NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
December 31, 2016 and 2015
NOTE 1 – NATURE OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Fresh Promise
Foods, Inc. (“Fresh Promise” or the “Company”) is a consumer products and marketing company focused on
the high-margin, multi-billion dollar health and wellness food and beverage sectors.
Effective
January 20, 2015, the Financial Industry Regulatory Authority (FINRA) effected in the marketplace a 1-for-150 reverse stock split
for the common stock of Fresh Promise. On December 30, 2014, the Company filed with the Nevada Secretary of State a Certificate
of Amendment to its Articles of Incorporation with respect to such 1-for-150 reverse stock split. All share and per share have
been presented to give retroactive effective for this reverse stock split.
Going
Concern
The accompanying
consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates
realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following
the date of these financial statements. On a consolidated basis, the Company has incurred significant operating losses since its
inception.
Because the
Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this
raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to
raise additional funds and is currently exploring alternative sources of financing. Historically, the Company has raised capital
through the issuance of convertible debt as a measure to finance working capital needs. The Company will be required to continue
to do so until such time that its consolidated operations become profitable.
Discontinued
Operations
In light of
the Company’s legal proceedings involving certain former management, Fresh Promise decided to discontinue its business operations
of its wholly-owned subsidiary Harvest Soul. This business was classified as discontinued operations beginning with the Company’s
December 31, 2015 consolidated financial statements. In August 2018, Fresh Promise executed a definitive agreement to sell and
transfer its equity interest in Harvest Soul.
The Company’s
results of operations related to Harvest Soul have been reclassified as discontinued operations on a retrospective basis for all
years presented. For additional information see Note 3 — Discontinued Operations.
Basis
of Presentation
The Company
uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“US GAAP”).
The Company has adopted a December 31 fiscal year end.
The consolidated
financial statements include the financial statements of Fresh Promise Foods Inc. and its wholly-owned subsidiary Harvest Soul
Inc. All significant inter-company balances and transactions within the Company and subsidiary have been eliminated upon consolidation.
Use of Estimates
The preparation of consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of 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. The Company bases its estimates on historical experience, known
or expected trends and various other assumptions that are believed to be reasonable given the quality of information available
as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the
carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from
these estimates.
Cash and Cash Equivalents
Fresh Promise
Foods Inc. considers all highly liquid investments with maturities of three months or less to be cash equivalents. The Company
places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by
the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. For the years ended December 31, 2016 and 2015,
the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of
such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds
deposits.
Fair
Value of Financial Instruments
The Company’s
financial instruments are carried at the approximate fair value due either to length of maturity or interest rates that approximate
prevailing market rates unless otherwise disclosed in these consolidated financial statements.
Net
Income (Loss) per Common Share
Net income
(loss) per share is calculated in accordance with FASB ASC 260, “Earnings per Share.” Basic net income (loss) per
common share is based on the weighted average number of shares of common stock outstanding at December 31, 2016 and 2015. Diluted
earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted
average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted
number of shares adjusted for any potentially dilutive debt or equity. At December 31, 2016 and 2015, the Company had convertible
notes outstanding that could be converted into approximately 12,579,757,236 and 18,178,047,136 common shares based up the closing
bid price of the company’s common stock at December 31, 2016 and 2015, respectively. Shares which would result from the
conversion of the convertible notes were excluded from the calculation of net loss per share for 2016 and 2015 because the effect
would be anti-dilutive.
Share-Based Compensation
ASC 718, Compensation
– Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee
services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other
equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including
grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values.
That expense is recognized over the period during which an employee is required to provide services in exchange for the award,
known as the requisite service period (usually the vesting period).
The Company
accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,
Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on
the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued.
The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance
completion date.
No share-based
expenses were recorded for the twelve months ended December 31, 2016 and 2015.
Income
Taxes
The Company
accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires,
among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities
A valuation
allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the
net deferred asset will not be realized.
The Company
follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed,
it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will be
highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company
has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position
is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can
be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax
positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is
not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations
remains open. Management has not filed tax returns for the years ended December 31, 2014 through 2017. The tax year 2013 remains
open for examination.
Recent
Accounting Pronouncements
Except for
rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards,
the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized
by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect
will not have a material impact on the Company’s present or future financial statements.
NOTE 2
– GOING CONCERN
The Company’s
consolidated financial statements are prepared using accounting principles generally accepted in the United States of America
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 established an ongoing source of revenues sufficient to cover its operating cost and allow
it to continue as a going concern. 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.
The Company
incurred net losses of $421,214 and $1,855,849 for the years ended December 31, 2016 and 2015, respectively, and the Company had
accumulated deficits of $11,033,129 and $10,611,915 and working capital deficits of $3,607,005 and $3,185,791 at December 31,
2016 and 2015, respectively. These conditions raise substantial doubt about the Company’s 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, obtaining debt or equity capital from various lenders, institutions 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
consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
NOTE 3
– DISCONTINUED OPERATIONS
In light of
the Company’s legal proceedings involving certain former management, Fresh Promise decided to discontinue its business operations
of its wholly-owned subsidiary Harvest Soul. This business was classified as discontinued operations beginning with the Company’s
December 31, 2015 consolidated financial statements.
The Company
made the decision to impair all of the assets of Harvest Soul resulting in a charge of $217,728. The decision to impair the assets
was made as Harvest Soul was operating autonomously during the legal proceedings, and the Company determined that the assets presented
it with no future economic benefit. The impairment charge is reflected under operating expenses in the operating results from
discontinued operations summarized below.
Effective
August 28, 2018, the Company executed an assignment and assumption agreement with Harvest Soul, LLC (the “Purchaser”)
providing for the sale of certain assets and the assignment of certain (i) notes payable, (ii) accrued salaries and (iii) contracts
(collectively the “Assumed Liabilities”) to Purchaser and the assumption of the Assumed Liabilities by the Purchaser.
The operating
results of the Company’s Harvest Soul subsidiary classified as discontinued operations are summarized below:
|
Year
Ended December 31, 2016
|
|
|
Year
Ended December 31, 2015
|
|
|
|
|
|
|
|
|
Sales
|
$
|
—
|
|
|
$
|
—
|
|
Cost
of goods sold
|
|
—
|
|
|
|
—
|
|
Gross
margin
|
|
—
|
|
|
|
—
|
|
Operating
expenses
|
|
—
|
|
|
|
692,765
|
|
Other
income (expenses)
|
|
(163,152
|
)
|
|
|
(395,245)
|
|
Provision
for income taxes (benefit)
|
|
—
|
|
|
|
—
|
|
Net
income (loss) from discontinued operations
|
$
|
(163,152
|
)
|
|
$
|
(1,088,010)
|
|
The following
table presents the major classes of assets and liabilities of Harvest Soul classified as discontinued operations in the consolidated
balance sheets:
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Assets:
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Total
current assets
|
|
—
|
|
|
|
—
|
|
Total
assets
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
51,461
|
|
|
$
|
51,461
|
|
Accrued
liabilities
|
|
65,348
|
|
|
|
31,759
|
|
Capital
lease liability, current
|
|
43,426
|
|
|
|
43,426
|
|
Convertible
notes payable, current
|
|
559,829
|
|
|
|
379,722
|
|
Derivative
liabilities
|
|
502,521
|
|
|
|
553,066
|
|
Total
current liabilities
|
|
1,222,585
|
|
|
|
1,059,434
|
|
Total
liabilities
|
|
1,222,585
|
|
|
|
1,059,434
|
|
Net
liabilities of discontinued operations:
|
$
|
(1,222,585
|
)
|
|
$
|
(1,059,434)
|
NOTE 4
– RELATED PARTY TRANSACTIONS
At the time
of his appointment, Mr. Joseph C. Canouse received one (1) share of convertible Series B preferred stock which was previously
issued to a director. In 2013, the Company issued one (1) additional share of convertible Series B preferred stock to Mr. Kevin
P. Quirk when he joined the Company. The stock has no par value and is not traded publicly. Each of these shares were effectively
rescinded by the Company during the year ended December 31, 2015.
On January
28, 2014, the Company converted $11,000 of a $22,000 convertible note to 24,445 common shares from Mr. Joseph C. Canouse. The
note had been purchased from a former officer of the Company based on the contractual conversion terms per agreement. The balance
of this note was $8,263 at December 31, 2016.
On January
31, 2015, the Company executed a convertible promissory note for $179,268 with its former chief executive officer and director
Mr. Kevin P. Quirk in lieu of cash for unpaid compensation and expenses. The note bears interest at 6% and has a maturity date
of January 31, 2016. The conversion price is the bid price on the day prior to the date of conversion, but no less than $0.0001.
The balance of this note remains $179,268 at December 31, 2016. This note was assumed by Harvest Soul in the assignment and assumption
agreement dated August 28, 2018. It is included under current liabilities of discontinued operations in the Company’s consolidated
balance sheets.
On April 1,
2015, the Company amended the terms of a convertible promissory note for $12,000 with its former chief financial officer and chairman
Mr. Joseph C. Canouse. The aged debt was purchased from its original note holder. The note bears interest at 6% and has a maturity
date of April 1, 2016. The conversion price is the bid price on the day prior to the date of conversion. The balance of this note
remains $12,000 at December 31, 2016.
On June 30,
2015, the Company executed a convertible promissory note for $62,229 with its former chief executive officer and director Mr.
Kevin P. Quirk in lieu of cash for unpaid compensation and expenses. The note bears interest at 6% and has a maturity date of
June 30, 2016. The conversion price is the bid price on the day prior to the date of conversion. The balance of this note remains
$62,229 at December 31, 2016. Harvest Soul assumed this note in the assignment and assumption agreement dated August 28, 2018.
It is included under current liabilities of discontinued operations in the Company’s consolidated balance sheets.
On June 30,
2015, the Company executed a convertible promissory note for $152,333 with its executive vice president and director Scott C.
Martin in lieu of cash for unpaid compensation and expenses. The note bears interest at 6% and has a maturity date of June 30,
2016. The conversion price is the bid price on the day prior to the date of conversion. The balance of this note remains $152,333
at December 31, 2016. This note was assumed by Harvest Soul in the assignment and assumption agreement dated August 28, 2018.
It is included under current liabilities of discontinued operations in the Company’s consolidated balance sheets.
On August
21, 2015, the Company executed a promissory note for $30,000 with its former chief financial officer and chairman Mr. Joseph C.
Canouse. The note bears interest at 6% and has a maturity date of August 21, 2016. The note can be converted into common stock
at a discount of 40% off of the conversion price. The conversion price is the average closing bid price on the 3 days prior to
the date of conversion. The balance of this note remains $30,000 at December 31, 2016.
On August
24, 2015, the Company executed two (2) promissory notes, each in the principal amount of $15,000, for an aggregate $30,000 with
its former chief financial officer and chairman Mr. Joseph C. Canouse. The notes bear interest at 6% and have a maturity date
of August 24, 2016. The notes can be converted into common stock at a discount of 40% off of the conversion price. The conversion
price is the average closing bid price on the 3 days prior to the date of conversion. The balance of these notes remains $30,000
at December 31, 2016.
NOTE 5
–CONVERTIBLE NOTES PAYABLE
The following
tables set forth the components of the Company’s convertible notes at December 31, 2016 and December 31, 2015:
|
|
December
31,
2016
|
|
|
December
31,
2015
|
|
Principal
value of convertible notes
|
|
$
|
869,166
|
|
|
$
|
869,166
|
|
Unamortized loan
discounts
|
|
|
(-
|
)
|
|
|
(265,264
|
)
|
Total convertible
notes, net
|
|
$
|
869,166
|
|
|
$
|
603,902
|
|
The following
table sets forth a summary of change in our convertible notes payable for the years ended December 31, 2016 and 2015:
Beginning balance, January
1, 2015
|
|
$
|
388,956
|
|
Increase in principal amounts outstanding from
the issuance of convertible notes
|
|
|
524,917
|
|
Increase in principal amounts outstanding due
to lender adjustments per terms of the note agreements
|
|
|
14,524
|
|
Conversion of principal amounts outstanding
into common stock of the Company
|
|
|
(278,198
|
)
|
Debt discounts recorded in connection with the
issuance of convertible notes
|
|
|
(715,504
|
)
|
Amortization of debt discounts associated with
convertible notes
|
|
|
699,053
|
|
Amortization of debt premiums associated with
convertible notes
|
|
|
(29,846
|
)
|
Ending balance, December 31, 2015
|
|
$
|
603,902
|
|
Amortization of debt discounts associated with
convertible notes
|
|
|
265,264
|
|
Ending balance, December 31, 2016
|
|
$
|
869,166
|
|
On January
5, 2015, the Company executed a promissory note for $20,000. The note bears interest at 6% and has a maturity date of January
5, 2016. It can be converted into common stock at a discount of 30% off of the conversion price. The conversion price is the average
bid price on the 3 days prior to the date of conversion, but no less than $0.0001. This note was sold to a third party on August
21, 2015 and the terms of the notes were modified. The new note bears interest at 8% and has a maturity date of August 20, 2017.
It can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the average of
the three lowest bid prices during the 10 trading days prior to the date of conversion.
On January
26, 2015, the Company executed a promissory note for $28,000. The note bears interest at 12% and has a maturity date of January
26, 2016. The note can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is
the average of the three lowest bid prices during the 10 trading days prior to the date of conversion, but no less than $0.0001.
On February
10, 2015, the Company executed a promissory note for $52,500. The note bears interest at 8% and has a maturity date of February
10, 2016. The note can be converted into common stock at a discount of 55% off of the conversion price. The conversion price is
the average bid price on the 3 days prior to the date of conversion, but no less than $0.0001.
On February
10, 2015, its holder sold dated June 30, 2014 a promissory note for $88,500 to a third-party investor and the terms of the note
were modified. The note bears interest at 8% and has a maturity date of February 10, 2016. It can be converted into common stock
at a discount of 55% off the conversion price. The conversion price is the average bid price on the 3 days prior to the date of
conversion, but no less than $0.0001.
On February
13, 2015, the Company executed a promissory note for $50,000. The note bears interest at 8% and has a maturity date of February
13, 2016. The note can be converted into common stock at a discount of 30% off of the conversion price. The conversion price is
the average bid price on the 3 days prior to the date of conversion, but no less than $0.0001. This note was sold to a third party
on August 21, 2015 and the terms of the notes were modified. The new note bears interest at 8% and has a maturity date of August
20, 2017. It can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the
average of the three lowest bid prices during the 10 trading days prior to the date of conversion.
On March 17,
2015, the Company executed a promissory note for $28,000. The note bears interest at 12% and has a maturity date of March 17,
2016. The note can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the
average of the three lowest bid prices during the 10 trading days prior to the date of conversion, but no less than $0.0001.
On March 27,
2015, the Company executed a promissory note for $15,000. The note bears interest at 6% and has a maturity date of March 27, 2016.
The note can be converted into common stock at a discount of 40% off of the conversion price. The conversion price is the average
closing bid price on the 3 days prior to the date of conversion.
On April 1,
2015, the Company executed a promissory note for $12,000. The note bears interest at 6% and has a maturity date of March 27, 2016.
The note can be converted into common stock at a at a rate equivalent to the average closing bid price on the 3 days prior to
the date of conversion.
On May 28,
2015, the Company executed a promissory note for $23,000. The note bears interest at 12% and has a maturity date of February 28,
2016. The note can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the
average of the three lowest bid prices during the 20 trading days prior to the date of conversion.
On August
7, 2015, its holder sold two promissory notes aggregating $46,705 and originating in 2014 to a third-party investor and the terms
of the notes were modified. The new note bears interest at 6% and has a maturity date of August 6, 2017. It can be converted into
common stock at a discount of 45% off of the conversion price. The conversion price is the average of the three lowest bid prices
during the 20 trading days prior to the date of conversion.
On August
21, 2015, the Company executed a promissory note for $30,000. The note bears interest at 6% and has a maturity date of August
21, 2016. The note can be converted into common stock at a discount of 40% off of the conversion price. The conversion price is
the average closing bid price on the 3 days prior to the date of conversion.
On August
24, 2015, the Company executed two (2) promissory notes, each in the principal amount of $15,000, for an aggregate $30,000. The
notes bear interest at 6% and have a maturity date of August 24, 2016. The notes can be converted into common stock at a discount
of 40% off of the conversion price. The conversion price is the average closing bid price on the 3 days prior to the date of conversion.
On September
2, 2015, the Company executed a promissory note for $51,414. The note bears interest at 12% and has a maturity date of February
28, 2016. The note can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is
the average of the three lowest bid prices during the 20 trading days prior to the date of conversion.
On September
4, 2015, the Company executed a promissory note for $52,500. The note bears interest at 8% and has a maturity date of September
4, 2017. It can be converted into common stock at a discount of 45% off of the conversion price. The conversion price is the average
of the three lowest bid prices during the 10 trading days prior to the date of conversion.
During the
year ended December 31, 2015, the Company received debt proceeds from the issuance of five convertible promissory notes aggregating
$99,500 to certain lenders. The Company has attempted with no avail to locate these note agreements and validate the sources of
these debt proceeds. It has exhausted all of its available resources in its efforts to locate these notes and note holders. As
such, the Company has made certain assumptions in regards to the contractual terms associated with these notes, which are consistent
with other convertible debt securities issued during the period.
As of December
31, 2016, the majority of the Company’s convertible promissory notes were in default of payment per the terms of their contractual
maturity dates. To the best of its knowledge, the Company has not received any formal notices of default, demands for payment
or other forms of claim as a result of these defaults.
All of the
convertible notes were analyzed at the time of their issuance for derivative accounting consideration. In some instances, the
Company concluded that a derivative liability existed. The derivative liabilities were measured using the commitment-date stock
price. As of December 31, 2016 and 2015, the Company determined that the fair value of these derivative liabilities totaled $1,090,696
and $1,172,631, respectively.
The value
of the derivative liabilities was determined using the following Black-Scholes methodology:
|
|
For
the Years Ended
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Expected
dividend yield (1)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free interest
rate (2)
|
|
|
0.85
|
%
|
|
|
0.65
|
%
|
Expected volatility
(3)
|
|
|
422.76
– 590.15
|
%
|
|
|
326.28
– 326.49
|
%
|
Expected life
(in years)
|
|
|
0.75
– 1.00
|
|
|
|
0.75
– 1.67
|
|
______________
(1)
|
The Company has no history
or expectation of paying cash dividends on its common stock.
|
(2)
|
The risk-free interest rate is based on the
U.S. Treasury yield for a term consistent with the expected life of the promissory notes in effect at the time of issuance.
|
(3)
|
The volatility of the Company’s common
stock is based on trading activity for the previous contractual term ended at each promissory note issuance date.
|
A portion
of this amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible debentures.
The remaining debt discounts associated with these beneficial conversion features was $0 and $265,264 as of December 31, 2016
and 2015, respectively. The related amortization expense was $265,264 and $669,053 for the year ended December 31, 2016 and 2015,
respectively. See Note 8 – Fair Value Measurements for additional details.
During the
year ended December 31, 2015, the Company converted, upon receiving formal notices from its noteholders, $278,198 in note principal,
plus accrued interest totaling $12,612, into 822,764,082 shares of common stock.
At December
31, 2016, the number of shares of common stock underlying these convertible debentures totaled 12,579,757,236 shares.
NOTE 6
– STOCKHOLDERS’ EQUITY (DEFICIT)
The authorized
common stock of the Company consists of 5,000,000,000 shares with a par value $0.00001. The Company also has 10 shares of par
value $0.00001 Preferred B stock authorized and 30,000,000 par value $0.00001 par value Preferred C stock authorized.
Series A Preferred Stock
At December 31, 2016 and 2015,
the Company had 10,000,000 shares of its Series A preferred stock issued and outstanding. The majority of the Series A preferred
stock entitles the stockholders to 67% overall voting rights.
Series
B Preferred Stock
Each one share
of Series B Preferred has voting rights equal to four times the sum of all shares of common stock issued and outstanding at time
of voting, plus all shares of Series C Preferred Stock issued and outstanding at time of voting, divided by the number of shares
of Series B Preferred Stock issued and outstanding at the time of voting.
By unanimous
written consent of the Board during 2013, the Board issued an aggregate of two (2) shares of Series B Preferred, to two individuals
(the “Series B Stockholders”). As a result of the voting rights granted to the Series B Preferred, the Series B Stockholders
together held in the aggregate approximately 80% of the total voting power of all issued and outstanding voting capital of the
Company.
Effective
for the year ending December 31, 2015, these outstanding shares of Series B preferred stock were rescinded by the Company. This
series was issued without proper shareholder approval and notification.
Series
C Preferred Stock
Series C Preferred
Stock has voting rights of one vote per share owned. The Preferred C stock is convertible into common stock of the Company at
the rate of 0.10 per common share for each share of Preferred C stock. The holders of Series C Preferred stock are entitled to
receive any dividend declared by the Board of Directors.
Effective
for the year ending December 31, 2015, all outstanding shares of Series C preferred stock were rescinded by the Company. This
series was issued without proper shareholder approval and notification.
Common
Stock
At December
31, 2016 and 2015, the Company had 878,592,947 shares of its common stock issued and outstanding.
During the
year ended December 31, 2015, the company issued 871,437,415 shares of common stock in connection with the conversion of $278,198
in principal and $12,612 in accrued interest related to its convertible promissory notes. These issuances were exempt from registration
under rule 144.
No common
stock was issued during the year ended December 31, 2016.
Common
Stock Warrants
The Company
did not issue any warrants during the years ended December 31, 2016 or 2015. During 2015, an aggregate 30,222 warrants expired.
These warrants were issued in 2013, and represented the only outstanding warrants granted by the Company. There were no outstanding
warrants at December 31, 2016 or 2015.
NOTE 7
– INCOME TAXES
As of December
31, 2016, the Company had net operating loss carry forwards of approximately $11.0 million that may be available to reduce our
tax liability through tax year 2036. We estimate the benefits of this loss carry forward at $2,316,957 if the Company produces
sufficient taxable income. No adjustments to the financial statements have been recorded for this potential tax benefit. The
Company has no provisions from income tax in 2016, due to current period losses and full valuation allowance on deferred tax assets.
A reconciliation
of the federal statutory rate of 21% to the Company’s effective tax rate is as follows:
|
|
2016
|
|
2015
|
Expected expense (benefit) (21%)
|
|
$
|
(54,193
|
)
|
|
$
|
(161,246
|
)
|
State income taxes, net of federal benefit
|
|
|
(12,232
|
)
|
|
|
(26,396
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
66,425
|
|
|
|
197,642
|
|
Accrued expense (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
The cumulative
tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows as of December
31, 2016 and 2015:
|
|
2016
|
|
2015
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
2,316,957
|
|
|
$
|
2,228,502
|
|
Less: valuation allowance
|
|
|
(2,316,957
|
)
|
|
|
(2,228,502
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
Tax net operating
loss carryforwards may be limited pursuant to the IRS Section 382 in the event of certain ownership changes.
NOTE 8
– FAIR VALUE MEASUREMENTS
The Company
has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis. ASC Topic
820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy.
Further authoritative accounting guidance (ASU No. 2009-05) under ASC Topic 820, provides clarification that in circumstances
in which a quoted price in an active market for the identical liabilities is not available, a reporting entity is required to
measure fair value using one or more of the techniques provided for in this update.
The standard
describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value, which are the following:
Level 1 –
Quoted prices in active markets for identical assets and liabilities.
Level 2 –
Input other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the asset or liabilities.
Level 3 –
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
Our assessment
of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors
specific to the asset or liability.
The Company
analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value
at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to
fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving
at the over- all fair value of the financial instruments. In addition, the fair value of free-standing derivative instruments
such as warrant and option derivatives are valued using the Black-Scholes modes.
The Company
uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair value were determined
by using the Black Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted
to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations
as adjustments to fair value of derivatives.
The following
table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of December 31,
2015:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted prices
in
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
for
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
12/31/2015
|
|
|
(Level
l)
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Convertible promissory notes
with embedded conversion option
|
|
$
|
1,172,631
|
|
|
-
|
|
-
|
|
|
|
$
|
1,172,631
|
|
Total
|
|
$
|
1,172,631
|
|
|
-
|
|
-
|
|
|
|
$
|
1,172,631
|
|
The following
table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of December 31,
2016:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted prices
in
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
for
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
12/31/2016
|
|
|
(Level
l)
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Convertible promissory notes
with embedded conversion option
|
|
$
|
1,090,696
|
|
|
-
|
|
-
|
|
|
|
$
|
1,090,696
|
|
Total
|
|
$
|
1,090,696
|
|
|
-
|
|
-
|
|
|
|
$
|
1,090,696
|
|
The following
table sets forth a summary of change in fair value of our derivative liabilities for the years ended December 31, 2016 and 2015:
Beginning balance, January
1, 2015
|
|
$
|
584,856
|
|
Change in fair value of embedded conversion
features of convertible promissory notes included in earnings
|
|
$
|
(847,933
|
)
|
Embedded conversion option liability recorded
in connection with the issuance of convertible promissory notes
|
|
$
|
1,435,708
|
|
Ending balance, December 31, 2015
|
|
$
|
1,172,631
|
|
Change in fair value of embedded conversion
features of convertible promissory notes included in earnings
|
|
$
|
(81,935
|
)
|
Embedded conversion option liability recorded
in connection with the issuance of convertible promissory notes
|
|
$
|
-
|
|
Ending balance, December 31, 2016
|
|
$
|
1,090,696
|
|
Note
9 – Commitments and Contingencies
On April 25,
2013, Clinton H. /Richard Maher, et al (collectively, the “Plaintiffs”) filed a complaint with the United States District
Court for the District of Nevada (the “Court”) alleging claims including securities fraud and breach of contract against
Peter Hellwig, et al (collectively, the “Defendants”). On March 30, 2017, the Court issued an order granting in part
motion for default judgment in favor of the Plaintiffs.
On January
6, 2016, the Company entered into a Director Resignation and Release Agreement with Kevin P. Quirk (the “Release Agreement”).
In accordance with the Release Agreement, Mr. Quirk resigned from his positions as Chief Executive Officer and Director and, in
consideration for such resignations and Mr. Quirk’s release of the Company from liability; the Company released Mr. Quirk
from liability.
NOTE 10 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent
Events, the Company has analyzed its operations subsequent to December 31, 2016 to the date these consolidated financial statements
were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial
statements, except as follows:
On June 27, 2017, Creative Edge Nutrition,
a Nevada corporation ("CEN") and Fresh Promise executed an asset purchase agreement whereby the Company purchased the
assets and liabilities of CEN's subsidiary, Giddy Up Energy Products, Inc. ("Giddy"). As consideration, the Company agreed
to exchange 4,719,760,108 shares of its common stock. On January 24, 2018, the Company completed the distribution of its common
shares to the CEN shareholders in order to consummate the acquisition of Giddy. Pursuant to the Agreement, the Company is in the
process of spinning out its existing assets and liabilities and assuming Giddy's business plan involving nutritional supplements
and energy drinks focusing on an active lifestyle. Management is currently analyzing the transaction to determine the appropriate
method to account for the acquisition.
On October 13, 2017, the Company entered
into a Director Resignation and Release Agreement with Scott C. Martin (the “Release Agreement”). In accordance with
the Release Agreement, Mr. Martin resigned from his position as Director and, in consideration for such resignation and Mr. Martin’s
release of the Company from liability; the Company released Mr. Martin from liability.
On April 5, 2018, David G. Wiser filed
a lawsuit against the Company for debt acquired in the asset purchase agreement with Creative Edge Nutrition due to the non-convertibility
of his debt resulting from the lack of shares available to issue while the Company was delinquent in its filings with the SEC.
On April 27, 2018, the lawsuit was settled when the Company issued Mr. Wiser one preferred share convertible into 850 million shares
of common stock.
Effective August 28, 2018, the Company
executed an assignment and assumption agreement with Harvest Soul, LLC (the “Purchaser”) providing for the sale of
certain assets and assignment of certain (i) notes payable, (ii) accrued salaries and (iii) contracts (collectively the “Assumed
Liabilities”) to Purchaser and the assumption of the Assumed Liabilities by the Purchaser.
Since January 1, 2017, the Company has
converted principal and accrued interest amounts outstanding on notes payable into 1,878,178,081 shares of its common stock. The
total amount of principal and accrued interest converted was $131,387. The conversions were done at the contractual terms per the
agreements.
On March 13, 2018, the Company issued
a convertible promissory note for $5,500. The note bears interest at 12% and has a maturity date of March 13, 2019. The note can
be converted into common stock at a discount of 50% off of the conversion price. The conversion price is equal to the lowest bid
price during the 20 trading days prior to the date of conversion.
On December 12, 2018, the Company issued
a convertible promissory note for $25,000. The note bears interest at 8% and has a maturity date of December 12, 2019. The note
can be converted into common stock at a discount of 40% off of the conversion price. The conversion price is equal to The conversion
price is equal to the lowest bid price during the five trading days prior to the date of conversion.
Since January 1, 2017, the Company has
issued 160,000,000 shares of restricted common stock in a private placement sales with an accredited investor for gross proceeds
totaling $16,000.