Notes to the Condensed Consolidated Financial Statements
April 30, 2016 (Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Steampunk Wizards Inc. (“the Company”) was incorporated under the laws of the State of Nevada, U.S. as Freedom Petroleum, Inc. on June 13, 2012. In May 2015, the Company changed its name to Steampunk Wizards Inc. and changed its trading symbol to SPWZ. The Company’s fiscal year end is July 31.
Share Exchange and Recapitalization
On July 16, 2015, the Company entered into a share exchange agreement (the “Exchange Agreement”), which was consummated on August 21, 2015, with Steampunk Wizards Ltd., a company incorporated pursuant to the laws of Malta (“Malta Co.”) , the Company’s sole officer and director (the “Officer”), being the owner of record of 11,451,541 common shares of the Company and the persons (the “Shareholders”), being the owners of record of all of the issued share capital of Malta Co. (the “Steampunk Stock”) as of July 15, 2015. Pursuant to the Exchange Agreement, upon surrender by the Shareholders and the cancellation by Malta Co. of the certificates evidencing the Steampunk Stock as registered in the name of each Shareholder, and pursuant to the registration of the Company in the register of members maintained by Malta Co. as the new holder of the Steampunk Stock and the issuance of the certificates evidencing the aforementioned registration of the Steampunk Stock in the name of the Company, the Company would issue 4,812,209 shares (the “New Shares”) of the Company’s common stock to the Shareholders (or their designees), and the Officer would cause 10,096,229 shares of the Company’s common stock that he owns (the “Officer Stock,” together with the New Shares, the “Acquisition Stock”) to be transferred to the Shareholders (or their designees), which collectively should represent 55% of the issued and outstanding common stock of the Company immediately after the closing, in exchange for the Steampunk Stock, representing 100% of the issued share capital of Malta Co. As a result of the exchange of the Steampunk Stock for the Acquisition Stock (the “Share Exchange”), Malta Co. would become a wholly owned subsidiary (the “Subsidiary”) of the Company and there would be a change of control of the Company following the closing. There were no warrants, options or other equity instruments issued in connection with the Exchange Agreement.
For financial accounting purposes, the Share Exchange is accounted for as a reverse acquisition by the Malta Co., and resulted in a recapitalization, with Malta Co. being the accounting acquirer and the Company as the acquired entity. The closing of Share Exchange resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer, Malta Co., and have been prepared to give retroactive effect to the reverse acquisition completed on August 21, 2015, and represent the operations of Malta Co. The consolidated financial statements after the acquisition date include the balance sheets of both companies at historical cost, the historical results of Malta Co. and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.
Incorporated in 2014, Malta Co. was a games development and technology company specialized in developing enchanting games and gaming technology where the real and virtual worlds blur.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim financial information referred to above has been prepared and presented in conformity with accounting principles generally accepted in the United States applicable to interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The interim financial information has been prepared on a basis consistent with prior interim periods and years and includes all disclosures that are necessary and required by applicable laws and regulations. This report on Form 10-Q should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Form 8-K/A for the fiscal year ended July 31, 2015 filed on February 8, 2016.
The unaudited financial statements and notes are presented in accordance with accounting principles generally accepted in the United States of America (GAAP). These interim financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading.
Results of the nine months ended April 30, 2016 are not necessarily indicative of the results that may be expected for the year ended July 31, 2016 and any other future periods.
Going Concern Matters
At April 30, 2016, the Company had $6,322 in cash on hand, had incurred a net loss of $616,929 and used $553,260 in cash for operating activities for the period ended April 30, 2016. In addition, the Company had negative working capital (current liabilities exceeded current asset) of $381,919.
The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover operating expenses for the next twelve months from the date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through equity and debt financing arrangements, and restructure on-going operations to eliminate inefficiencies to raise cash balance in order to meet its anticipated cash requirements for the next twelve months from the date of this report. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures, working capital, and other requirements. Management intends to make every effort to identify and develop sources of funds. The outcome of these matters cannot be predicted at this time. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all.
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital and continue profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Foreign Currency Translation and Re-measurement
The Company's functional and reporting currency is the U.S. dollar. All transactions initiated in EURO are translated into U.S. dollars in accordance with ASC 830-30, "Translation of Financial Statements," as follows:
i)
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Assets and liabilities at the rate of exchange in effect at the balance sheet date.
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ii)
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Equities at historical rate
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iii)
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Revenue and expense items at the average rate of exchange prevailing during the period.
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Adjustments arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
Basis of Consolidation
These financial statements include the accounts of the Company and its subsidiary. All material intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
Basic and Diluted Earnings (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of April 30, 2016 and July 31, 2015.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued and their potential effect on our financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company's condensed consolidated financial statements.
NOTE 3 – CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. As at April 30, 2016 and July 31, 2015, the Company has $6,322 and $53,472 cash and cash equivalent respectively.
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consist only of value-added tax (“VAT”) held by the Company. As of
April 30, 2016
, and July 31, 2015, the Company has $8,561 and $7,282 in VAT receivable from the Malta government, respectively.
NOTE 5 – PROPERTY AND EQUIPMENT
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April 30,
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July 31,
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|
|
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2016
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|
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2015
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Cost
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|
|
|
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IT Equipment
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$
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11,157
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$
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6,593
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Furniture
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|
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6,200
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|
|
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-
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|
|
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17,357
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|
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6,593
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Depreciation
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(4,279
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)
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(1,786
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)
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Balance
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$
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13,078
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$
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4,807
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The equipment comprised of IT and other equipment with an estimated average useful life of 4 years. The Company recorded $2,335 and $404 as depreciation expenses for the nine months ended April 30, 2016 and 2015, respectively. The Company recorded $833 and $404 as depreciation expenses for the three months ended April 30, 2016 and 2015, respectively.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITES
The Company’s accounts payable and accrued liabilities consist of the following:
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April 30,
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July 31,
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2016
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|
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2015
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|
|
|
|
|
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|
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Trade payable
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$
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66,972
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|
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$
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271
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Accrued liabilities
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10,360
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|
|
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46,115
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Accrued interest
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6,438
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|
|
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1,387
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|
|
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$
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83,770
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|
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$
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47,773
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NOTE 7 – SHORT-TERM LOANS
The Company’s short-term loans consist of the following:
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April 30,
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July 31,
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2016
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2015
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|
|
|
|
|
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Short-term loans from Deep Blue Trading
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$
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99,848
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|
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$
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64,026
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Short-term loans from Galloway Financial
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25,177
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|
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-
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Loans from Steampunk Wizards Inc.
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|
|
-
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|
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164,730
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|
|
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$
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125,025
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|
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$
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228,756
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The Deep Blue Trading loans are secured, bears interest rate of 7% per annum and are payable, together with interest, within one year from date of grant. Of the total balance $99,848 to Deep Blue Trading, the Company is in default for $45,776 as at April 30, 2016. The Galloway loans were borrowed from a shareholder, who has approximately 1% of the Company’s common shares. The Galloway loans are unsecured, bears interest rate of 7% per annum and are payable, together with interest, within one year from date of grant. During the three and nine months ended April, 2016, the Company accrued interest of $2,088 and $4,826, respectively
On July 16, 2015, Steampunk Wizards, Inc. entered into a share exchange agreement with Malta Co. The exchange was closed on August 21, 2015. As a result of the exchange of Malta Co. became a wholly owned subsidiary of Steampunk Wizards, Inc. Prior to the closing, Steampunk Wizards, Inc. advanced $164,730 (EUR 145,000) to the Malta Co. The advance was unsecured, non-interest bearing and reclassified as inter-company loans during the period ended April 30, 2016.
NOTE 8 – DUE TO RELATED PARTIES
On August 21, 2015, the Company assumed $101,095 loans provided by the former Chief Executive Officer (“CEO”) and shareholder of the Company through the share exchange transaction. During the period ended April 30, 2016, the former CEO advanced $16,822 to the Company and the Company repaid $57,917 to the former CEO. In addition, pursuant to an employee agreement effective on March 1, 2014, the Company was obligated to pay $10,000 per month to the former CEO for management services until January 31, 2016. Accordingly, $60,000 management fees for the period during August 1, 2015 to January 31, 2016, were accrued as amount due to related parties. As at April 30, 2016, the Company owed $120,000 to the former CEO and shareholder.
During the period ended April 30, 2016, a shareholder of the Company advanced $48,988 to the Company and made vendor payments of $11,825 directly on behalf of the Company. During the nine months ended April 30, 2016, the Company repaid $11,444 to this shareholder. As at April 30, 2016 and July 31, 2015, the Company owed $49,369 and $0 to a shareholder of the Company. This loan is non-interest bearing and due on demand.
During the nine months ended April 30, 2016, a company owned by a shareholder of the Company advanced $16,022 to the Company. As at April 30, 2016 and July 31, 2015, the Company owed $16,022 and $0 to this company. This loan is non-interest bearing and due on demand.
As at January 31, 2016 and July 31, 2015, the Company owed $23,107 and $22,114 to a shareholder of the Company. The increase in due to this shareholder was due to change of foreign exchange rate. This loan is non-interest bearing and due on demand.
During the three and nine months ended April 30, 2016, a company, which is owned by the Company’s chief technology officer, provided management services of $5,536 and $52,587 to the Company, respectively. As at April, 2016 and July 31, 2015, $8,710 and $1,042 due to this company was included in accounts payable and accrued liabilities, respectively.
NOTE 9 - EQUITY
Share capital
Preferred Stock
The Company has 20,000,000 authorized preferred shares with a par value of $0.0001 per share. The Board of Directors are authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
There were no shares of preferred stock issued and outstanding as at April 30, 2016 and July 31, 2015.
Common Stock
During the nine month period ended April 30, 2016, the Company issued 613,593 shares of common stock for cash of $440,579.
There were 27,767,269 and 14,908,438 shares of common stock issued and outstanding as of April 30, 2016 and July 31, 2015, respectively.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
On July 2, 2015, Malta Co. entered into a lease agreement with Central Garage Ltd. The term of the lease is one year with monthly payments of EUR 1,200.
The Company has no other commitments or contingencies as of April 30, 2016.
From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that it is adequately insured for its operations and there are no current matters that would have a material effect on the Company's financial position or results of operations.
NOTE 11 -SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation no additional events have occurred that require disclosure.