rendered for tax compliance, tax advice and tax planning. The nature of these tax services is tax preparation. Our accounting firm does not provide us with tax compliance, tax advice or tax planning services.
All Other Fees
None.
Audit Committee Approval
We do not have an audit committee of our board of directors. We believe that each member of our board has the expertise and experience to adequately serve our stockholders’ interests while serving as directors. Since we are not required to maintain an audit committee and our full board acts in the capacity of an audit committee, we have not elected to designate any member of our board as an “audit committee financial expert.”
Board of Directors Approval of Audit-Related Activities
Management is responsible for the preparation and integrity of our financial statements, as well as establishing appropriate internal controls and financial reporting processes. Marcum is responsible for performing an independent audit of our financial statements and issuing a report on such financial statements. Our board of directors’ responsibility is to monitor and oversee these processes.
Our board reviewed the audited financial statements of our Company for the year ended June 30, 2017 and met with the independent auditors, separately and together, to discuss such financial statements. Management and the auditors have represented to us that the financial statements were prepared in accordance with generally accepted accounting principles in the United States. Based upon these reviews and discussions, our board authorized and directed that the audited financial statements be included in our Annual Report on Form 10-K for the year ended June 30, 2017.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.
(a) Financial Statements
The financial statements and included in this Annual Report on Form 10-K are included in Item 8 in this Annual Report.
(b) Exhibits
The following exhibits are being filed as part of this Annual Report on Form 10-K, or incorporated herein by reference as indicated.
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* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Steve Rubakh
September 14, 2017
Steve Rubakh, Principal Executive Officer and
Principal Accounting Officer
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Steve Rubakh
September 14, 2017
Steve Rubakh, Director
Date