Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Sep. 30, 2020 | Nov. 20, 2020 | |
Document And Entity Information | ||
Entity Registrant Name | Sugarmade, Inc. | |
Entity Central Index Key | 0000919175 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 3,103,636,740 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2021 | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Ex Transition Period | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | DE | |
Entity File Number | 000-23446 | |
Document Quarterly Report | true |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2020 | Jun. 30, 2020 |
Current assets: | ||
Cash | $ 681,093 | $ 441,004 |
Accounts receivable, net | 156,425 | 134,517 |
Inventory, net | 606,090 | 679,471 |
Loan receivables, current | 10,344 | 1,365 |
Loan Receivable - related parties, current | 124,774 | 122,535 |
Other current assets | 868,723 | 263,404 |
Right of use assets, current | 277,204 | 270,363 |
Total current assets | 2,724,653 | 1,912,659 |
Noncurrent assets: | ||
Equipment, net | 496,024 | 499,047 |
Intangible Asset | 9,450 | 9,800 |
Other assets | 54,163 | 54,163 |
Loan Receivable - related parties, non-current | 196,000 | 196,000 |
Right of use asset, non-current | 763,447 | 835,393 |
Total non-current assets | 1,519,084 | 1,594,403 |
Total Assets | 4,243,737 | 3,507,062 |
Current liabilities: | ||
Note payable due to bank | 25,982 | 25,982 |
Accounts payable and accrued liabilities | 1,510,634 | 1,583,228 |
Customer deposits | 600,357 | 466,337 |
Customer Overpayment | 50,684 | 47,890 |
Unearned revenue | 47,536 | 53,248 |
Other payable | 851,681 | 691,801 |
Accrued interest | 460,621 | 494,740 |
Accrued compensation and personnel related payables | 30,778 | 35,361 |
Note Payable - Current | 20,000 | 20,000 |
Notes payable - related parties - Current | 15,427 | 15,427 |
Lease liability - Current | 279,750 | 372,285 |
Loans payable, Current | 271,768 | 319,314 |
Due to related parties | 655,337 | 35,943 |
Convertible notes payable, net - Current | 1,470,221 | 1,740,122 |
Derivative liabilities | 1,470,894 | 5,597,095 |
Warrants liabilities | 13,695 | 79,910 |
Shares to be issued | 120,327 | 101,577 |
Total current liabilities | 7,895,692 | 11,680,260 |
Non-Current liabilities: | ||
Loan Payable | 356,431 | 197,946 |
Lease Liability | 795,863 | 767,729 |
Total liabilities | 9,047,986 | 12,645,935 |
Stockholders' deficiency: | ||
Preferred stock, $0.001 par value, 10,000,000 shares authorized 3,541,500 and 3,541,500 shares issued and outstanding at September 30, 2020 and June 30, 2020 , respectively | 3,542 | 3,542 |
Common stock, $0.001 par value, 10,000,000,000 shares authorized, 2,844,688,836 and 1,763,277,230 shares issued and outstanding at September 30, 2020 and June 30, 2020, respectively | 2,844,690 | 1,763,278 |
Additional paid-in capital | 59,305,003 | 57,307,767 |
Common Stock Subscribed | 236,008 | 236,008 |
Accumulated deficiency | (67,159,520) | (68,438,332) |
Total stockholders' equity (deficiency) | (4,770,277) | (9,127,737) |
Non-Controlling Interest | (33,971) | (11,136) |
Total stockholders' deficiency | (4,804,249) | (9,138,873) |
Total liabilities and stockholders' equity (deficiency) | $ 4,243,737 | $ 3,507,062 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2020 | Jun. 30, 2020 |
Condensed Consolidated Balance Sheets Unaudited | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 3,541,500 | 3,541,500 |
Preferred stock, shares outstanding | 3,541,500 | 3,541,500 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 10,000,000,000 | 10,000,000,000 |
Common stock, shares issued | 2,844,688,836 | 1,763,277,230 |
Common stock, shares outstanding | 2,844,688,836 | 1,763,277,230 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | ||
Consolidated Statements Of Operations | |||
Revenues, net | $ 2,146,326 | $ 753,974 | |
Cost of goods sold | 1,028,815 | 492,168 | |
Gross profit | 1,117,512 | 261,806 | |
Operating expenses: | |||
Selling, general and administrative expenses | 602,805 | 335,830 | |
Advertising and Promotion Expense | 277,806 | 41,356 | |
Marketing and Research Expense | 222,348 | 4,971 | |
Professional Expense | 503,430 | 680,096 | |
Salaries and Wages | 362,524 | 129,376 | |
Stock Compensation Expense | 18,750 | 12,000 | |
Total selling, general and administrative expenses | 1,987,763 | 1,203,629 | |
Loss from operations | (870,251) | (941,823) | |
Non-operating income (expense): | |||
Other income | 1,231 | ||
Interest expense | (466,774) | (584,604) | |
Bad Debt | (3,517) | ||
Change in fair value of derivative liabilities | 3,495,147 | 1,022,878 | |
Warrant Expense | 66,216 | (55,278) | |
Loss on debt settlement | (75,000) | (149,859) | |
Loss on asset disposal | 7,000 | ||
Amortization of debt discount | (814,545) | (1,155,000) | |
Gain on debt forgiveness | (172,096) | ||
Other expenses | (51,299) | ||
Total non-operating income (expenses), net | 2,150,227 | (1,085,728) | |
Net income (loss) | 1,279,977 | (2,027,551) | |
Less: net loss attributable to the noncontrolling interest | 1,165 | ||
Net income (loss) attributable to Sugarmade, Inc. | $ 1,278,812 | $ (2,027,551) | |
Basic net income (loss) per share | $ 0 | $ 0 | |
Diluted net income (loss) per share | $ 0 | $ 0 | |
Basic and diluted weighted average common shares outstanding | [1] | 2,422,975,968 | 777,839,270 |
[1] | Shares issuable upon conversion of convertible debts and exercising of warrants were excluded in calculating diluted loss per share |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Equity (Unaudited) - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Shares to be Cancelled, Common Shares | Common Stock Subscribed | Accumulated Deficit | Noncontrolling Interest | Total |
Beginning Balance at Jun. 30, 2019 | $ 2,000 | $ 697,610 | $ 61,038,875 | $ 29,000 | $ (47,088,950) | $ 14,678,534 | ||
Beginning Balance, Shares at Jun. 30, 2019 | 2,000,000 | 697,608,570 | ||||||
Shares Issued for Debt Settlement | $ 1,000 | 28,000 | (29,000) | |||||
Shares Issued for Debt Settlement, Shares | 1,000,000 | |||||||
Reclass Derivative liability from conversion | 659,526 | 659,526 | ||||||
Shares issued for conversions | $ 71,916 | 475,917 | 547,833 | |||||
Shares issued for conversions (in shares) | 71,915,557 | |||||||
Shares issued for cash | $ 11,349 | 88,651 | 100,000 | |||||
Shares issued for cash (in shares) | 11,348,591 | |||||||
Share issued for warrant exercises | $ 28,382 | (14,249) | 14,133 | |||||
Share issued for warrant exercises (in shares) | 28,371,818 | |||||||
Repayment of capital to noncontrolling minority | ||||||||
Net Loss | (2,027,551) | (2,027,551) | ||||||
Ending Balance at Sep. 30, 2019 | $ 2,000 | $ 810,257 | 62,276,720 | (49,116,501) | 13,972,474 | |||
Ending Balance, Shares at Sep. 30, 2019 | 2,000,000 | 810,244,536 | ||||||
Beginning Balance at Jun. 30, 2020 | $ 3,542 | $ 1,763,278 | 57,307,767 | 236,008 | (68,438,332) | (11,136) | (9,138,873) | |
Beginning Balance, Shares at Jun. 30, 2020 | 3,541,500 | 1,763,277,230 | ||||||
Reclass Derivative liability from conversion | 1,805,188 | 1,805,188 | ||||||
Shares issued for conversions | $ 1,081,412 | 192,048 | 1,273,459 | |||||
Shares issued for conversions (in shares) | 1,081,411,606 | |||||||
Repayment of capital to noncontrolling minority | (24,000) | (24,000) | ||||||
Net Loss | 1,278,812 | 1,165 | 1,279,977 | |||||
Ending Balance at Sep. 30, 2020 | $ 3,542 | $ 2,844,690 | $ 59,305,003 | $ 236,008 | $ (67,155,520) | $ (33,971) | $ (4,804,249) | |
Ending Balance, Shares at Sep. 30, 2020 | 3,541,500 | 2,844,688,836 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows Statement - USD ($) | 3 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Cash flows from operating activities: | ||
Net loss | $ 1,278,812 | $ (2,027,551) |
Non-controlling interest | 1,165 | |
Adjustments to reconcile net loss to cash flows from operating activities: | ||
Loss on settlement | 75,000 | 149,859 |
Amortization of debt discount | 814,545 | 302,801 |
Stock based compensation | 18,750 | 12,000 |
Change in fair value of derivative liability | (3,495,147) | (1,022,878) |
Warrant expense | (66,215) | 67,387 |
Depreciation and amortization | 41,617 | 23,142 |
Amortization of Intangible Assets | 350 | 350 |
Interest Expense - excess of debt discount | 278,488 | |
Bad Debts | (3,517) | |
Changes in operating assets and liabilities | ||
Accounts receivable | (25,425) | 125,024 |
Inventory | 73,381 | (26,851) |
Prepayment, deposits and other receivables | (605,319) | 256,996 |
Loan receivable | ||
Other payables | 155,297 | (420,450) |
Accounts payable and accrued liabilities | (72,594) | 269,604 |
Customer deposits | 136,814 | (29,171) |
Unearned revenue | (5,712) | (23,024) |
Right of use, assets | 65,104 | 11,361 |
Lease liabilities | (64,401) | (10,236) |
Interest Payable | 37,640 | 72,885 |
Net cash used in operating activities | (1,429,333) | (913,850) |
Cash flows from investing activities: | ||
Payment for property and equipment | (38,594) | |
Net cash used in investing activities | (38,594) | |
Cash flows from financing activities: | ||
Proceeds from Issuance of Common Stock | 100,000 | |
Loan Receivable | (8,979) | 75,033 |
Loan receivable - related parties | (2,239) | |
Proceeds from advanced shares issuance | 96,000 | |
Proceeds from loans - related parties | 619,394 | |
Proceeds from convertible notes | 1,240,900 | 840,806 |
Repayment of convertible notes | (228,000) | |
Repayment of capital to noncontrolling minority | (24,000) | |
Proceeds from (repayment of) loans | 110,939 | (5,527) |
Net cash provided by financing activities | 1,708,015 | 1,106,312 |
Net increase in cash | 240,089 | 192,462 |
Cash, beginning of period | 441,004 | 34,371 |
Cash, end of period | 681,093 | 226,833 |
Cash paid interest | 81,244 | |
Supplemental disclosure of non-cash financing activities: | ||
Shares issued for conversion of convertible debt | 1,805,188 | 547,833 |
Reduction in derivative liability due to conversion | 1,273,460 | 659,526 |
Debt discount related to convertible debt | 918,600 | 539,300 |
Debts settled through shares issuance | 229,000 | |
Shares issued for advanced share payment | $ 14,132 |
Nature of Business
Nature of Business | 3 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Business | 1. Nature of Business Sugarmade, Inc. (hereinafter referred to as “we’ ’us” or “the/our Company’’) is a publicly-traded company incorporated in the state of Delaware. Our previous legal name was Diversified Opportunities, Inc. Our Company, Sugarmade, Inc. operates much of its business activities through our subsidiary, SWC Group, Inc., a California corporation (“SWC’’). Sugarmade, Inc. was founded in 2010. In 2014, CarryOutSupplies.com was acquired by Sugarmade, Inc., creating the Company as it is today. As of September 30, 2020, we are involved in two main business areas including: 1) The supply of consumable products to the quick-service restaurant sub-sector of the restaurant industry, and as an importer and distributor of non-medical personal protection equipment to business and consumers, and, 2) As an investor in the Budcars licensed cannabis delivery service brand (“Budcars” or the “Budcars Brand”) and as a joint owner and joint operator in Budcar’s first operating location in Sacramento, California. During early 2020, the Company gained a 40% stake in the Budcars Brand and in the Sacramento delivery operations via acquiring a 40% stake in Indigo Dye Group (“Indigo”). Under the terms of the agreement with Indigo, Sugarmade acquired an option to purchase an additional 30% interest in Budcars, upon which will provide the Company with a controlling interest. As of the date of this filing, the option has not yet been exercised and the Company’s stake in Budcars is at 40%. Our legacy business operation, CarryOutSupplies.com, is a producer and wholesaler of custom printed and generic supplies, servicing more than 2,000 quick-service restaurants (the “Quick Service Restaurant Sector”). Our products include double poly paper cups for cold beverage; disposable, clear, plastic cold cups, paper coffee cups, yogurt cups, ice cream cups, cup lids, cup sleeves, edible packaging, food containers, soup containers, plastic spoons, and many other similar products for this market sector. CarryOutSupplies.com was founded in 2009. We have recently expanded the CarryOutSupplies.com operation to include non-medical personal protective equipment, which we also offer via our website. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Sep. 30, 2020 | |
Summary Of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. These interim condensed consolidated financial statements should be read in conjunction with our Company’s Annual Report on Form 10-K for the year ended June 30, 2020, which contains our audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operation, for the fiscal year ended June 30, 2020. The interim results for the period ended September 30, 2020 are not necessarily indicative of the results for the full fiscal year. Principles of consolidation The consolidated financial statements include the accounts of our Company, its wholly-owned subsidiary, SWC Group Inc., and Indigo Dye Group Corp., a variable interest entity (“VIE”). All significant intercompany transactions and balances have been eliminated in consolidation. Going concern The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. Management is endeavoring to increase revenue-generating operations. While priority is on generating cash from operations through the sale of the Company’s products, management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity and/or debt securities, which may not be available on commercially reasonable terms to our Company, or which may not be available at all. If such financing is not available on satisfactory terms, we may be unable to continue our business as desired and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of our common stock. Use of estimates The preparation of financial statements in conformity with GAAP requires our 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 revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Revenue recognition We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’’) No. 606, Revenue Recognition. Sugarmade applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer. Property and equipment Property and equipment is stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided using the straight-line method over the estimated useful lives of the assets for both financial and income tax reporting purposes as follows: Machinery and equipment 3-5 years Furniture and equipment 7 years Vehicles 5 years Leasehold improvements 5 years Expenditures for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset. Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from their respective accounts and any gain or loss is recorded in the statements of income. The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment was recorded in operating expenses during the three months ended September 30, 2020 and 2019. Impairment of Long-Lived Assets Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company, as of June 30, 2020, performed an impairment test of all of its intangible assets. Based on the Company’s analysis, the company had an amortization of intangible assets of $350 for the three months ended September 30, 2020 and 2019, respectively. Leases In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to recognize the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The new standard became effective April 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on July 1, 2019 using the modified retrospective transition approach as of the effective date of the initial application. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements. The most significant effects of the adoption of the new standard relate to the recognition of new ROU assets and lease labilities on our balance sheet for office operating leases and providing significant new disclosures about our leasing activities. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term leases recognition exemption for all leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets and lease liabilities, for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for its leases. All existing leases are reported under this rule. Under ASC 840, leases were classified as either capital or operating, and the classification significantly impacted the effect the contract had on the company's financial statements. Capital lease classification resulted in a liability that was recorded on a company's balance sheet, whereas operating leases did not impact the balance sheet. After the new adoption, $1,105,755 of operating lease right-of-use asset and $1,140,041 of operating lease liabilities were reflected on the Company’s June 30, 2020 financial statements and $1,040,651 of operating lease right-of-use asset and $1,075,612 of operating lease liabilities were reflected on the Company’s September 30, 2020 financial statements. Stock based compensation Stock based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee stock options granted using the Binomial Option Pricing Model. Key assumptions used to estimate the fair value of stock options will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common stock. We use our company’s own data among other information to estimate the expected price volatility and the expected forfeiture rate. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. Earnings (Loss) per share We calculate basic earnings (loss) per share (“EPS”) by dividing our net income (loss) by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive. Fair value of financial instruments ASC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - include other inputs that are directly or indirectly observable in the marketplace. Level 3 - unobservable inputs which are supported by little or no market activity. The Company used Level 3 inputs for its valuation methodology for the derivative liabilities in determining the fair value using the Binomial option-pricing model for the three months ended September 30, 2020. Derivative instruments The fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under non-operating income (expense). Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. Segment Reporting FASB ASC Topic 280, “Segment Reporting”, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the Company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company’s financial statements as of September 30, 2020 substantially all of its operations are conducted in three industry segments – (1) paper and paper-based products such as paper cups, cup lids, food containers, etc., which accounts for approximately 24% of the Company’s revenues; (2) non-medical supplies such as non-medical fascial mask, which accounts for approximately 3% of the Company’s total revenues; (3) cannabis products delivery service and sales, which accounts for approximately 73% of the Company’s total revenues. New accounting pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes an ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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 have adopted this ASU on the consolidated financial statements in the quarter ended September 30, 2019. In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”. The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”. The pronouncement also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for us beginning in the first quarter of fiscal 2021, with early adoption permitted. We are still evaluating the impact this guidance will have on our consolidated financial statements. |
Concentration
Concentration | 3 Months Ended |
Sep. 30, 2020 | |
Risks and Uncertainties [Abstract] | |
Concentration | 3. Concentration Customers For the three months ended September 30, 2020 and 2019, our Company earned net revenues of $2,146,326 and $753,974 respectively. The vast majority of these revenues for the period ending September 30, 2020 were derived from a large number of customers, whereas the vast majority of these revenues for the period ending September 30, 2019 were derived from a limited number of customers. There was one customer that accounted for approximately 13.9% of the Company’s total revenues for the period ended September 30, 2020. Suppliers For the period ended September 30, 2020, we purchased products for sale by the Company’s subsidiaries from several contract manufacturers located in Asia and the U.S. A substantial portion of the Company’s inventory was purchased from two (2) suppliers. The two suppliers accounted for 25.5% and 16.20%, respectively, of the Company’s total inventory purchase for the period ended September 30, 2020. For the period ended September 30, 2019, we purchased products for sale by the company’s subsidiaries from several contract manufacturers located in Asia and the U.S. A substantial portion of the Company’s inventory is purchased from two (2) suppliers. The two (2) suppliers accounted as follows: Two suppliers accounted for 31.21% and 17.80% of the Company’s total inventory purchase for the period ended September 30, 2019, respectively. |
Equity Transaction - Exclusive
Equity Transaction - Exclusive License Rights | 3 Months Ended |
Sep. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Equity Transaction - Exclusive License Rights | 4. Equity Transaction - Exclusive License Rights and Acquisition During December 2017, the Company entered into a master marketing agreement with BizRight, LLC, a leading marketer and manufacturer of hydroponic growth supplies, which offers a range of hydroponics-related products including: HPS grow lights, electronic ballasts, HPS Bulbs, nutrient mixes, environmental control products, pH measurement and calibration solutions and other grow and storage products. BizRight operates the ZenHydro.com website and other e-commerce properties, and sells various products to distributors and retailers. On April 11, 2018, the same rights under the master marketing agreement were assigned to BZRTH Inc. On February 5, 2019, the Company exercised its option to acquire BZRTH and the transaction closed on October 30, 2019. On January 15, 2020, the Company entered into a Rescission and Mutual Release Agreement (“Agreement”) with each of the parties agreeing to rescind the transaction and return all consideration exchanged pursuant to the Stock Exchange Agreement. |
VIE
VIE | 3 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
VIE | 5. VIE On February 7, 2020, the Company entered into a share sale and purchase agreement (the “Indigo Agreement”) with Indigo Dye Group Corp. ("Indigo"), a corporation located in Sacramento, California. Indigo carries on business as a cannabis seller and delivery business under the name BudCars. The major Cannabis Products include Flower, Edibles, Vape Cartridges, Pre-Rolls, & Concentrates, etc. All the products are finished goods. In addition, Indigo is operating a non-store front retail delivery business (Type-9 License# C9-0000286) in California. Pursuant to the terms of the Indigo Agreement, the Company agree to invest $700,000 (the “Investment”) into Indigo for inventory, equipment, and marketing expenses. The Investment shall be made in twelve monthly equal installments of $58,333 with the acceleration of the payment schedule possible depending on business growth, cash flow needs and capital availability. In exchange, the Company received 40% of Indigo’s issued shares upon execution of the final agreement. The value used for this transaction is $1,750,000 and each percentage (1%) of the company is worth $17,500. In the event that the Company is not able to make a payment of $58,333 in any month, it will have 90 days to cure the default. On the 91st day the investment plan will cease and the amount of invested capital will be calculated based on an enterprise value of $1,750,000 or $17,500 per 1% of owned equity. In addition, subject to the terms and conditions of the Indigo Agreement, the Company has the option to acquire an additional 30% interest in Indigo. Upon exercise of the option, the Company will obtain control over Indigo. Since late May 2020, the Company has been actively involved in development of Indigo’s operations with power to direct the activities and significantly impact Indigo’s economic performance. The Company also has obligations to absorb losses and right to receive benefits from Indigo. As such, in accordance with ASC 810-10-25-38A through 25-38J, Indigo is consolidated as an VIE of the Company. Presented below are condensed financial position data and operating results of the Indigo’s business segments for the period ended September 30, 2020. As of September 30, 2020 Current Assets $ 935,593 Non-Current Assets 257,060 Total Assets 1,192,653 Total Liabilities 623,123 Total Equity 569,530 Total Liabilities & Equity $ 1,192,653 Revenues 1,571,356 Cost of Goods Sold (647,460 ) Gross Profit 923,896 Expenses (921,954 ) Net Income $ 1,942 |
Legal Proceedings
Legal Proceedings | 3 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Legal Proceedings | 6. Legal Proceedings From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of September 30, 2020, there were no legal claims pending or threatened against the Company that in the opinion of our management would be likely to have a material adverse effect on our financial position, results of operations or cash flows. However, as of September 30, 2020, we were involved in the following legal proceedings: ● On December 11, 2013, the Company was served with a complaint from two convertible note holders and investors in the Company. On February 21, 2017, the Company signed a settlement agreement with the plaintiffs in the matter of Hannan vs. Sugarmade. Under the terms of the settlement agreement, the company agreed to pay the plaintiffs an aggregate of $227,000 to settle all claims against the Company, which included the payoff of two notes outstanding. The parties had estimated the value of the notes at approximately $80,000. As of June 30, 2020, third parties had purchased two (2) notes of approximately $80,000. As of September 30, 2020, there remains a balance, plus accrued interest on the $227,000 and on the $80,000 due under the notes. ● On August 13, 2019, a lawsuit was filed against the Company for unpaid legal fees of $50,000 which originated from the Company’s former chairman and CEO. The Company entered into a settlement and owes a remaining total of $30,000, payable at the rate of $10,000 per month under this agreement. There can be no assurances the ultimate liability relative to these lawsuits will not exceed what is outlined above. |
Cash
Cash | 3 Months Ended |
Sep. 30, 2020 | |
Cash and Cash Equivalents [Abstract] | |
Cash | 7. Cash Cash and cash equivalents consist of amounts held as bank deposits and highly liquid debt instruments purchased with an original maturity of three months or less. From time to time, we may maintain bank balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit Insurance Corporation for interest bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts). We have not experienced any losses with respect to cash. Management believes our Company is not exposed to any significant credit risk with respect to its cash. |
Accounts Receivable
Accounts Receivable | 3 Months Ended |
Sep. 30, 2020 | |
Credit Loss [Abstract] | |
Accounts Receivable | 8. Accounts Receivable Accounts receivable are carried at their estimated collectible amounts, net of any estimated allowances for doubtful accounts. We grant unsecured credit to our customer’s deemed credit worthy. Ongoing credit evaluations are performed and potential credit losses estimated by management are charged to operations on a regular basis. At the time any particular account receivable is deemed uncollectible, the balance is charged to the allowance for doubtful accounts. The Company had accounts receivable net of allowances of $156,425 as of September 30, 2020 and of $134,517 as of June 30, 2020. |
Loan Receivable
Loan Receivable | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Loan Receivable | 9. Loans Receivable Loans receivable amounted $10,344 and $1,365 as of September 30, 2020 and June 30, 2020, respectively. Loan receivables are mainly advanced payments to the other companies. |
Loan Receivable - Related Parti
Loan Receivable - Related Parties | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Loan Receivable - Related Parties | 10. Loans Receivable – Related Parties Loan receivables – related parties amounted $320,774 and $318,535 as of September 30, 2020 and June 30, 2020, respectively. Loan receivables – related parties are mainly advanced payments to the related party companies for business expense. |
Inventory
Inventory | 3 Months Ended |
Sep. 30, 2020 | |
Inventory Disclosure [Abstract] | |
Inventory | 11. Inventory Inventory consists of finished goods paper and paper-based products such as paper cups and food containers ready for sale and is stated at the lower of cost or market. We value our inventory using the weighted average costing method. Our Company’s policy is to include as a part of inventory any freight incurred to ship the product from our contract manufacturers to our warehouses. Outbound freights costs related to shipping costs to our customers are considered period costs and are reflected in selling, general and administrative expenses. We regularly review inventory and consider forecasts of future demand, market conditions and product obsolescence. If the estimated realizable value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated market value. On a consolidated basis, as of September 30, 2020 and June 30, 2020, the balance for the inventory totaled $606,090 and $679,471, respectively. Obsolescence reserve at September 30, 2020 and June 30, 2020 were $185,312 and $15,445, respectively. |
Other Current Assets
Other Current Assets | 3 Months Ended |
Sep. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Other Current Assets | 12. Other Current Assets As of September 30, 2020 and June 30, 2020, other current assets consisted of the following: For the periods ended September 30, 2020 June 30, 2020 Prepaid Deposit $ 8,483 $ 48,483 Prepaid Inventory 585,957 65,449 Employees Advance 2,397 324 Prepaid Expenses 93,580 35,157 Undeposited Funds 123,924 71,550 Other 54,382 42,441 Total: $ 868,723 $ 263,404 |
Intangible Asset
Intangible Asset | 3 Months Ended |
Sep. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Asset | 13. Intangible Asset On August 21, 2017, the Company entered into an intellectual property assignment agreement with Sound Decisions to revamp the Company’s shoplifty website to generate and attract more traffic from potential customers. The Company made a payment of $14,000 for the website (intellectual property). The Company amortized this use right as intangible asset over ten years, and recorded amortization expense of $350 for the three months ended September 30, 2020 and 2019, respectively. |
Property, Plant and Equipment
Property, Plant and Equipment | 3 Months Ended |
Sep. 30, 2020 | |
Property, Plant and Equipment [Abstract] | |
Property, Plant and Equipment | 14. Property and Equipment, net As of September 30, 2020 and June 30, 2020, property, plant and equipment consisted of the following: Fixed Assets September 30, 2020 June 30, 2020 Office and equipment $ 739,447 $ 739,447 Motor vehicles 202,839 164,244 Leasehold Improvement 24,470 24,470 Total 966,756 928,161 Less: accumulated depreciation (470,733 ) (429,116 ) Plant and Equipment, net $ 496,024 $ 499,045 For the periods ended September 30, 2020 and June 30, 2020, depreciation expenses amounted to $41,617 and $110,032, respectively. The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment was recorded in operating expenses during the periods ended September 30, 2020 and June 30, 2020. |
Unearned Revenue
Unearned Revenue | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Unearned Revenue | 15. Unearned Revenues Unearned revenue amounted to $47,536 and $53,248 as of September 30, 2020 and June 30, 2020, respectively. Unearned revenues are mainly due to contracts with extended payment terms, acceptance provisions and future delivery obligation. |
Other Payable
Other Payable | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Other Payable | 16. Other Payables Other payable amounted to $851,681 and $691,801 as of September 30, 2020 and June 30, 2020, respectively. Other payables are mainly credit card payables and taxes payables. As of September 30, 2020, the Company had 8 credit cards, one American Express is a charge card with no limit and zero interest. The remaining 7 cards had total credit limit of $85,000, and APR from 11.24% to 29.99%. |
Convertible Notes
Convertible Notes | 3 Months Ended |
Sep. 30, 2020 | |
Convertible Notes | |
Convertible Notes | 17. Convertible Notes As of September 30, 2020 and June 30, 2020, the balance owing on convertible notes, net of debt discount, with terms as described below was $1,470,894 and $1,740,122, respectively. Convertible note 1: On August 24, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion date. As of September 30, 2020, the note is in default. Convertible note 2: On September 18, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion date. As of September 30, 2020, the note is in default. Convertible note 3: On December 21, 2012, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion date. As of September 30, 2020, the note is in default. Convertible note 4: On November 1, 2018, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of September 30, 2020, the note is in default. Convertible note 5: On November 16, 2018, the Company entered into a convertible promissory note with an accredited investor for $80,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of September 30, 2020, the note is in default. Convertible note 6: On November 16, 2018, the Company entered into a convertible promissory note with an accredited investor for $40,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of September 30, 2020, the note is in default. Convertible note 7: On December 3, 2018, the Company entered into a convertible promissory note with an accredited investor for $35,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of September 30, 2020, the note is in default. Convertible note 8: On September 27, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $165,000 (includes $16,250 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. During the year ended June 30, 2020, the note holder converted $50,000 principal with $2,992 interest expense into 56,007,062 shares of the Company’s common stock. As of September 30, 2020, the note has been fully converted. Convertible note 9: On October 28, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $225,500 (includes $23,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note has been fully converted. Convertible note 10: On October 28, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $225,500 (includes $23,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note has been fully converted. Convertible note 11: On November 29, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $106,150 (includes $11,150 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note has been fully converted Convertible note 12: On November 29, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $106,150 (includes $11,150 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note has been fully converted. Convertible note 13: On December 10, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $106,700 (includes $11,700 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note has been fully converted. Convertible note 14: On December 10, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $106,700 (includes $11,700 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note has been fully converted. Convertible note 15: On December 27, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $112,200 (includes $12,200 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. Convertible note 16: On October 31, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $139,301. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is $0.008 per share. Convertible note 17: On November 1, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is $0.008 per share. Convertible note 18: On January 3, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $112,200 (includes $12,200 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. Convertible note 19: On January 14, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $150,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest closing prices for the 10 consecutive trading days prior to the conversion date. During the three months ended September 30, 2020, the note holder converted $50,000 principal into 29,868,578 shares of the Company’s common stock. As of September 30, 2020, the remaining principal and unpaid interest has been fully repaid by cash. Convertible note 20: On January 22, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $128,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 35% discount to average of two lowest closing prices for the 20 consecutive trading days prior to the conversion date. As of September 30, 2020, the note principal and unpaid interest has been fully repaid by cash. Convertible note 21: On February 4, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $110,000 (includes $10,000 OID). The note is due 360 days and bear an interest rate of 12%. The conversion price for the note is $0.001 per share. As of September 30, 2020, the note has been fully converted. Convertible note 22: On February 18, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $10,000 OID). The note is due 360 days and bear an interest rate of 12%. The conversion price for the note is $0.001 per share. Convertible note 23: On March 5, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest closing prices for the 10 consecutive trading days prior to the conversion date. During the three months ended September 30, 2020, the note holder converted $50,000 principal into 42,444,821 shares of the Company’s common stock. Convertible note 24: On April 24, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $75,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest trading prices for the 10 consecutive trading days prior to the conversion date. Convertible note 25: On June 10, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $36,300 (includes $3,300 OID and $3,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date. Convertible note 26: On June 18, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $36,300 (includes $3,300 OID and $3,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. Convertible note 27: On July 6, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $77,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest trading prices for the 10 consecutive trading days prior to the conversion date. Convertible note 28: On July 7, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $153,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 35% discount to average of two lowest trading prices for the 20 consecutive trading days prior to the conversion date. Convertible note 29: On July 16, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $260,700 (includes $23,700 OID and $12,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date. Convertible note 30: On July 21, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $200,200 (includes $18,200 OID and $7,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date. Convertible note 31: On September 8, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $110,000 (includes $10,000 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six months anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent. Convertible note 32: On September 10, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $227,700 (includes $20,700 OID and $7,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date. Convertible note 33: On September 24, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $212,300 (includes $19,300 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six months anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent. In connection with the convertible debt, debt discount balance as of September 30, 2020 and June 30, 2020 were $961,980 and $880,879, respectively, and were being amortized and recorded as interest expenses over the term of the convertible debt. |
Derivative Liabilities
Derivative Liabilities | 3 Months Ended |
Sep. 30, 2020 | |
Derivative Liabilities | |
Derivative Liabilities [Text Block] | 18. Derivative liabilities The derivative liability is derived from the conversion features in note 8 and stock warrant in note 10. All were valued using the weighted-average Binomial option pricing model using the assumptions detailed below. As of September 30, 2020 and June 30, 2020, the derivative liability was $1,416,409 and $5,597,095, respectively. The Company recorded $3,788,146 gain and $1,442,295 loss from changes in derivative liability during the period ended September 30, 2020 and June 30, 2020, respectively. The Binomial model with the following assumption inputs: September 30, 2020 Annual dividend yield — Expected life (years) 0.5-1.00 Risk-free interest rate 0.09-0.16 % Expected volatility 89-176 % June 30, 2020 Annual dividend yield — Expected life (years) 0.5-1.00 Risk-free interest rate 0.16-2.10 % Expected volatility 113-175 % Fair value of the derivative is summarized as below: Beginning Balance, June 30, 2020 $ 5,597,097 Additions 1,174,134 Cancellation of Derivative Liabilities Due to Cash Repayment (228,489 ) Mark to Market (3,266,657 ) Reclassification to APIC due to conversions (1,805,189 ) Ending Balance, September 30, 2020 $ 1,470,894 Beginning Balance, June 30, 2019 $ 2,991,953 Additions 1,894,203 Mark to Market 1,022,879 Reclassification to APIC due to conversions (659,526 ) Ending Balance, September 30, 2019 $ 3,203,751 |
Stock warrants
Stock warrants | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Stock warrants | 19. Stock warrants On September 7, 2018, the Company entered into a settlement agreement with several investors to settle all disputes by issues additional unrestricted shares. In connection with the note each individual investor will also receive warrants equal to the number of the shares the investors own as of the effective date of the settlement agreement. The warrants have a life of five years with an exercise price as of the date of exchange. The fair value of the warrants at the grant date was $56,730. As of September 30, 2020 and June 30, 2020, the fair value of the warrant liability was $695 and $1,910, respectively. On February 4, 2020, the Company entered into a warrant agreement with an accredited investor up to 10,000,000 shares of common stock of the Company at exercise price of $0.008 per share, subject to adjustment. The warrants have a life of five years with an exercise price as of the date of exchange. The fair value of the warrants at the grant date was $80,000. As of September 30, 2020 and June 30, 2020, the fair value of the warrant liability was $13,000 and $78,000, respectively. As of September 30, 2020 and June 30, 2020, the total fair value of the warrant liability was $13,695 and $79,910, respectively. |
Note Payable
Note Payable | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Note Payable | 20. Note payable Note Payable Due to Bank During October 2011, we entered into a revolving demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing limit of $150,000. The line of credit bears a variable interest rate of one quarter percent (0.25%) above the prime rate (5.5% as of December 20, 2018). In the event the deposit account is not established or minimum balance maintained, HSBC can charge a higher rate of interest of up to 4.0% above prime rate. As of September 30, 2020 and June 30, 2020, the loan principal balance was $25,982. As of September 30, 2020, the note is in default. Notes Payable Due to Non-related parties On June 15, 2018, the Company entered into a promissory note with one of the accredited investors. The original principal amount was $20,000 and the note bears 8% interest per annum. The note was payable upon demand. As of September 30, 2020 and June 30, 2020, this note had a balance of $20,000 and $20,000, respectively. Notes Payable Due to Related Parties On January 23, 2013, the Company entered into a promissory note with its former employee of the Company who owns less than 5% of the Company’s stock. The original principal amount was $40,000 and the note bears no interest. The note was payable upon demand. As of September 30, 2020 and June 30, 2020, this note had a balance of $15,427 and $15,427, respectively. |
Loans payable
Loans payable | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Loans payable | 21. Loans payable On October 1, 2017, SGMD entered a straight promissory note with Greater Asia Technology Limited (Greater Asia) for borrowing $100,000 with maturity date on June 30, 2018; the note bears an interest rate of 33.33%. As of September 30, 2020 and June 30, 2020, the note was in default and the outstanding balance under this note was $85,332 and $96,401, respectively. During the year ended June 30, 2019, the Company entered a series of short-term loan agreements with Greater Asia Technology Limited (Greater Asia) for borrowing $375,000, with interest rate at 40% - 50% of the principal balance. As of September 30, 2020 and June 30, 2020, the outstanding balance with Greater Asia loans were $100,000 and $100,000, respectively. On January 6, 2015, the Company entered into repayment agreement with its former employee for a loan of $9,500 at no interest. As of September 30, 2020 and June 30, 2020, the Company has an outstanding balance of $4,423 and $3,584. On July 1, 2012, CarryOutSupplies entered an equipment loan agreement with a bank with maturity on June 21, 2024. The monthly payment is $648. As of September 30, 2020 and June 30, 2020, the outstanding balance under this loan were $22,594 and $24,524, respectively. On March 18, 2020, the Company entered into a loan agreement for $150,000 with Celtic Bank with maturity date on March 18, 2020. As of September 30, 2020 and June 30, 2020, the outstanding balance under this loan were $69,230 and $117,635, respectively. On June 26, 2020, the Company entered into a government loan agreement for $8,000 with maturity date on December 26, 2020. As of September 30, 2020 and June 30, 2020, the outstanding balance under this loan were $8,000. On April 27, 2020, we entered into a loan borrowed $110,000 from Bank of America (“Lender”), pursuant to a Promissory Note issued by Company to Lender (the “PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Note bears interest at 1.00% per annum and may be repaid at any time without penalty. The PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the PPP Note. On July 28, 2020, we entered into a loan borrowed $159,900 from Bank of America (“Lender”), pursuant to a Promissory Note issued by Company to Lender (the “PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Note bears interest at 1.00% per annum and may be repaid at any time without penalty. The PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the PPP Note. The Company accounting for the PPP loan under Topic 470: (a). Initially record the cash inflow from the PPP loan as a financial liability and would accrue interest in accordance with the interest method under ASC Subtopic 835-30; (b). Not impute additional interest at a market rate; (c). Continue to record the proceeds from the loan as a liability until either (1) the loan is partly or wholly forgiven and the debtor has been legally released or (2) the debtor pays off the loan; (d). Would reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and legal release is received. As of September 30, 2020 and June 30, 2020, the Company had an outstanding loan balance of $628,199 and $517,260, respectively. |
Loans Payable - Related Parties
Loans Payable - Related Parties | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Loans Payable - Related Parties | 22. Loans Payable – Related Parties On July 7, 2016, SWC received a loan from an employee. The amount of the loan bears no interest and amortized on a monthly basis over the life of the loan. As of September 30, 2020 and June 30, 2020, the balance of the loan was $30,000 and $30,000, respectively. During the three months ended September 30, 2020, the Company received loans from related parties. The amount of the loan bears no interest. As of September 30, 2020, the balance of the loan was $655,337 and $0, respectively. |
Shares to be issued
Shares to be issued | 3 Months Ended |
Sep. 30, 2020 | |
Notes to Financial Statements | |
Shares to be issued | 23. Shares to Be Issued During the year ended June 30, 2020, the Company had entered into one consulting service agreement and one employment agreement, which had potential shares to be issued in total amount of $101,577. During the three months ended September 30, 2020, the Company had potential shares to be issued to one employment agreement of $18,750. As of September 30, 2020 and June 30, 2020, the Company had balance of $120,327 and $101,577 share to be issued, respectively. |
Stockholder's Equity
Stockholder's Equity | 3 Months Ended |
Sep. 30, 2020 | |
Equity [Abstract] | |
Stockholder's Equity | 24. Stockholder’s Equity The Company is authorized to issue 10,000,000,000 shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred stock. On April 22, 2020, the Company filed an amendment to increase the total authorized shares to 10,010,000,000 – 10,000,000,000 shall be designated common stock, par $0.001 per share and 10,000,000 shares shall be designated as preferred stock, par value $0.001 per share. Share issuance during the three months ended September 30, 2020 During the three months ended September 30, 2020, the Company issued 1,081,411,606 shares of common stock for debt conversions in total amount of $1,273,459. As of September 30, 2020 and June 30, 2020, the Company had 3,541,500 share of its preferred stock, 2,844,688,836 and 1,763,277,230 shares of its common stock, respectively, issued and outstanding. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Sep. 30, 2020 | |
Commitments And Contingencies | |
Commitments and Contingencies | 25. Commitments and contingencies On February 23, 2018 the Company entered into lease agreement for a new office space commencing March 1, 2018. The term of the lease is for a (5) Five Years with 1 month free on the 1st year of the term. The monthly rent on the 1st year will be $11,770 with a 3% increase for each subsequent year. Total commitment for the full term of the lease will be $737,367. Our warehouse along with some office space is located at 20529 East Walnut Drive North, Diamond Bar, California, where we lease approximately 11,627 square feet of combined space. The lease term is for five years and two months ending on April 30, 2025. The current monthly rental payment for the facility is $13,022. Three Months Ended September 30, 2020 Lease Cost Operating lease cost (included in general and administration in the Companys unaudited condensed statement of operations) $ 93,071 Other Information Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 30, 2020 $ 65,105 Remaining lease term operating leases (in years) 3.06 Average discount rate operating leases 10 % The supplemental balance sheet information related to leases for the periods are as follows: Operating leases Right-of-use assets $ 1,040,651 Total operating lease assets $ 1,040,651 Short-term operating lease liabilities $ 279,749 Long-term operating lease liabilities $ 795,863 Total operating lease liabilities $ 1,075,612 Maturities of the Companys lease liabilities are as follows: Period ending June 30, Operating Lease 2021 $ 280,166 2022 368,400 2023 326,225 2024 172,465 2025 147,446 Total lease payments 1,294,701 Less: Imputed interest/present value discount (219,089 ) Present value of lease liabilities $ 1,075,612 |
Subsequent Event
Subsequent Event | 3 Months Ended |
Sep. 30, 2020 | |
Subsequent Event | |
Subsequent Event | 26. Subsequent events Convertible Notes On October 9, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $231,000 (includes $21,000 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six months anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent. On October 13, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $275,000 (includes $25,000 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six months anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent. Conversions Subsequent to November 20, 2020, there were multiple accredited investors converted approx. $187,200 of the convertible notes with $13,047 accrued interest into 256,515,904 shares of the Company’s common stocks. Lease On September 28, 2020, the Company and LMK Capital LLC (“LMK”) entered into a Residential Lease (the “Lease”) pursuant to which LMK agreed to lease to the Company five acres located in Northern California and owned by LMK (the “Property”). Jimmy Chan, Chairman of the Board, Chief Executive Officer, Chief Financial Officer and majority stockholder of the Company, is majority owner of LMK. The term of the Lease begins on October 1, 2020 and ends on September 30, 2023; provided, however, that at the end of the term, the Lease will continue on a month-to-month basis. in the Pursuant to the terms of the Lease, the Company will pay rent in the amount of $20,000 per month. The Lease also provides that the Company will pay a $250,000 security deposit to LMK. Pursuant to the terms of the Lease, the monthly rent will increase to $0.50 per sq. ft. on cultivation area upon approval of certificate of occupancy with a 3% increase each subsequent year. The lease will not be executed until the patents approved. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Sep. 30, 2020 | |
Disclosure Summary Of Significant Accounting Policies Policies Abstract | |
Basis of presentation | Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. These interim condensed consolidated financial statements should be read in conjunction with our Company’s Annual Report on Form 10-K for the year ended June 30, 2020, which contains our audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operation, for the fiscal year ended June 30, 2020. The interim results for the period ended September 30, 2020 are not necessarily indicative of the results for the full fiscal year. |
Principles of consolidation | Principles of consolidation The consolidated financial statements include the accounts of our Company, its wholly-owned subsidiary, SWC Group Inc., and Indigo Dye Group Corp., a variable interest entity (“VIE”). All significant intercompany transactions and balances have been eliminated in consolidation. |
Going concern | Going concern The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. Management is endeavoring to increase revenue-generating operations. While priority is on generating cash from operations through the sale of the Company’s products, management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity and/or debt securities, which may not be available on commercially reasonable terms to our Company, or which may not be available at all. If such financing is not available on satisfactory terms, we may be unable to continue our business as desired and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of our common stock. |
Use of estimates | Use of estimates The preparation of financial statements in conformity with GAAP requires our 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 revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. |
Revenue recognition | Revenue recognition We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’’) No. 606, Revenue Recognition. Sugarmade applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer. |
Property and equipment | Property and equipment Property and equipment is stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided using the straight-line method over the estimated useful lives of the assets for both financial and income tax reporting purposes as follows: Machinery and equipment 3-5 years Furniture and equipment 7 years Vehicles 5 years Leasehold improvements 5 years Expenditures for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset. Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from their respective accounts and any gain or loss is recorded in the statements of income. The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment was recorded in operating expenses during the three months ended September 30, 2020 and 2019. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company, as of June 30, 2020, performed an impairment test of all of its intangible assets. Based on the Company’s analysis, the company had an amortization of intangible assets of $350 for the three months ended September 30, 2020 and 2019, respectively. |
Leases | Leases In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to recognize the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The new standard became effective April 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on July 1, 2019 using the modified retrospective transition approach as of the effective date of the initial application. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements. The most significant effects of the adoption of the new standard relate to the recognition of new ROU assets and lease labilities on our balance sheet for office operating leases and providing significant new disclosures about our leasing activities. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term leases recognition exemption for all leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets and lease liabilities, for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for its leases. All existing leases are reported under this rule. Under ASC 840, leases were classified as either capital or operating, and the classification significantly impacted the effect the contract had on the company's financial statements. Capital lease classification resulted in a liability that was recorded on a company's balance sheet, whereas operating leases did not impact the balance sheet. After the new adoption, $1,105,755 of operating lease right-of-use asset and $1,140,041 of operating lease liabilities were reflected on the Company’s June 30, 2020 financial statements and $1,040,651 of operating lease right-of-use asset and $1,075,612 of operating lease liabilities were reflected on the Company’s September 30, 2020 financial statements. |
Stock based compensation | Stock based compensation Stock based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee stock options granted using the Binomial Option Pricing Model. Key assumptions used to estimate the fair value of stock options will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common stock. We use our company’s own data among other information to estimate the expected price volatility and the expected forfeiture rate. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. |
Earnings (Loss) per share | Earnings ( Loss) per share We calculate basic earnings (loss) per share (“EPS”) by dividing our net income (loss) by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive. |
Fair Value of Financial Instruments | Fair value of financial instruments ASC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - include other inputs that are directly or indirectly observable in the marketplace. Level 3 - unobservable inputs which are supported by little or no market activity. The Company used Level 3 inputs for its valuation methodology for the derivative liabilities in determining the fair value using the Binomial option-pricing model for the three months ended September 30, 2020. |
Derivative Instruments | Derivative instruments The fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under non-operating income (expense). Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. |
Segment Reporting | Segment Reporting FASB ASC Topic 280, “Segment Reporting”, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the Company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company’s financial statements as of September 30, 2020 substantially all of its operations are conducted in three industry segments – (1) paper and paper-based products such as paper cups, cup lids, food containers, etc., which accounts for approximately 24% of the Company’s revenues; (2) non-medical supplies such as non-medical fascial mask, which accounts for approximately 3% of the Company’s total revenues; (3) cannabis products delivery service and sales, which accounts for approximately 73% of the Company’s total revenues. |
New Accounting Pronouncements Not Yet Adopted | New accounting pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes an ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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 have adopted this ASU on the consolidated financial statements in the quarter ended September 30, 2019. In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”. The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”. The pronouncement also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for us beginning in the first quarter of fiscal 2021, with early adoption permitted. We are still evaluating the impact this guidance will have on our consolidated financial statements. |
VIE (Tables)
VIE (Tables) | 3 Months Ended |
Sep. 30, 2020 | |
Vie | |
Schedule of Financial Position of Business Segment | Presented below are condensed financial position data and operating results of the Indigo’s business segments for the period ended September 30, 2020. As of September 30, 2020 Current Assets $ 935,593 Non-Current Assets 257,060 Total Assets 1,192,653 Total Liabilities 623,123 Total Equity 569,530 Total Liabilities & Equity $ 1,192,653 Revenues 1,571,356 Cost of Goods Sold (647,460 ) Gross Profit 923,896 Expenses (921,954 ) Net Income $ 1,942 |
Other Current Assets (Tables)
Other Current Assets (Tables) | 3 Months Ended |
Sep. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Schedule of Other Current Assets | As of September 30, 2020 and June 30, 2020, other current assets consisted of the following: For the periods ended September 30, 2020 June 30, 2020 Prepaid Deposit $ 8,483 $ 48,483 Prepaid Inventory 585,957 65,449 Employees Advance 2,397 324 Prepaid Expenses 93,580 35,157 Undeposited Funds 123,924 71,550 Other 54,382 42,441 Total: $ 868,723 $ 263,404 |
Property, Plant and Equipment (
Property, Plant and Equipment (Tables) | 3 Months Ended |
Sep. 30, 2020 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property Plant and Equipment | As of September 30, 2020 and June 30, 2020, property, plant and equipment consisted of the following: Fixed Assets September 30, 2020 June 30, 2020 Office and equipment $ 739,447 $ 739,447 Motor vehicles 202,839 164,244 Leasehold Improvement 24,470 24,470 Total 966,756 928,161 Less: accumulated depreciation (470,733 ) (429,116 ) Plant and Equipment, net $ 496,024 $ 499,045 |
Derivative liabilities (Tables)
Derivative liabilities (Tables) | 3 Months Ended |
Sep. 30, 2020 | |
Disclosure Derivative Liabilities Tables Abstract | |
Schedule of changes in derivative liability | The Binomial model with the following assumption inputs: September 30, 2020 Annual dividend yield — Expected life (years) 0.5-1.00 Risk-free interest rate 0.09-0.16 % Expected volatility 89-176 % June 30, 2020 Annual dividend yield — Expected life (years) 0.5-1.00 Risk-free interest rate 0.16-2.10 % Expected volatility 113-175 % Fair value of the derivative is summarized as below: Beginning Balance, June 30, 2020 $ 5,597,097 Additions 1,174,134 Cancellation of Derivative Liabilities Due to Cash Repayment (228,489 ) Mark to Market (3,266,657 ) Reclassification to APIC due to conversions (1,805,189 ) Ending Balance, September 30, 2020 $ 1,470,894 Beginning Balance, June 30, 2019 $ 2,991,953 Additions 1,894,203 Mark to Market 1,022,879 Reclassification to APIC due to conversions (659,526 ) Ending Balance, September 30, 2019 $ 3,203,751 |
Concentration (Details Narrativ
Concentration (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Net Revenue | $ 2,146,326 | $ 753,974 |
Supplier Concentration Two [Member] | ||
Concentration Percentage | 16.20% | 17.80% |
Customer Concentration One [Member] | ||
Concentration Percentage | 13.90% | |
Supplier Concentration One [Member] | ||
Concentration Percentage | 25.50% | 31.21% |
VIE (Details)
VIE (Details) - USD ($) | 3 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Jun. 30, 2020 | |
Current Assets | $ 2,724,653 | $ 1,912,659 | |
Non-Current Assets | 1,519,084 | 1,594,403 | |
Total Assets | 4,243,737 | 3,507,062 | |
Total Liabilities | 9,047,986 | 12,645,935 | |
Total Equity | (4,770,277) | (9,127,737) | |
Total Liabilities & Equity | 4,243,737 | $ 3,507,062 | |
Revenues, net | 2,146,326 | $ 753,974 | |
Cost of goods sold | (1,028,815) | (492,168) | |
Gross Profit | 1,279,977 | (2,027,551) | |
Expense | 2,150,227 | (1,085,728) | |
Net Loss | 1,278,812 | $ (2,027,551) | |
Indigo Dye Group Corp. | |||
Current Assets | 935,593 | ||
Non-Current Assets | 257,060 | ||
Total Assets | 1,192,653 | ||
Total Liabilities | 623,123 | ||
Total Equity | 569,530 | ||
Total Liabilities & Equity | 1,192,653 | ||
Revenues, net | 1,571,356 | ||
Cost of goods sold | (647,460) | ||
Gross Profit | 923,896 | ||
Expense | (921,954) | ||
Net Loss | $ 1,942 |
Legal Proceedings (Details Narr
Legal Proceedings (Details Narrative) - USD ($) | Aug. 13, 2019 | Feb. 21, 2017 |
Commitments and Contingencies Disclosure [Abstract] | ||
Litigation Settlement, Amount | $ 227,000 | |
Unpaid Legal Fees | $ 50,000 |
Other Current Assets (Details)
Other Current Assets (Details) - USD ($) | Sep. 30, 2020 | Jun. 30, 2020 |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Prepaid Deposit | $ 8,483 | $ 48,483 |
Prepaid Inventory | 585,957 | 65,449 |
Employees Advance | 2,397 | 324 |
Prepaid Expenses | 93,580 | 35,157 |
Undeposited Funds | 123,924 | 71,550 |
Others | 54,382 | 42,441 |
Total | $ 868,723 | $ 263,404 |
Intangible Asset (Details Narra
Intangible Asset (Details Narrative) - USD ($) | 3 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization Expense | $ 350 | $ 350 |
Property, Plant and Equipment_2
Property, Plant and Equipment (Details) - USD ($) | Sep. 30, 2020 | Jun. 30, 2020 |
Total | $ 966,756 | $ 928,163 |
Less: accumulated depreciation | (470,733) | (429,116) |
Plant and Equipment, net | 496,024 | 499,047 |
Vehicles [Member] | ||
Total | 202,839 | 164,244 |
Office and equipment [Member] | ||
Total | 739,447 | 739,447 |
Leasehold Improvement [Member] | ||
Total | $ 24,470 | $ 24,742 |
Property, Plant and Equipment_3
Property, Plant and Equipment (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Jun. 30, 2020 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation Expenses | $ 41,617 | $ 110,032 |
Derivative liabilities (Details
Derivative liabilities (Details) - Derivative [Member] | 3 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Annual Dividend Yield [Member] | ||
Annual Dividend Yield | ||
Expected Volatility [Member] | Maximum [Member] | ||
Expected volatility | 176.00% | 175.00% |
Expected Volatility [Member] | Minimum [Member] | ||
Expected volatility | 89.00% | 113.00% |
Expected Life [Member] | Maximum [Member] | ||
Expected life (years) | 1 year | 1 year |
Expected Life [Member] | Minimum [Member] | ||
Expected life (years) | 6 months | 6 months |
Risk Free Interest Rate [Member] | Maximum [Member] | ||
Risk-free interest rate | 0.16% | 2.10% |
Risk Free Interest Rate [Member] | Minimum [Member] | ||
Risk-free interest rate | 0.09% | 0.16% |
Derivative liabilities (Detai_2
Derivative liabilities (Details 2) - USD ($) | 3 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Balance Beginning | $ 5,597,095 | |
Mark to Market | 3,495,147 | $ 1,022,878 |
Ending Balance | 1,470,894 | |
Derivative [Member] | ||
Balance Beginning | 5,597,097 | 2,991,953 |
Additions | 1,174,134 | 1,894,203 |
Cancellation of Derivative Liabilities Due to Cash Repayment | (228,489) | |
Mark to Market | (3,266,657) | 1,022,879 |
Reclassification to APIC due to conversions | (1,805,189) | (659,526) |
Ending Balance | $ 1,470,894 | $ 3,203,751 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) | 3 Months Ended | |
Sep. 30, 2020 | Jun. 30, 2020 | |
Disclosure Commitments And Contingencies Details Abstract | ||
Operating lease cost | $ 93,071 | |
Cash paid for amounts included in the measurement of lease liabilities | $ 65,105 | |
Remaining lease term | 3 years 22 days | |
Average discount rate | 10.00% | |
Short-term operating lease liabilities | $ 279,750 | $ 372,285 |
Long-term operating lease liabilities | 795,863 | $ 767,729 |
Total operating lease liabilities | 1,075,612 | |
2021 | 280,166 | |
2022 | 368,400 | |
2023 | 326,225 | |
2024 | 172,465 | |
2025 | 147,446 | |
Total lease payments | 1,294,701 | |
Less: Imputed interest/present value discount | (219,089) | |
Present value of lease liabilities | $ 1,075,612 |
Commitments and Contingencies_2
Commitments and Contingencies (Details Narrative) | 1 Months Ended |
Mar. 31, 2019USD ($) | |
Commitments And Contingencies Details Narrative | |
Monthly Rent | $ 11,770 |
Lease Term | 5 years |