NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
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.
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 Up"). As consideration, the Company
exchanged 4,630,081,800 shares of its common stock. Pursuant to the Agreement, the Company is in the process of spinning out its
existing assets and liabilities and assuming Giddy Up's business plan involving nutritional supplements and energy drinks focusing
on an active lifestyle.
On August 28, 2018, the Company executed
an assignment and assumption agreement with Harvest Soul, LLC (“Harvest Soul”) providing for the sale of certain assets
and the assignment of certain liabilities to Harvest Soul.
Going Concern
The accompanying unaudited consolidated
financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the 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 inception.
The Company does not expect that existing
operational cash flow will be sufficient to fund presently anticipated operations and has incurred significant operating losses
since inception and has a working capital deficit which 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 private placements and convertible notes as an interim measure
to finance working capital needs and may continue to raise additional capital through the sale of common stock or other securities,
and short-term loans. The Company will be required to continue to so until its consolidated operations become profitable. However,
there can be no assurance that the Company will be successful in raising sufficient capital when needed.
Discontinued Operations
In light of the Company’s legal
proceedings involving certain former management, Fresh Promise decided to discontinue the business operations of its wholly-owned
subsidiary Harvest Soul, LLC. This business was classified as discontinued operations beginning with the Company’s December
31, 2015 consolidated financial statements. On August 28, 2018, Fresh Promise executed an assignment and assumption agreement with
Harvest Soul providing for the sale of certain assets and the assignment of certain liabilities to Harvest Soul. As a result, the
Company recorded a gain of $1,328,455 related to the assignment of the assumed liabilities.
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 has prepared the accompanying
consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”)
and in accordance with generally accepted accounting principles in the United States of America. The Company believes these consolidated
financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation
of its consolidated financial position and consolidated results of operations for the periods presented.
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
The Company 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. At September 30, 2018 and December 31, 2017, the Company did not have 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 uses the market approach
to measure fair value for its financial instruments. The market approach uses prices and other relevant information generated by
market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet
financial instruments approximates its fair value. These financial instruments include cash, related party payables, accounts payable,
accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments
since they are short term in nature, and they are receivable or payable on demand.
Goodwill and Intangible Assets
Goodwill represents the future economic
benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising
from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers.
Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized
on a straight-line basis over their economic or legal life, whichever is shorter.
Goodwill and indefinite-lived assets
are not amortized, but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company
performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events
or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment
testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to
its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches.
The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the
reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting
unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the
discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest
rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s
size and industry and other Company specific risks. Other significant assumptions used in the income approach include the terminal
value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use
key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting
unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair
value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair
value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value
of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the
reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired
on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in
an amount equal to the excess.
Determining the fair value of a reporting
unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic
plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions
made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions
and estimates could cause the Company to perform impairment test prior to scheduled annual impairment tests scheduled annual impairment
tests.
At December 31, 2017, the Company performed
its annual impairment test on the carrying value of its goodwill and recorded an impairment charge totaling $463,007.
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 September 30, 2018 and 2017. 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 September 30, 2018 and 2017, the Company had convertible notes outstanding that could
be converted into approximately 21,339,046,649 and 8,969,560,081 common shares based up the closing bid price of the company’s
common stock at September 30, 2018 and 2017, respectively. Shares which would result from the conversion of the convertible notes
were excluded from the calculation of net loss per share for 2018 and 2017 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.
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.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU
No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity
to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative
disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December
15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies
certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July
2018. Also, in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition
method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The
amendments have the same effective date and transition requirements as the new lease standard. The new standard is not expected
to have any impact on the Company’s unaudited consolidated financial statements as it currently does not maintain any capital
or operating leases.
On June 20, 2018, the FASB issued ASU
2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU,
most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to
employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based
payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the
Company (but not limited to) was the determination of measurement date which generally is the date on which the measurement of
equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time
of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment
for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are
now measured at the grant date of the award which is the same as share-based payments for employees. The Company adopted the requirements
of the new rule as of January 1, 2019, the effective date of the new guidance.
The Company has considered all other
recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact
on its unaudited consolidated financial statements.
NOTE 2 – GOING CONCERN
The accompanying financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business as they become due.
For the nine months ended September
30, 2018, the Company incurred net losses from operations of $3,843,459 and had negative cash flows from operating activities of
$20,956. The Company has relied, in large part, upon debt financing to fund its operations. As of September 30, 2018, the Company
had outstanding indebtedness, net of discounts, of $1,470,059 and had $44 in cash.
As such, there is substantial doubt
as to the Company’s ability to continue as a going concern. The Company’s ability to continue as such is dependent
upon management’s ability to successfully execute its business plan, including increasing revenues through the sale of existing
and future product offerings and reducing expenses in order to meet the Company’s current and future obligations. However,
even if the Company is successful in executing its plan, the Company may not generate enough revenue to satisfy all of its current
obligations as they become due in addition to its outstanding indebtedness. Until the Company consistently generates positive cash
flow from its operations, or successfully satisfies, refinances or replaces its current indebtedness, there is substantial doubt
as to the Company’s ability to continue as a going concern.
In addition, the Company’s ability
to continue as a going concern is dependent upon management’s ability to successfully satisfy, refinance or replace its current
indebtedness. 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.
Failure to satisfy existing or obtain new financing may have a material adverse impact on the Company’s operations and liquidity.
The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification
of liabilities that may result if the Company is unable to operate 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 in 2015. 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. As a result, the Company recorded
a gain of $1,328,455 related to the assignment of the Assumed Liabilities.
The operating results of the Company’s
discontinued operations are summarized below:
|
|
Three Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross margin
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income (expense)
|
|
|
1,323,455
|
|
|
|
(50,507
|
)
|
|
|
1,281,824
|
|
|
|
(109,460
|
)
|
Provision for income taxes (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) from discontinued operations
|
|
|
1,323,455
|
|
|
|
(50,507
|
)
|
|
|
1,281,824
|
|
|
|
(109,460
|
)
|
The following table presents the major
classes of assets and liabilities of the Company’s discontinued operations in the unaudited consolidated balance sheets:
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Assets:
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Total current assets
|
|
—
|
|
|
|
—
|
|
Total assets
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
51,461
|
|
Accrued liabilities
|
|
—
|
|
|
|
98,938
|
|
Capital lease liability, current
|
|
—
|
|
|
|
43,426
|
|
Convertible notes payable, current
|
|
—
|
|
|
|
559,829
|
|
Derivative liabilities
|
|
—
|
|
|
|
528,169
|
|
Total current liabilities
|
|
—
|
|
|
|
1,281,823
|
|
Total liabilities
|
|
—
|
|
|
|
1,281,823
|
|
Net liabilities of discontinued operations:
|
$
|
—
|
|
|
$
|
(1,281,823
|
)
|
NOTE 4 – ACQUISITION OF THE ASSETS AND LIABILITIES
OF GIDDY UP ENERGY PRODUCTS, INC.
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 Up"). As consideration, the Company
exchanged 4,630,081,800 shares of its common stock. The shares were valued at $463,007, or $0.0001 per share, which represented
fair market value.
At December 31, 2017, as a result of
significant delays in placing the acquired assets and liabilities into service, the Company performed the impairment test as prescribed
by ASC 350 on the carrying value of its goodwill and recorded an impairment charge totaling $463,007.
Pursuant to the Agreement, the Company
is in the process of spinning out its existing assets and liabilities and assuming Giddy Up's business plan involving nutritional
supplements and energy drinks focusing on an active lifestyle.
NOTE 5 – RELATED PARTY TRANSACTIONS
On January 28, 2014, the Company converted
$11,000 of a $22,000 convertible note to 24,445 common shares from its former chief financial officer and chairman 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 September 30, 2018.
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. This note was assumed by Harvest Soul
in the assignment and assumption agreement dated August 28, 2018.
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 September
30, 2018.
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. This note was assumed by Harvest Soul in the assignment and assumption
agreement dated August 28, 2018.
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. This note was assumed by Harvest Soul in the assignment and assumption agreement
dated August 28, 2018.
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 September 30, 2018.
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 September 30, 2018.
NOTE 6 – CONVERTIBLE NOTES
PAYABLE
The following tables set forth the components
of the Company’s convertible notes at September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
|
December 31,
2017
|
|
Principal value of convertible notes
|
|
$
|
1,472,809
|
|
|
$
|
790,859
|
|
Unamortized loan discounts
|
|
|
(2,750
|
)
|
|
|
(-
|
)
|
Total convertible notes, net
|
|
$
|
1,470,059
|
|
|
$
|
790,859
|
|
The following table sets forth a summary
of change in our convertible notes payable for the nine months ended September 30, 2018:
Beginning balance, January 1, 2018
|
|
$
|
790,859
|
|
Principal amount of newly issued convertible notes
|
|
|
699,319
|
|
Beneficial conversion features and other discounts associated with newly issued convertible notes
|
|
|
(699,319
|
)
|
Amortization of beneficial conversion features and other loan discounts
|
|
|
696,569
|
|
Conversion of principal amounts outstanding into common stock of the Company
|
|
|
(17,369
|
)
|
Ending balance, September 30, 2018
|
|
$
|
1,470,059
|
|
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.
On January 1, 2018, the Company executed
three promissory notes aggregating $693,819 to settle a legal matter. See Note 10 – Commitments and Contingencies. The notes
bear interest at 12% and have a maturity date of July 10, 2018. The notes can be converted into common stock at a discount of 45%
off of the conversion price. The conversion price is the lowest bid price during the 25 trading days prior to the date of conversion.
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.
As of September 30, 2018, 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. At September 30, 2018 and December
31, 2017, the Company determined that the fair value of these derivative liabilities totaled $3,857,401 and $1,699,583, respectively.
The value of the derivative liabilities
was determined using the following Black-Scholes methodology:
|
|
September 30, 2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Expected dividend yield (1)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free interest rate (2)
|
|
|
2.59
|
%
|
|
|
1.76
|
%
|
Expected volatility (3)
|
|
|
318.54 – 471.12
|
%
|
|
|
446.63 – 486.95
|
%
|
Expected life (in years)
|
|
|
0.50 – 1.00
|
|
|
|
0.75 – 1.00
|
|
______________
(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.
|
In accordance with FASB ASC 470-20,
“Debt with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related
to the issuance of convertible debt or preferred stock instruments that have conversion features that are in-the-money when issued.
The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic
value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the
difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible,
multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible
security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security
is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure
the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that
is initially allocated to the convertible security.
All of the convertible debentures were
analyzed at the time of their issuance for a beneficial conversion feature. In some instances, the Company concluded that a beneficial
conversion feature existed. The beneficial conversion features were measured using the commitment-date stock price and were determined
to aggregate $698,819. 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 $2,750 as of September
30, 2018. The related amortization expense was $696,569 and $0 for the nine months ended September 30, 2018 and 2017, respectively.
During the nine months ended September
30, 2018, the Company converted, upon receiving formal notices from its noteholders, $17,369 in note principal, plus accrued interest
totaling $41,581, into 1,071,819,813 shares of common stock.
At September 30, 2018, the number of
shares of common stock underlying these convertible debentures totaled 21,339,046,649 shares.
NOTE 7 – STOCKHOLDERS’
EQUITY (DEFICIT)
Series A Preferred Stock
The authorized Series A preferred stock
of the Company consists of 69,999,990 shares with a par value $0.00001. At September 30, 2018 and December 31, 2017, 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 D Preferred Stock
In April 2018, the Company designated
and issued one (1) share of its preferred stock as “Series D”. See Note 10 – Commitments and Contingencies for
additional information. The share is convertible into 8.70% of the Company’s then outstanding common stock, but no less than
850 million shares of common stock subject to the satisfaction of certain conditions precedent. The holder is entitled to vote
with the Company’s common stockholders, entitled to dividends, and certain liquidation rights. The Company, with the holder’s
consent, may redeem the preferred share.
Common Stock
The authorized common stock of the Company
consists of 9,000,000,000 shares with a par value $0.00001. At September 30, 2018 and December 31, 2017, the Company had 8,809,999,998
and 7,338,180,185 shares of its common stock issued and outstanding, respectively.
During the nine months ended September
30, 2018, the company issued 1,071,819,813 shares of common stock in connection with the conversion of $17,369 in principal and
$41,581 in accrued interest related to its convertible promissory notes. The Company also issued 240,000,000 shares of common stock
valued at $48,000 for fees and services rendered by various entities.
On June 12, 2018, the Company issued
100,000,000 shares of restricted common stock in a private placement sale with an accredited investor for gross proceeds totaling
$10,000. On September 10, 2018, the Company issued 60,000,000 shares of restricted common stock in a private placement sale with
an accredited investor for gross proceeds totaling $6,000.
These issuances were exempt from registration
under rule 144.
NOTE 8 – INCOME TAXES
As of September 30, 2018, the Company
had net operating loss carry forwards of approximately $14.8 million that may be available to reduce its tax liability through
tax year 2037. The Company estimates the benefits of this loss carry forward at $3,118,018 if it 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 2018, due to current period losses and full valuation allowance on deferred tax assets.
For the nine months ended September
30, 2018 and 2017, a reconciliation of the federal statutory rate of 21% to the Company’s effective tax rate is as follows:
|
|
2018
|
|
2017
|
Expected expense (benefit) (21%)
|
|
$
|
(807,126
|
)
|
|
$
|
(176,816
|
)
|
State income taxes, net of federal benefit
|
|
|
(182,180
|
)
|
|
|
(39,910
|
)
|
Income tax provision (benefit)
|
|
|
(989,306
|
)
|
|
|
(216,726
|
)
|
Valuation allowance
|
|
|
989,306
|
|
|
|
216,726
|
|
Accrued expense (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
The cumulative tax effect at the expected
rate of 21% of significant items comprising the Company’s net deferred tax amount is as follows as of September 30, 2018
and December 31, 2017:
|
|
2018
|
|
2017
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
3,118,018
|
|
|
$
|
2,580,075
|
|
Less: valuation allowance
|
|
|
(3,118,018
|
)
|
|
|
(2,580,075
|
)
|
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 9 – 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.
|
The Company’s 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, 2017:
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted prices in
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
12/31/2017
|
|
|
(Level l)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Convertible promissory notes with embedded conversion option
|
|
$
|
1,699,583
|
|
|
-
|
|
-
|
|
|
|
$
|
1,699,583
|
|
Total
|
|
$
|
1,699,583
|
|
|
-
|
|
-
|
|
|
|
$
|
1,699,583
|
|
The following table summarizes the change
in the Company’s financial assets and liabilities measured at fair value as of September 30, 2018:
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted prices in
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
06/30/2018
|
|
|
(Level l)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Convertible promissory notes with embedded conversion option
|
|
$
|
3,857,400
|
|
|
-
|
|
-
|
|
|
|
$
|
3,857,400
|
|
Total
|
|
$
|
3,857,400
|
|
|
-
|
|
-
|
|
|
|
$
|
3,857,400
|
|
The following table sets forth a summary
of change in fair value of the Company’s derivative liabilities for the nine months ended September 30, 2018:
Beginning balance, January 1, 2018
|
|
$
|
1,699,583
|
|
Change in fair value of embedded conversion features of convertible promissory notes included in earnings
|
|
|
(175,745
|
)
|
Embedded conversion option liability recorded in connection with the issuance of convertible promissory notes
|
|
|
2,333,562
|
|
Ending balance, September 30, 2018
|
|
$
|
3,857,400
|
|
Note
10 – Commitments and Contingencies
On April 25, 2013, 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 1, 2018, the Company issued three convertible notes to settle legal damages totaling $693,819 awarded
to the Plaintiffs after pursuing all potential remedies against the other Defendants.
On May 1, 2017, the Company entered
into an employment agreement with its chief executive officer, Joe E. Poe, Jr. Under the terms of the agreement, the Mr. Poe has
the right to be issued one percent (1.0%) of the issued and outstanding shares of the Company’s common stock on the date
of his choosing. As of September 30, 2018, the Company has accrued $8,650 in stock-based compensation expense related to this provision.
On April 5, 2018, David G. Wiser filed
a lawsuit against the Company for $60,000 of 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 (1) share of preferred stock
convertible into 850 million shares of common stock.
NOTE 11 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent
Events, the Company has analyzed its operations subsequent to September 30, 2018 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 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 lowest
bid price during the five trading days prior to the date of conversion.