PMX Communities, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2016 and December 31, 2015
NOTE 1 – DESCRIPTION OF BUSINESS
PMX Communities, Inc. "PMX" was organized under the laws of the State of Nevada on December 29, 2004 under the name Merge II, Inc. and changed its name to PMX Communities, Inc. effective February 10, 2009. PMX's year end is December 31.
On September 28, 2010, PMX formed PMX Gold, LLC, (“PMX Gold”) a Florida limited liability company as a wholly owned subsidiary of the Company to assist with evaluating and pursuing opportunities within the Gold Mining and Retail Gold Sales Industries.
On September 28, 2011, PMX formed PMX Gold Bullion Sales Inc. (“PMX Bullion”), a Florida corporation as a wholly owned subsidiary of the Company.
PMX, (through its wholly owned subsidiaries PMX Gold, LLC and PMX Gold Bullion Sales Inc.) focuses on the development of leveraged opportunities within the Retail Gold Sales and Gold Mining Industries.
PMX Communities, Inc. and its wholly-owned subsidiaries are hereafter referred to as “the Company”.
On July 18, 2016, the Board of Directors approved an increase in the number of shares available for issuance through the 2011 stock awards plan from 10,000,000 common shares to 17,700,000 common shares.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has a working capital deficit, has incurred reoccurring net losses and has not yet established revenue producing activities which raises substantial doubt about its ability to continue as a going concern.
Based on the above considerations, there is a substantial doubt about the ability of the Company to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan and generate future profits or attain working capital through debt or equity financing. Management hopes that with precious metals making a turn around, they will obtain distribution networks for the machines. Management hopes to find avenues to license their terminal technologies and sell terminals which will bring sufficient revenues and investment into the Company to sustain its growth and operations. Furthermore, management believes organic growth through a new strategy in the Company’s subsidiaries will assist the Company in achievement of its goals. There is no assurance that this series of events will be satisfactorily completed. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
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Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the period presented.
We make our estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.
Principles of Consolidation
The consolidated financial statements include the accounts of PMX Communities, Inc. and its wholly-owned subsidiaries, PMX Gold, LLC and PMX Gold Bullion Sales, Inc. All inter-company transactions have been eliminated.
Financial Instruments and Fair Value
The Company’s balance sheet includes certain financial instruments, including accounts payable, accrued expenses and notes payable. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
Level 2
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3
Inputs that are both significant to the fair value measurement and unobservable.
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Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is provided using the straight line method over the estimated useful life of five years for equipment, five years for molds and seven years for furniture and fixtures.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In such circumstances, those assets are written down to estimated fair value. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset's estimated fair value and its book value.
Common Stock, Common Stock Options and Warrants
The Company uses the fair value recognition provision of ASC 718, "Compensation-Stock Compensation," which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. The Company uses the Black-Scholes option pricing model to calculate the fair value of any equity instruments on the grant date.
The Company also uses the provisions of ASC 505-50, "Equity Based Payments to Non-Employees," to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50.
Income Taxes
Under the asset and liability method prescribed under ASC 740, Income Taxes, the Company uses the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount recognized in the financial statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of December 31, 2016 and 2015, the Company had no uncertain tax positions. As of December 31, 2016, the Company has approximately $3,725,000 in net loss carry forwards. The Company recognizes interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. The Company currently has no federal or state tax examinations nor has it had any federal or state examinations since its inception. The tax years for December 31, 2011-2016 remain subject to review by federal and state tax authorities.
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Income tax expense (benefit) consists of the following for the years ended December 31:
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2016
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2015
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Current:
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Deferred
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-
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(6,100)
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Federal
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(37,980)
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(35,100)
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State
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(4,220)
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(3,700)
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Total
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(42,200)
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(44,900)
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Less reserve for allowance
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42,200
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44,900
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Total income tax expense (benefit)
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-
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-
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The net deferred income tax assets and (liability) consist of the following as of December 31:
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2016
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2015
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Deferred:
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Net deferred tax asset and liabilities
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1,303,700
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1,261,600
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Less reserve for allowance
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(1,303,700)
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(1,261,600)
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Total deferred tax assets and liabilities
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-
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-
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Revenue Recognition
The Company recognizes revenue when it is realized and realizable.
- Persuasive evidence of an arrangement exists; and
- Delivery has occurred; and
- Price is fixed or determinable; and
- Collectability is reasonably assured
Subject to these criterions, the Company recognizes revenue at the time the merchandise is purchased and the machine dispenses the relevant merchandise. The Company offers its individual customers a 14-day warranty if the item is returned and if the TEP packaging is not broken. The customer will receive their money back. The Company estimates an allowance for sales returns based on historical experience with product returns. The Company closely follows the provisions of ASC 605, Revenue Recognition, which includes the guidelines of Staff Accounting Bulletin No. 104 as described above.
Income (loss) Per Common Share
Basic income (loss) per share is calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period. As of December 31, 2016 and 2015, the Company had no warrants issued and outstanding.
Recent Authoritative Accounting Pronouncement
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact the adoption of ASU 2014-15 will have on its financial statements.
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Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
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December 31, 2016
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December 31, 2015
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Gold Machines
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$ 146,224
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$ 146,224
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Molds
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8,909
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8,909
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Officer Equipment
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1,600
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1,600
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Office Furniture and Fixtures
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3,366
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3,366
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Less: Accumulated Depreciation
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(120,785)
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(97,069)
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Less: Impairment
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(39,314)
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-
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Property and Equipment, net
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$ -
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$ 63,030
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Depreciation for the year’s ended December 31, 2016 and 2015 was $23,716 and $33,408, respectively. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. Through its analysis, the Company determined that the expected future cash flows is less than the carrying amount of the assets, therefore, an impairment loss of $39,314 was recorded during the year ended December 31, 2016.
NOTE 5 – NOTES PAYABLE
Promissory Notes carry outstanding principal balances of $157,367 and $153,367 as of December 31, 2016 and 2015, respectively. Related accrued interest was $115,644 and $92,017 as of December 31, 2016 and 2015, respectively. As of December 31, 2016, these notes are due on demand as their maturity dates have passed and are considered to be in default. These notes bear interest at a rate of 5% to 12% per annum.
NOTE 6 – EQUITY FINANCING
On December 11, 2014, the Company amended its Articles of Incorporation. The following are the authorized shares for each class:
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Class
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Par
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Authorized
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Preferred
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0.0001
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10,000,000
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Common
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0.0001
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500,000,000
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Shares Issued for Services
On April 17, 2015, the Company issued 4,000,000 shares of stock to a company for services. These shares were valued at fair market value, which on the date of issuance was $16,000 and expensed as consulting expense.
On July 1, 2016, the Board of Directors approved the issuance of the following shares: 4,000,000 shares to an officer of the Company for services and 6,000,000 shares to a related party shareholder for consulting services. The total value for the 10,000,000 shares was $42,000.
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Shares Issued to convert related party notes payable
During the year ended December 31, 2015, one shareholder and his beneficial interests made aggregate loans of $57,202 to the Company. The loans bear interest at 5% and each have a six-month maturity. In December 2015, these new loans, prior year, related party loans and related accrued interest totaling approximately $327,000 were settled by the holders agreeing to receive 10,900,000 shares which were valued at $38,150 and recorded as common stock payable. The remaining balances of the loans were recorded as a capital contribution. The Company issued the 10,900,000 shares during the year December 31, 2016.
Warrants
No warrants were issued and outstanding during the years ended December 31, 2016 and 2015.
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company is currently using space at 2700 North Military Trail #130, Boca Raton, FL 33431, which has been provided by a majority shareholder free of charge.
During the year ended December 31, 2015, one shareholder and his beneficial interests made aggregate loans of $57,202 to the Company. The loans bear interest at 5% and each have a six-month maturity. In December 2015, these new loans, prior year, related party loans and related accrued interest totaling approximately $327,000 were settled by the holders agreeing to receive 10,900,000 shares which were valued at $38,150 and recorded as common stock payable. The remaining balances of the loans were recorded as a capital contribution. The Company issued the 10,900,000 shares during the year December 31, 2016.
During the years ended December 31, 2016 and 2015, one shareholder and his beneficial interests made aggregate loans of $4,000 and $57,202, respectively, to the Company. The balance as of December 31, 2016 and 2015 is $4,000 and $0, respectively. The loans bear interest at 5% and each has a six-month maturity.
During the year ended December 30, 2016, a related party shareholder paid $24,550 in expenses on the Company’s behalf. The amount is included in accounts payable.
On July 1, 2016, the Board of Directors approved to issue a total of 10,000,000 shares of common stock to officers of the Company for services at $0.0042 per share or $42,000.
The above related party transactions are not necessarily indicative of the terms and amounts that would have been incurred had comparable agreements been made with independent parties.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
On June 19, 2015, the Company received a civil court summons regarding an unpaid note payable with a principal sum of $125,000. On February 26, 2016, a final judgment for $105,756 due to the note holder was recorded in Broward County, Florida. The Company has not repaid the judgement and as such the note continues to accrue interest, the total due including interest as of December 31, 2016 is $131,938.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2016. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of December 31, 2016 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process designed by and under the supervision of our chief executive officer and chief financial officer, or the persons performing similar functions, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. These officers have evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control over Financial Reporting – Guidance for Smaller Public Companies
.
Our chief executive officer and chief financial officer have assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 and concluded that it was not effective because of the material weakness described below:
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2016, material weaknesses became evident to management regarding our inability to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchange Commission due to the lack of resources which resulted in lack of multiple levels of supervision and review and a lack of segregation of duties. A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level the risk that material misstatements in our consolidated financial statements will not be prevented or detected on a timely basis.
The Company hired an outsource certified public accountant to work with our CFO and management on an as needed basis to eliminate the material weaknesses. We will continue to aggressively recruit experienced professionals to ensure that we include all necessary disclosures in our filings with the Securities and Exchange Commission. Although we believe that this corrective step will enable management to conclude that the internal controls over our financial reporting are effective when the staff is trained, we cannot assure you these steps will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in internal control.
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This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Evaluation of Changes in Internal Control over Financial Reporting
Our chief executive officer and chief financial officer have evaluated changes in our internal controls over financial reporting that occurred during the year ended December 31, 2016. Based on that evaluation, our chief executive officer and chief financial officer, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.