The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS
History and Organization
America Great Health, formerly Crown Marketing, is a Wyoming corporation (the “Company”). Pursuant to an Agreement and Plan of Reorganization dated December 2, 2013, the Company acquired all of the common stock of Okra Energy, Inc., a California corporation that was subscribed for on December 2, 2013 and then incorporated on December 18, 2013, in exchange for 16,155,746,000 shares of Common Stock of the Company (the “Common Stock”) at the closing of the Agreement on December 3, 2013. Immediately prior to the closing, there were approximately 3,825,275,800 shares of Common Stock outstanding. After the closing, the beneficial owner of Okra Energy, Inc. shareholder, Jay Hooper, owned approximately 98.8% of the outstanding shares of common stock of the Company. The transaction was accounted for as a reverse merger (recapitalization) with Okra Energy, Inc. deemed to be the accounting acquirer and the Company deemed to be the legal acquirer.
A change of control took place on January 19, 2017 from Jay Hooper. Control was obtained by the sale of 16,155,746,000 shares of the Company common stock from Mr. Hooper to an investor group led by Mike Q. Wang. In connection with the change of control, the Company sold to Jay Hooper, one of its subsidiary, Italiano, Inc., for $100 and another subsidiary, Crown Laboratory Inc., in exchange for the cancellation of all payables and accrued expenses.
On March 1, 2017, the Company filed with the Secretary of State of Wyoming an Articles of Amendment to change the corporate name from Crown Marketing to America Great Health.
On March 9, 2017, the Company formed a wholly owned subsidiary, America Great Health, under the laws of the State of California.
Through December 31, 2016, the Company’s primary business activity was the sale of various consumer products and accessories. Going forward, the Company’s operations will be determined and structured by the new investor group. As such, at June 30, 2017, the Company accounted for all of its assets, liabilities and results of operations up to January 1, 2017 as discontinued operations.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has incurred recurring net losses. For the year ended June 30, 2017, the Company recorded a net loss of $967,032, used cash to fund continuing and discontinued operating activities of $51,176, and at June 30, 2017, had a shareholders’ deficit of $48,067. These factors create substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the date these financial statements are available to be issued.. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
During the year ended June 30, 2017, the Company’s former majority shareholder sold his shares to an investor group. The new owners’ plans to continue as a going concern revolve around its ability to achieve profitable operations, as well as raise necessary capital to pay ongoing general and administrative expenses of the Company. The ability of the Company to continue as a going concern is dependent on securing additional sources of capital and the success of the Company’s plan. There is no assurance that the Company will be successful in raising the additional capital or in achieving profitable operations.
Our cash needs for the year ended June 30, 2017 were primarily met by loans and advances from current majority shareholder and former majority shareholder. As of June 30, 2017, we had a cash balance of $3,827. We intend to finance operating costs over the next twelve months with existing cash on hand and advance from current majority shareholder.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its current wholly owned subsidiary, America Great Health in California, and former wholly owned subsidiaries, Okra Energy and Crown Laboratory which were disposed in connection with the change of control and accounted for as discontinued operations. Intercompany transactions and accounts have been eliminated in consolidation.
Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include accounting for potential liabilities and the assumptions made in valuing stock instruments issued for services. Actual results could differ from those estimates.
Effective January 1, 2017, all of the Company’s operations generating these sales became discontinued operations (see Note 3). For the year ended June 30, 2017, there was no revenue generated.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. At June 30, 2017, the subsidiary owned inventories has been sold to the Company’s former majority shareholder as a result of the change in control.
Advances to Suppliers
For certain vendors in which the Company agreed to sell its products on a consignment basis, the Company is required to make payments once the inventory is received. The Company records it as advances to suppliers since the title has not been transferred to the Company. Advances to suppliers were $242,760 at June 30, 2016. At December 31, 2016, the Company determined it would not be able to recover the remaining amount due from its vendors of $102,130 and wrote the balance off during the three months ended December 31, 2016. At June 30, 2017, the subsidiary incurred advances to suppliers has been sold to the Company’s former majority shareholder as a result of the change in control.
Fair Value Measurements
Fair value measurements are determined using authoritative guidance issued by the FASB, with the exception of the application of the guidance to non-recurring, non-financial assets and liabilities as permitted. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.
Level 3—Unobservable inputs based on the Company’s assumptions.
The Company is required to use observable market data if available without undue cost and effort.
The Company’s financial instruments include cash and accounts payable. Management has estimated that the carrying amounts approximate their fair value due to the short-term nature.
Loss per Share
Basic earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the year ended June 30, 2017 and 2016, as there are no potential shares outstanding that would have a dilutive effect.
Income Taxes
Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. The Company recorded a valuation allowance against its deferred tax assets as of June 30, 2017 and 2016.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax
positions are recognized in the provision for income taxes.
Stock-Based Compensation
The Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option and stock warrant grants to employees based on the authoritative guidance provided by the Financial Accounting Standards Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and stock warrant grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
Segment Information
Effective January 1, 2017, all segments of the Company became discontinued operations (see Note 3).
At June 30, 2016, the Company had three reportable operating segments from the discontinued operations, marketing, mobile and laboratory.
For the year ended June 30, 2017, no single customer accounted for 10% or more of sales and the Company had no foreign sales. For the year ended June 30, 2016, four customers individually accounted for 10% or more of total sales, combining for 51% of total sales. The top five customer during the year ended June 30, 2016 accounted for 60% of total sales. During the year ended June 30, 2016, the Company had foreign sales of $2,605 to one person located in the Peoples Republic of China. All other sales were domestic sales in the United States.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company has adopted ASU 2014-15 on its consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory, which requires that inventory within the scope of ASU 2015-11 be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not impacted by the new guidance. ASU 2015-11 applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for public business entities in fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. The adoption of ASU 2015-11 is not expected to have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued an accounting standard update related to revenue from contracts with customers, which, along with amendments issued in 2015 and 2016, will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. The underlying principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This accounting standard update, as amended, will be effective for the Company beginning in the first quarter of fiscal 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption (“modified retrospective basis”). Early adoption is permitted, but no earlier than fiscal 2018. The Company expects to adopt this accounting standard update on a modified retrospective basis in the first quarter of fiscal 2019, and the adoption of this accounting standard update is not expected to have an impact on the Company’s consolidated financial statements until revenue is generated.
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or is not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 – DISCONTINUED OPERATIONS
Through December 31, 2016, the Company’s primary business activity was the sale of various consumer products and accessories. As of January 1, 2017, the Company ceased operations. On January 19, 2017, a change in control completed as the Company’s former majority shareholder sold his 16,155,746,000 shares to an investor group. In connection with the change in control, the Company sold to its former majority shareholder one of its subsidiary for $100 and another subsidiary in exchange for the cancellation of all payables and accrued expenses. As a result, in the year ended June 30, 2017, the Company recorded a gain on divestiture of subsidiaries of $706,076, as the subsidiaries were sold to a related party, the Company recorded the gain as a contribution to Additional Paid-in Capital. Going forward, the Company’s operations will be determined by the new investor group. As such, at June 30, 2017, the Company accounted for all of its assets, liabilities and results of operations up to January 1, 2017 as discontinued operations.
The Company has reclassified its previously issued financial statements to segregate the discontinued operations as of the earliest period reported.
Assets and liabilities related to the discontinued operations were as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
4,669
|
|
Accounts receivable
|
|
|
-
|
|
|
|
2,032
|
|
Advances to suppliers
|
|
|
-
|
|
|
|
242,760
|
|
Other receivable
|
|
|
-
|
|
|
|
-
|
|
TOTAL CURRENT ASSETS
|
|
$
|
-
|
|
|
$
|
249,461
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
4,020
|
|
Due to related party
|
|
|
-
|
|
|
|
5,600
|
|
Accrued rent payable - related party
|
|
|
-
|
|
|
|
120,000
|
|
Advances - related party
|
|
|
-
|
|
|
|
34,977
|
|
Note Payable - related party
|
|
|
-
|
|
|
|
10,000
|
|
TOTAL CURRENT LIABILITIES
|
|
|
-
|
|
|
|
174,597
|
|
|
|
|
|
|
|
|
|
|
Deferred lease obligation - related party
|
|
|
-
|
|
|
|
636,154
|
|
Note payable and accrued interest - related party
|
|
|
-
|
|
|
|
531,975
|
|
TOTAL LIABILITIES
|
|
|
-
|
|
|
|
1,342,726
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Redeemable, convertible preferred stock, 10,000,000 shares authorized;
Series A voting preferred stock, zero and 500,000 shares issued and outstanding
|
|
|
-
|
|
|
|
500,000
|
|
Common stock, no par value, unlimited shares authorized;
20,236,021,800 and 20,056,021,800 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
3,062,230
|
|
|
|
550,000
|
|
Accumulated deficit
|
|
|
(3,062,230
|
)
|
|
|
(2,143,265
|
)
|
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
-
|
|
|
|
(1,093,265
|
)
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
$
|
-
|
|
|
$
|
249,461
|
|
Revenue and expenses related to the discontinued operations were as follows:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
-
|
|
|
$
|
3,174,270
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
2,958,763
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
215,507
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
Rent expense (related party in 2016)
|
|
|
27,786
|
|
|
|
590,769
|
|
Research and development expenses
|
|
|
-
|
|
|
|
122,680
|
|
Selling, general and administrative expenses
|
|
|
859,683
|
|
|
|
643,278
|
|
Total selling, general and administrative expenses
|
|
|
887,469
|
|
|
|
1,356,727
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(887,469
|
)
|
|
|
(1,141,220
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
-
|
|
|
|
45,300
|
|
Interest expense, related party
|
|
|
(31,197
|
)
|
|
|
(54,975
|
)
|
|
|
|
(31,197
|
)
|
|
|
(9,675
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(918,666
|
)
|
|
$
|
(1,150,895
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
(9,942
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO AMERICA GREAT HEALTH
|
|
$
|
(918,666
|
)
|
|
$
|
(1,140,953
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
FROM DISCONTINUED OPERATIONS
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
|
|
|
20,182,268,375
|
|
|
|
20,049,446,458
|
|
NOTE 4 – RELATED PARTY TRANSACTIONS
Notes Payable
At June 30, 2017, as result of the change in control, notes payable to related parties were cancelled in exchange for selling one of the Company’s subsidiaries to its former majority shareholder. Notes payable to related parties at June 30, 2016 were as follows:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Note payable, interest at 12% per annum, secured by essentially all assets of the Company, due July 31, 2017. The lender is Temple CB LLC (“Temple”), a limited liability company controlled by Jay Hooper, the Company’s President and majority shareholder
|
|
$
|
-
|
|
|
$
|
531,975
|
|
Note payable to Jay Hooper, due on demand, interest at 4% per annum
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
-
|
|
|
|
541,975
|
|
Less: current portion
|
|
|
-
|
|
|
|
(10,000
|
)
|
Notes payable, non-current portion
|
|
$
|
-
|
|
|
$
|
531,975
|
|
Advances
As of June 30, 2017, as result of the change in control, advance from former related parties were cancelled in exchange for selling one of the Company’s subsidiaries to its former majority shareholder, and as of June 30, 2017, the Company owed $44,092 to its current officer and majority shareholder for paying various expenses for the Company after the change in control. As of June 30, 2016, $34,977 was due to the Company’s former President and majority shareholder, Mr. Jay Hooper, for advances made to the Company to pay for operating expenses. The advances are non-interest bearing and are due on demand.
Lease Obligation
Through June 30, 2016, the Company, through its subsidiary, Crown Laboratory Inc., leased a warehouse in El Monte, California. The warehouse is owned by Temple CB LLC, (“Temple CB”), a single member limited liability company owned by the Company’s former President and majority shareholder. In October 2016, the Company and Temple CB agreed to terminate the lease effective July 1, 2016. The Company already ceased using the premises before July 1, 2016.
The lease was an operating lease and contained escalating rent payments and a period of free rent. The Company recognized rent expense on a straight-line basis over the entire lease period. During the year ended June 30, 2016, the Company recorded $590,769 of rent expense. During the year ended June 30, 2017, no rent expense was recorded relating to the lease agreement, the Company rented office and warehouse space from a third party company on a month-to-month basis for a few months and recorded a rent expense of $27,786.
As of June 30, 2017, as result of the change in control, lease obligation was cancelled in exchange for selling one of the Company’s subsidiaries to its former majority shareholder. As of June 30, 2016, the Company owed $120,000 under this lease obligation.
As of June 30, 2016, the Company recorded a deferred lease obligation of $636,154. During the six months ended December 31, 2016, relating to the termination of the lease agreement, the Company recorded a gain on the termination of the deferred lease obligation of $636,154. As the deferred lease obligation was to a related party, the Company recorded the gain as a contribution to Additional Paid-in Capital.
The Company currently is using a premises for free, the premises is leased by a company owned by its current majority shareholder.
Due to Related Party
During the year ended June 30, 2017, the Company’s current majority shareholder advanced $44,092 to the Company as working capital. The advances are non-interest bearing and are due on demand. During the year ended June 30, 2017, the Company used contract labor services provided by Temple CB, a related party to the Company’s former majority shareholder, totaling $10,000 in discontinued operations. There were no amounts owed to Temple CB as of June 30, 2017. As of June 30, 2016, a total of $5,600 was owed to Temple CB. Total payments made to Temple CB for the services during the year ended June 30, 2016 were $4,400.
During the year ended June 30, 2017, the Company paid $5,000 fee to Herric Chan who was the Company’s CEO from June 22, 2017 to October 11, 2017.
NOTE 5 – SHORT-TERM LOANS PAYABLE
During the six months ended December 31, 2016, the Company borrowed $59,250 from three individuals and a corporation. The loans are interest free, are unsecured and are due on demand. During the six months ended December 31, 2016, $49,250 of the loans was repaid. The total amount outstanding relating to these loans at December 31, 2016 was $10,000 which was cancelled on January 1, 2017 in exchange for selling one of the Company’s subsidiaries to its former majority shareholder as result of the change in control.
NOTE 6 – CONVERTIBLE, REDEEMABLE PREFERRED STOCK
During the year ended June 30, 2016, the Company’s Board of Directors authorized the creation of a series of preferred stock consisting of 1,000,000 shares designated as Series A Preferred Stock (the “Series A”). The Series A is entitled to a dividend of 4%, when and as declared, and is entitled to a liquidation preference of $1 per share plus unpaid dividends. The Series A is redeemable at the option of the Company at any time, in whole or in part, at a price of $1.00 per share, plus 4% per annum thereupon from the date of issuance (the “Stated Value”). In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the Series A shall be entitled to a preferential amount equal to the Stated Value, prior to the holders of common stock receiving any distribution. Each share of Series A is automatically converted on the Conversion Date into a number of shares of common stock of the Company at the initial conversion rate (the “Conversion Rate”), which shall be the Stated Value as of the date of conversion divided by the Market Price. The Market Price for purposes of this Section 5 shall be equal to the average closing sales price of the Common Stock over the 5 previous trading days.
The Series A is also subject to adjustments to the Conversion Rate. If the common stock issuable on conversion of the Series A is changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the holders of the Series A shall, upon its conversion, be entitled to receive, in lieu of the common stock which the holders would have become entitled to receive but for such change, a number of shares of such other class or classes of stock that would have been subject to receipt by the holders if they had exercised their rights of conversion of the Series A immediately before that change.
In August 2016, the Company filed an amendment to its Articles of Incorporation to increase the number of authorized shares of Series A Preferred Stock from 1,000,000 to 10,000,000.
In October 2016, the holder of the Company’s 500,000 shares of outstanding Series A preferred stock, Temple CB, presented a Notice of Conversion to the Company, which obligated the Company to issue 80,000,000 shares of its common stock to Temple CB in exchange for the 500,000 shares of the preferred stock.
The conversion rate was the stated value of $1.00 per share, plus 4% per annum, divided by the closing sales price on the five trading days prior to the date of the notice.
There were no preferred shares outstanding as of June 30, 2017.
NOTE 7 – SHAREHOLDERS’ DEFICIT
A change of control took place on January 19, 2017 from Jay Hooper. Control was obtained by the sale of 16,155,746,000 shares of the Company common stock from Mr. Hooper to an investor group led by Mike Q. Wang, the change of control had no impact on the Company’s stockholder’s equity. In connection with the change in controlling ownership, the Company sold to its former majority shareholder one of its subsidiary for $100 and another subsidiary in exchange for the cancellation of all payables and accrued expenses. As a result, in the year ended June 30, 2017, the Company recorded a gain on divestiture of subsidiaries of $706,076, as the subsidiaries were sold to a related party, the Company recorded the gain as a contribution to Additional Paid-in Capital.
Effective July 1, 2016, the Company agreed to terminate its lease agreement with Temple CB (see Note 3). During the six months ended December 31, 2016, relating to the termination of the lease agreement, the Company recorded a gain on the termination of the deferred lease obligation of $636,154. As the deferred lease obligation was to a related party (Temple CB), the Company recorded the gain as a contribution to Additional Paid-in Capital.
In June 2016, the Company entered into an agreement with an individual under which the Company issued 100,000,000 shares of its common stock to the individual in October 2016. The value of the shares on the date of issuance was $670,000 and was recorded as stock based compensation.
NOTE 8 – NON-CONTROLLING INTEREST
During 2015, the Company entered into a joint venture to create Crown Mobile. The Company owned 50% of the joint venture while two other owners owned 35% and 15%, respectively. Based on the authoritative guidance of the FASB on consolidation, the Company determined it should include Crown Mobile in its consolidated financial statements as a subsidiary since the Company had a controlling financial interest and directed the operating activities of Crown Mobile. The non-controlling interest represents the minority stockholders’ share of 50% of the equity of Crown Mobile. During the year ended June 30, 2016, the non-controlling interest’s share of the loss of Crown Mobile was $9,942.
On December 15, 2015, the Board of Directors of the Company approved the sale of the Company’s interest in Crown Mobile for $25,000, which approximated the Company’s basis in Crown Mobile on that date. At June 30, 2016, the Company no longer has non-controlling interest.
NOTE 9 – INCOME TAXES
Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards and stock-based compensation.
As of June 30, 2017, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated with the deferred tax asset. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.
The Company’s effective income tax rate differs from the amount computed by applying the federal statutory income tax rate to loss before income taxes for the years ended June 30, 2017 and 2016 as follows:
|
|
Year Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Income tax benefit at federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State tax, net of fed effect
|
|
|
6
|
%
|
|
|
6
|
%
|
Change in valuation allowance
|
|
|
-40
|
%
|
|
|
-40
|
%
|
|
|
|
-
|
%
|
|
|
-
|
%
|
The components of deferred taxes consist of the following at June 30, 2017 and 2016:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
$
|
-
|
|
|
$
|
210,000
|
|
Net operating loss carryforwards
|
|
|
48,366
|
|
|
|
647,306
|
|
Less: valuation allowance
|
|
|
(48,366
|
)
|
|
|
(857,306
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2017, the Company had federal and California income tax net operating loss carryforwards of approximately $2.0 million. These net operating losses will begin to expire 20 years from the date the tax returns will be filed. Currently, no tax returns have been filed for the Company, but the Company believes no taxes will be due because of the operating losses.