PRCX Phoenix Rising Companies Inc (CE)

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

Expressed in United States Dollars

(Unaudited)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Phoenix Rising Companies. (“we,” “us,” “our,” the “Company “PRCX”) is a Nevada corporation incorporated on June 25, 2012 under the name Resort Savers, Inc. On May 28, 2020, the Company’s corporate name was changed to Phoenix Rising Companies. It is based in Puchong, Malaysia. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America, and the Company’s fiscal year end is December 31.

The Company makes investments and acquisitions into sound, transparent markets and industries throughout the world. The Company is principally engaged in the trading of oil, gas and lubricant. From January 1, 2020, the Company deconsolidated the operations in nutrition and health products.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company prepares its condensed consolidated financial statements in accordance with rules and regulations of the U.S. Securities and Exchange Commission (SEC) and generally accepted accounting principles (“GAAP”) in the United States of America. The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X and presented in United States dollars.

In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2021 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited interim consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on June 1, 2021.

These condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated upon the consolidation.

Use of Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

Foreign Currency Translation and Re-measurement

The Company translates its foreign operations to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.

The Company’s functional currency and reporting currency is the U.S. dollar, and our subsidiaries’ functional currency is the Chinese Yuan Renminbi (“CNY”), and Hong Kong Dollar (“HKD”).

The Company translates the foreign subsidiaries’ records into U.S. dollar as follows:

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents, and accounts receivable. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company also reviews its accounts receivable in a timely manner. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.

Tieshan Oil

During the three months ended March 31, 2021 and 2020, one customer accounted for 100% of revenues.

During the three months ended March 31, 2021 and 2020, one vendor accounted for 100% of total purchases.

As of March 31, 2021 and December 31, 2020, one customer accounted for approximately 100% and 0% of accounts receivable, and one vendor accounted for approximately 100% and two vendors for 96% of accounts payable, respectively.

Earnings Per Share of Common Stock

The Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying consolidated financial statements, basic earnings per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

For the three months ended March 31, 2021 and 2020, the following common stock equivalents were included in the computation of diluted net income per share.

NOTE 3 - GOING CONCERN

The Company’s condensed consolidated financial statements are prepared using GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet had sufficient revenues to cover its operating cost, and requires additional capital to commence its operating plan. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include: sales of equity instruments; traditional financing, such as loans; and obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 – ACCOUNTS RECEIVABLE

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivables are reflected as a current asset and no allowance for bad debt has been recorded as of March 31, 2021 and December 31, 2020. As at March 31, 2021 and December 31, 2020, the Company had accounts receivable of $2,417,245 and $0, respectively.

For the three months ended March 31, 2021 and 2020, the interest expense on convertible notes was $27,777 and $9,179, and amortization of discount, including interest expense, of $304,063 and $66,794, respectively. As of March 31, 2021 and December 31, 2020, the accrued interest was $53,281 and $54,299, respectively.

Conversion

During the three months ended March 31, 2021, the Company converted notes with principal amounts and accrued interest of $254,450 into 9,900,730 shares of common stock. The corresponding derivative liability at the date of conversion of $962,816 was credited to additional paid in capital.

Convertible Notes – Issued during the three months ended March 31, 2021

During the three months ended March 31, 2021, the Company issued a total principal amount of $131,000 convertible note for cash proceeds of $125,000. The terms of convertible note are summarized as follows:

Convertible Notes – Issued during the three months ended March 31, 2020

During the three months ended March 31, 2020, the Company issued a total principal amount of $112,750 convertible note for cash proceeds of $90,000. The terms of convertible note are summarized as follows:

The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Stock” and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.

The Company valued the conversion feature and warrant using the Black Scholes valuation model. The fair value of the derivative liability for all warrant and the notes that became convertible, including the notes issued in prior years, during the three months ended March 31, 2021 amounted to $248,396. $120,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $128,396 was recognized as a “day 1” derivative loss.

The Company determined that the warrants qualify for derivative accounting due to the reset feature of warrants, which led to no explicit limit to the number of shares to be delivered upon future settlement of the exercised warrants.

Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at March 31, 2021 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). The intrinsic value of the warrants as of March 31, 2021 is $22,433,306.

NOTE 8 – DERIVATIVE LIABILITIES

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in the three months ended March 31, 2021 and the year ended December 31, 2020:

The following table summarizes the changes in the derivative liabilities during the three months ended March 31, 2021 and 2020:

The following table summarizes the loss on derivative liability included in the income statement for the three months ended March 31, 2021 and 2020, respectively.

NOTE 9 - STOCKHOLDERS’ DEFICIT

The capitalization of the Company consists of the following classes of capital stock as of March 31, 2021:

Preferred Stock

The Company has authorized 15,000,000 shares of preferred stock with a par value of $0.0001 per share. The Board of Directors are authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. No shares of preferred stock have been issued.

Series A Preferred Stock

The Company is designated to issue 1,500,000 shares of Series A Preferred Stock at a par value of $0.0001. The Series A Preferred Stock shall have liquidation preference over any other class of stock and voting rights on the basis of one hundred votes for each shares of Series A Preferred Stock. The Preferred Stock can be converted to common stock, at a conversion rate of 100 common shares for each preferred stock.

As at March 31, 2021 and December 31, 2020, the Company had 1,500,000 preferred shares issued and outstanding.

Common Stock

The Company has authorized 1,000,000,000 shares of common stock with a par value of $0.0001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.

During the three months ended March 31, 2021, the Company issued 15,791,268 shares of common stock as follows;

As at March 31, 2021 and December 31, 2020, the Company had 136,960,636 shares and 121,169,368 common shares issued and outstanding.

Subscription receivable

On February 24, 2020, the Company entered into a Purchase Agreement (the “Agreement”) with Mr. Liu FaKuan (“Seller”), the sole owner of Henan Wandi Mining Product Development Co., Ltd. (“Wandi”), a corporation organized in the People’s Republic of China (“PRC”), pursuant to which the Company will effect an acquisition of Wandi by acquiring from the Seller all outstanding equity interests of Wandi. Wandi owns 49% of a coal mine known as You Zhou Shenhuo Kuanfa Mining Company Ltd., (the “Mine”), with Zhengshou Yshong Coal Industry Co., Ltd. (a State-owned enterprise) owning the remaining51% of the Mine.

Pursuant to the Agreement, the Company issued 60,000,000 restricted common shares of stock of the Company to the Seller, valued at $24,522,000. The obligations of the parties to complete the acquisition is subject to the fulfillment (or, in some cases waiver) of due diligence and certain closing conditions. Upon closing of the acquisition Seller shall transfer to Company 100% of the issued and outstanding equity interests of Wandi, which will then become a wholly owned subsidiary of the Company.

As of March 31, 2021, the Company does not have control of Wandi. As a result, the Company determined not to consolidate Wandi and recorded share issuance for acquisition of Wandi as a subscription receivable for $24,522,000, until the common shares of Wandi are delivered.

NOTE 10 – RELATED PARTY TRANSACTIONS

As of March 31, 2021 and December 31, 2020, the Company recorded due to related parties of $107,538. The loan is non-interest bearing and due on demand.

NOTE 11 - SEGMENTED INFORMATION

At March 31, 2021, the Company operates in one industry segment, oil and gas, and two geographic segments, China, where majority current assets and equipment are located.

At March 31, 2021 and December 31, 2020, segment assets and liabilities were as follows:

For the three months ended March 31, 2021 and 2020, segment revenue and net income (loss) were as follows: