NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2017
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
(a) Organization
Lingerie Fighting Championships, Inc. (the "Company") is a Nevada corporation incorporated on November 29, 2006 under the name Sparking Events, Inc. The Company's corporate name was changed to Xodtec Group USA, Inc. in June 2009, Xodtec LED, Inc. in May 2010, Cala Energy Corp. in September 2013 and Lingerie Fighting Championships, Inc. on April 1, 2015.
NOTE 2 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and notes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected any other interim period or for the year ending December 31, 2017. At September 30, 2017 and December 31, 2016, the Company had no subsidiaries.
Earnings (Loss) per Share
The Company computes basic and diluted net loss per share amounts in accordance with ASC Topic 260, “Earnings per Share.” Basic loss per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share reflects the potential dilution that could occur if convertible notes to issue common stock were converted resulting in the issuance of common stock that could share in the loss of the Company.
For the nine months and three months ended September 30, 2017 and 2016, convertible notes were dilutive instruments and were not included in the calculation of diluted loss per share as their effect would be antidilutive.
The following is a reconciliation of the numerator and denominator used for the computation of basic and diluted loss per common shares:
|
|
Three Months Ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(578,709
|
)
|
|
$
|
(256,109
|
)
|
|
$
|
(690,293
|
)
|
|
$
|
(464,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
Basic and Diluted Weighted Average Common Shares Outstanding
|
|
|
504,088,281
|
|
|
|
19,124,325
|
|
|
|
329,366,752
|
|
|
|
19,768,335
|
|
For the three months and nine months ended September 30, 2017, 2,303,136,941 common shares from convertible notes were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive.
Fair Value Measurement
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 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, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 –
|
quoted prices in active markets for identical assets or liabilities
|
Level 2 –
|
quoted prices for similar assets and liabilities in active markets or inputs that are observable
|
Level 3 –
|
inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
|
The derivative liability in connection with the conversion feature of the convertible debt, classified as a level 3 liability, is the only financial liability measured at fair value on a recurring basis.
The change in the level 3 financial instrument is as follows:
Balance - December 31, 2016
|
|
$
|
1,005,378
|
|
Derivative reclassed to APIC due to debt conversion
|
|
|
(212,624
|
)
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discount
|
|
|
45,000
|
|
Addition of new derivatives liabilities recognized as day one loss
|
|
|
78,616
|
|
Loss on change in fair value of the derivative
|
|
|
88,791
|
|
Balance - September 30, 2017
|
|
$
|
1,005,161
|
|
The following table summarizes fair value measurement by level at September 30, 2017 and December 31, 2016, measured at fair value on a recurring basis:
September 30, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,005,161
|
|
|
|
1,005,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,005,378
|
|
|
|
1,005,378
|
|
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has generated nominal revenues since inception, has sustained losses since its organization and requires funding to generate revenue. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company can give no assurances that it can or will become financially viable and continue as a going concern.
NOTE 4 – STOCKHOLDERS DEFICIT
Preferred Stock
The authorized preferred stock consists of 10,000,000 shares with a par value $0.001 per share. The board of directors has broad discretion in setting the rights, preferences and privileges of one or more series of preferred stock.
There were 51 and 51 preferred shares issued and outstanding as at September 30, 2017 and December 31, 2016.
Common Stock
The Company has authorized 5,000,000,000 shares with a par value $0.001 per share.
During the nine months ended September 30, 2017, the Company issued 488,517,204 common shares for conversion of debt and accrued interest in the amount of $119,392.
As of September 30, 2017 and December 31, 2016, the common shares issued and outstanding was 576,193,639 and 87,676,435, respectively.
Common shares issued for compensation
As of September 30, 2017, the Company recorded stock payable for 300,000 outstanding common shares of $30,000 not yet issued to the consultant for service performed.
NOTE 5 – NOTES PAYABLE
The Company had the following unsecured notes payable as at September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Convertible Promissory Note to Crown Bridge
|
|
$
|
2,404
|
|
|
$
|
13,289
|
|
Convertible Promissory Notes to Auctus Fund
|
|
|
122,002
|
|
|
|
68,226
|
|
Convertible Promissory Notes to EMA Financial
|
|
|
27,463
|
|
|
|
11,667
|
|
Convertible Promissory Notes to Black Bridge Capital
|
|
|
135,391
|
|
|
|
26,667
|
|
Convertible Promissory Notes to Tangiers
|
|
|
23,801
|
|
|
|
100,000
|
|
Convertible Promissory Notes to Denali
|
|
|
31,615
|
|
|
|
4,791
|
|
Convertible Promissory Notes to Tangiers
|
|
|
-
|
|
|
|
955
|
|
Convertible Promissory Notes to Powerup
|
|
|
27,050
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Debt
|
|
$
|
369,726
|
|
|
$
|
225,595
|
|
Promissory Note Payable to Crown Bridge Partners
On April 1, 2016, the Company entered into an agreement to issue a convertible promissory note to an unrelated party for an amount of $40,000 with a $6,000 original issue discount. The convertible promissory note bears interest at 10% per annum and matures twelve months from issue date. The conversion price is 55% of the lowest trading price 25 days prior to conversion. The note was discounted for a derivative and the discount of $34,000 is being amortized over the life of the note using the effective interest method resulting in $10,000 of interest expense for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, principal of $20,885 was converted for 92,296,000 common shares.
As at September 30, 2017, the note is presented net of a debt discount of $0.
The note is currently in default.
Promissory Notes Payable to Auctus Fund
Auctus #1
On May 20, 2016, the Company entered into an agreement to issue a convertible promissory note to an unrelated party for an amount of $67,750 with a $7,750 original issue discount. The convertible promissory note bears interest at 10% per annum and matures nine months from issue date. The conversion price is 50% of the lowest trading price 25 days prior to conversion. The note was discounted for a derivative and the discount of $60,000 is being amortized over the life of the note using the effective interest method resulting in $14,542 of interest expense for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, principal of $15,278 and accrued interest of $5,975 were converted for 111,460,000 common shares.
The note is currently in default.
Auctus #2
On September 20, 2016, the Company entered into an agreement to issue a convertible promissory note to an unrelated party for an amount of $56,750 with a $6,750 original issue discount. The convertible promissory note bears interest at 10% per annum and matures nine months from issue date. The conversion price is 50% of the lowest trading price 25 days prior to conversion. The note was discounted for a derivative and the discount of $50,000 is being amortized over the life of the note using the effective interest method resulting in $35,607 of interest expense for the nine months ended September 30, 2017.
On July 7 2017, note amendment was executed with $20,000 increase in principal of the note and the note principle increased to $76,750. The Company received $20,000 cash proceeds from the note amendment on the same date.
As of September 30, 2017, the notes are presented net of a debt discount of $0.
The note is currently in default.
Promissory Note Payable to EMA Financial
On September 7, 2016, the Company entered into an agreement to issue a convertible promissory note to an unrelated party for an amount of $35,000 with a $5,250 original issue discount. The convertible promissory note bears interest at 10% per annum and matures twelve months from issue date. The conversion price is 50% of the lowest trading price 25 days prior to conversion. The note was discounted for a derivative and the discount of $29,750 is being amortized over the life of the note using the effective interest method resulting in $21,774 of interest expense for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, principal of $7,538 were converted for 123,242,000 common shares.
The note is currently in default.
Promissory Note Payable to EMA Financial, LLC
On November 3, 2016, the Company entered into an agreement to issue a convertible promissory note to an unrelated party for an amount of $60,000. The convertible promissory note bears interest at 8% per annum and matures on November 3, 2017. The conversion price is 50% of the lowest trading price 20 days prior to conversion. The note was discounted for a derivative and the discount of $60,000 is being amortized over the life of the note using the effective interest method resulting in $45,000 of interest expense for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, principal of $10,810 were converted for 65,000,000 common shares.
As of September 30, 2017, the note is presented net of a debt discount of $5,465.
On September 27 2017, EMA Financial, LLC entered into an agreement with Blackbridge Capital Growth Funds, LLC to buy out the outstanding principal amount and accrued interest of the convertible promissory note at $53,367.22.
Promissory Note Payable to Blackbridge Capital Growth Fund, LLC
Commitment Note
On November 3, 2016, the Company entered into an investment agreement with Blackridge Capital Growth Fund, LLC. Per the investment agreement, the investor will invest up to $2,000,000 to purchase the Company’s common stock, par value of $.001 per share.
The Company issued a convertible promissory note for $100,000, as a commitment fee, which bears interest at 8% of the principle amount and matures on November 3, 2017. The commitment fee expense of $100,000 was recognized on November 3, 2016. The conversion price is equal to 57.5% of the lowest trading price during the 20 days prior to the conversion.
On November 3, 2016, a derivative debt discount of $100,000 was recorded. For the nine months ended September 30, 2017, an amount of $75,000 was amortized into interest expense in relation to the debt discount.
As of September 30, 2017, the note is presented net of a debt discount of $8,333.
Commitment Note Payable to Tangiers
On April 4, 2016, the Company entered into an investment agreement with an unrelated party. Per the investment agreement, the investor will invest up to $5,000,000 to purchase the Company’s common stock, par value of $.001 per share. In connection with the investment agreement, the Company entered into a registration rights agreement with the unrelated party which has been filed with the SEC. The maximum investment amount is equal to one hundred percent of the average of the daily trading volume of the common stock for the ten days prior to the put notice entered into by the unrelated party. The total purchase price to be paid in connection with the put notice, is calculated at eighteen percent discount of the lowest trading price of the common stock during the five consecutive trading days immediately succeeding the put notice date.
The Company issued a promissory note to the unrelated party for $100,000, as a commitment fee, which bears interest at 10% of the principle amount and matures seven months from April 4, 2016 with a possible extension to ten months based on whether the Company executes the related investment agreement within 180 days from April 4, 2016. If the registration statement is declared effective within 90 days of the execution of the investment agreement, the Company and the unrelated party agree the principal balance of the note will be immediately reduced by $40,000. The note payable will be available to be converted upon default. Per the agreement, default could occur based on: failure of payment on any outstanding amounts longer than five days after the due date, failure to issue shares after request, or failure to comply with all of the other material provisions included in the agreement. The conversion price is equal to the lower of: (a) 90% of the lowest trading price of the Company’s common stock during the 25 consecutive trading days prior to the date on which the unrelated party elects to convert all or part of the note, or (b) 90% of the lowest trading price of the Company’s common stock during the 25 consecutive trading days prior to the effective date of April 4, 2016. At the election of the unrelated party, at each closing date (as defined in the investment agreement) after the date which is six months after April 4, 2016, the unrelated party shall retain (or the Company shall pay to the unrelated party) an amount equal to ten percent of each Put Amount (as defined in the agreement), and the amounts shall be applied by the unrelated party as follows: first against the amount of any unpaid interest or other fees, and second against any unpaid principal amounts, until all interest, fees, and principal have been paid.
On April 28, 2016, the Company filed a registration statement with the Securities and Exchange Commission to register 3,500,000 shares of common stock pursuant to the Investment Agreement and the Registration Rights Agreement. On May 24, 2016, the Company received a comment letter from the Securities and Exchange Commission regarding the registration statement. On March 3, 2017, the Company voluntarily withdrew the registration statement.
The Company expensed the $100,000 as commitment fee during the year ended December 31, 2016.
The note was discounted for a derivative and the discount of $65,238 is fully amortized into interest expense for the year ended December 31, 2016. As of September 30, 2017, the note is presented net of a debt discount of $0.
On January 10, 2017, the Company entered into an Assignment Agreement that Denali acquired $50,000 of the $100,000 note held by Tangiers. As at January 10, 2017, $50,000 of principal remained with Tangiers.
During the nine months ended September 30, 2017, principal of $26,199 was converted for 49,905,893 common shares.
The note is currently in default.
Notes Payable to Denali
Denali #1
On December 5, 2016, the Company entered into an Assignment Agreement that Denali acquired $16,000 of the $57,500 note held by Tangiers.
During the nine months ended September 30, 2017, principal of $4,791 and accrued interest of $38 was converted for 3,974,519 common shares.
The note has been fully converted and has no remaining balance as of September 30, 2017.
Denali #2
On January 10, 2017, the Company entered into an Assignment Agreement that Denali acquired $50,000 of the $100,000 note held by Tangiers.
During the nine months ended September 30, 2017, principal of $18,385 was converted for 9,884,409 common shares.
The note is currently in default.
Note Payable to Tangiers
On April 4, 2016, the Company entered into a separate promissory note of $57,500 with a $7,500 original issue discount to the unrelated party, which bears interest at 10% of the principal amount. The $57,500 promissory note matures six months from the issue date. The note may be prepaid by the company, in whole, or part, as follows: (a) under thirty days, 105% of principal amount, (b) thirty one to sixty days, 110% of principal amount, (c) sixty one to ninety days, 115% of principal amount, (d) ninety one to one hundred and twenty days, 120% of principal amount, (e) one hundred twenty one to one hundred fifty one days, 125% of principal amount, and (f) one hundred and fifty one to one hundred and eighty days, 135% of principal amount. The note payable will be available to be converted upon default. Per the agreement, default could occur based on: failure of payment on any outstanding amounts longer than five days after the due date, failure to issue shares after request, or failure to comply with all of the other material provisions included in the agreement. The conversion price shall be equal to the lower of 50% of the lowest trading price of the Company’s common stock during the 20 consecutive trading days prior to the date on which the unrelated party elects to convert all or part of the note. The note was discounted for a derivative and the discount of $50,000 is being amortized over the life of the note using the effective interest method. Total of $57,500 of the discount was recorded as interest expense for the year ended December 31, 2016.
On December 5, 2016, Tangiers assigned $16,000 of the note payable to Denali.
During the nine months ended September 30, 2017, principal of $955 and interest of $1,838 was converted for 2,298,897 common shares.
The note has been fully converted and has no remaining balance as of September 30, 2017.
Note Payable to Power Up Lending Group
On January 13, 2017, the Company entered into a promissory note of $45,000 with a $2,500 original issue discount to the unrelated party, which bears interest at 8% of the principal amount. The promissory note matures on January 13, 2018. The conversion price shall be equal to the lower of 57.5% of the lowest trading price of the Company’s common stock during the 20 consecutive trading days prior to the date on which the unrelated party elects to convert all or part of the note. The note was discounted for a derivative and the discount of $45,000 is being amortized over the life of the note using the effective interest method. Total of $33,750 of the discount was recorded as interest expense for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, principal of $6,700 was converted for 30,455,486 common shares.
The note is presented net of a debt discount of $11,250.
Accrued interest on convertible notes
During the nine months ended September 30, 2017 and 2016, interest expense of $44,231 and $7,731 was incurred on convertible notes, respectively. As of September 30, 2017 and December 31, 2016, accrued interest payable on convertible notes was $54,094 and $20,214, respectively.
Summary of Conversions
During the nine months ended September 30, 2017, $111,542 principal amount of the convertible note and $7,850 accrued interest was converted for 488,517,204 common shares.
NOTE 6 – DERIVATIVE LIABILITY
The Company analyzed the conversion options for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability when the conversion option becomes effective
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2017:
Balance - December 31, 2016
|
|
$
|
1,005,378
|
|
Derivative reclassed to APIC due to debt conversion
|
|
|
(212,624
|
)
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discount
|
|
|
45,000
|
|
Addition of new derivatives liabilities recognized as day one loss
|
|
|
78,616
|
|
Loss on change in fair value of the derivative
|
|
|
88,791
|
|
Balance - September 30, 2017
|
|
$
|
1,005,161
|
|
The table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each measurement date:
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Expected term
|
|
0.09 – 0.29 years
|
|
|
0.39 – 0.94 years
|
|
Expected average volatility
|
|
207% - 407
|
%
|
|
140% - 220
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
0.97 % -1.20
|
%
|
|
|
0.52
|
%
|
NOTE 7 – RELATED PARTY TRANSACTIONS
During the nine month period ended September 30, 2017, the Company accrued $90,000 of salary payable to one related party, and paid $19,600 owing to two related parties for accrued salaries.
During the nine months ended September 30, 2017, a related party advanced $780 to the Company. The amount due to the related party is unsecured and non-interest bearing with no set terms of repayment.
As of September 30, 2017 and December 31, 2016, amount due to related parties was $94,680 and $23,500, respectively.
NOTE 8 – SUBSEQUENT EVENTS
Subsequent to September 30, 2017 and through the date that these financials were made available, the Company had the following subsequent events:
On November 2, 2017, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation (the “Amendment”) with the Secretary of State of Nevada to increase the number of authorized shares of common stock, par value $0.001 per share, from one billion two hundred million (1,200,000,000) shares to five billion (5,000,000,000) shares.
On September 25, 2017, the Company entered into a Securities Purchase Agreement (“EMA SPA”) with EMA Financial LLC, providing for the purchase of a Convertible Redeemable Note in the aggregate principal amount of $53,000. The note bears an interest rate of 12%, and is due and payable on September 25, 2018. The note may be converted by the Investor at any time into shares of Company’s common stock at a price at the lower of the closing sale price of the Company’s stock on the OTC Markets on the trading day immediately preceding the closing day of the note, and 50% of either the lowest sale price of the Company’s common stock on the OTC Markets during the twenty five consecutive trading days including and immediately preceding the conversion date, or the closing bid price, whichever is lower, provided however, if the Company’s share price at any time loses the bid, then the Investor, at their sole discretion, can convert at a fixed conversion price of $0.00001. The Company received the cash proceed of $44,300, net of note discount and financing cost on October 31, 2017. On February 20, 2018, a note amendment was executed with $5,636.04 increase in the principal amount of the note for partial repayment made on behalf of the Company to settle a convertible note originally issued to Crown Bridge Partners, LLC on April 1, 2016 and the note principal subsequently increased to $58,636.04.
On October 18, 2017, the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC, providing for the purchase of a Convertible Redeemable Note in the aggregate principal amount of $53,000. The note bears an interest rate of 12%, and is due and payable on July 18, 2018. The note may be converted by the Second Investor at any time into shares of Company’s common stock at a price at the lower of the closing sale price of the Company’s stock on the OTC Markets on the trading day immediately preceding the closing day of note, and 50% of either the lowest sale price of the Company’s common stock on the OTC Markets during the twenty five consecutive trading days including and immediately preceding the conversion date, or the closing bid price, whichever is lower, provided however, if the Company’s share price at any time loses the bid, then the Second Investor, at their sole discretion, can convert at a fixed conversion price of $0.00001. The Company received the cash proceed of $45,250, net of note discount and financing cost on November 2, 2017. On February 23, 2018, a note amendment was executed with $5,636.04 increase in the principal amount of the note for partial repayment made on behalf of the Company to settle a convertible note originally issued to Crown Bridge Partners, LLC on April 1, 2016 and the note principal subsequently increased to $58,636.04.
On February 23, 2018, EMA Financial LLC and Auctus Fund, LLC each made repayment to Crown Bridge Partners, LLC on behalf of the Company at $5,636.04, totaling $11,272.08 to settle the total outstanding principal and accrued penalty amount at $11,272.08 of the $40,000 convertible note originally issued to Crown Bridge Partners, LLC on April 1, 2016.
On October 2, 2017, Auctus Fund, LLC entered into an agreement with Power Up Lending Group Ltd. to buy out the total outstanding principal amount and accrued interest of the convertible promissory notes at $50,774.54.