We have filed with the Securities and Exchange Commission a Registration Statement on Form S-1 (together with all amendments and exhibits) under the Securities Act of 1933, as amended, with respect to the securities offered by this prospectus. This prospectus does not contain all of the information in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. For further information, reference is made to the Registration Statement which may be read and copied at the Commissions Public Reference Room.
We are subject to the requirements of the Securities Exchange Act of l934 and are required to file reports and other information with the Securities and Exchange Commission. Copies of any such reports and other information (which includes our financial statements) filed by us can be read and copied at the Commission's Public Reference Room.
The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Public Reference Room is located at 100 F. Street, N.E., Washington, D.C. 20549.
Our Registration Statement and all reports and other information we file with the Securities and Exchange Commission are available at www.sec.gov, the website of the Securities and Exchange Commission.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
Note 1.
Basis of Presentation
General
Pierre Corp. (the Company) was incorporated in Nevada on January 21, 2011. Since its incorporation, the Company has have attempted to become involved in a number of business ventures, all of which were unsuccessful and which it has abandoned.
In February 2018, the Company decided to become involved in the marijuana industry.
The Company now plans to own and operate medical and adult marijuana cultivation facilities, manufacturing facilities and dispensaries in California. The first step in the Companys business plan is to acquire licenses to cultivate, manufacture and sell marijuana.
The Company will attempt to acquire licenses from persons who have either applied for or been granted marijuana licenses in California.
The Company does not intend to acquire a license associated with a facility or dispensary which is in operation.
The Company may also apply for a marijuana cultivation, manufacturing or dispensary license in its own name.
The Companys activities are subject to significant risks and uncertainties including the failure to secure the funding needed to properly execute the Companys business plan.
We do not anticipate receiving cash flow from operations in the near future to satisfy our ongoing capital requirements. We are seeking financing in the form of equity capital in order to provide the necessary working capital. Our ability to meet our obligations and continue to operate as a going concern is highly dependent on our ability to obtain additional financing. We cannot predict whether this additional financing will be in the form of equity or debt or be in another form. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, we may be unable to implement our current plans which circumstances would have a material adverse effect on our business, prospects, financial conditions and results of operations.
On August 7, 2018 the Company entered into agreements with LGM, Org and Lean Green Machine, Inc. (collectively LGM) to acquire licenses LGM may be awarded by the state of California in Long Beach and the City of Commerce. These agreements were terminated in February 2019.
On March 12, 2019 Pierre Corp entered into a Letter of Intent to acquire licenses in Lynwood, California where Pierre Corp would pay $850,000 to the vender to purchase the right to cultivate marijuana in that local. At this time the agreement is not legally binding until the definitive agreement is signed at a later date. The Seller must deliver to Pierre Corp in this agreement the updated and renewed licenses.
On October 15, 2018 a shareholder owning a majority of the Companys outstanding shares of common stock amended the Companys Articles of Incorporation to:
·
change the name of the Company from Wadena Corp. to Pierre Corp.
·
reverse split the Companys outstanding shares of common stock on a 5-for-1 basis.
The Companys activities are subject to significant risks and uncertainties including failure to secure additional funding to properly execute the Companys business plan.
F-6
Note 2. Summary of Significant Accounting Policies
The financial statements have, in management's opinion, been properly prepared within the framework of the significant accounting policies summarized below:
Going Concern
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At December 31, 2018, the Company had not yet achieved profitable operations, has accumulated losses of $640,984, since its inception, has working capital deficit of $422,884, and expects to incur further losses in the development of its business, all of which raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances; however, there is no assurance of additional funding being available.
Income Taxes
The Company uses the assets and liability method of accounting for income taxes. Under the assets and liability method deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Basic and Diluted Loss Per Share
Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share has not been provided as it would be anti-dilutive.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original purchase maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the useful lives as follows:
Furniture and fixtures
7 years
Equipment
5 years
F-7
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and accrued liabilities and related party loan approximate their fair value because of the short maturity of these instruments. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting standards will have a material effect on the accompanying financial statements.
Note 3. Related Party Transactions
The related party advances are due to the former director and President of the Company for funds advanced. The advances are unsecured, non-interest bearing and have no specific terms for repayment. As of December 31, 2018, the advances had been repaid in full.
During the year ended December 31, 2018, the Company repaid a note payable, net of receipts, in the amount of $32,488 to the President of the Company. As of December 31, 2018, the note payable totaled $6,000. The advances are unsecured, non-interest bearing and have no specific terms for repayment.
Effective March 1, 2012, the Company agreed to pay the President of the Company $4,000 per month for management services if funds are available or to accrue such amount if funds are not available. Effective July 1, 2016, the Company agreed to pay the President of the Company $2,000 per month for management services if funds are available or to accrue such amount if funds are not available. Effective October 1, 2018, the Company agreed to pay the President of the Company $6,000 per month for management services if funds are available or to accrue such amount if funds are not available. Accounts payable related party are the fees earned but not yet paid of $164,841 and $144,500 at December 31, 2018 and December 31, 2017, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2018
|
Year ended
December 31, 2017
|
|
|
|
Management fees
|
$ 36,000
|
$ 24,000
|
Note 4. Property and Equipment, net
Cost and accumulated depreciation of property and equipment as of December 31, 2018 and December 31, 2017 are as follows:
|
|
|
|
|
|
|
December 31, 2018
|
December 31, 2017
|
|
|
|
Computers
|
$ 3,443
|
$ 3,443
|
|
|
|
Furniture and fixtures
|
6,000
|
6,000
|
Total
|
9,443
|
9,443
|
Less: Accumulated depreciation
|
(9,443)
|
(8,259)
|
Property and equipment, net
|
$ -
|
$ 1,184
|
Depreciation expense charged to operations was $1,184 and $1,544 for the years ended December 31, 2018 and 2017, respectively.
F-8
Note 5.
Notes Payable
During the year ended December 31, 2018, the Company received a loan for $20,000 from an individual. The loans in addition to the loans previously entered into by the Company, are unsecured, non-interest bearing and have no specific terms for repayment. As of December 31, 2018, the loans totaled $244,000.
Note 6.
Income Taxes
The cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows:
|
|
|
|
|
|
|
December 31, 2018
|
December 31, 2017
|
|
|
|
Deferred tax asset attributable to:
|
|
|
Net operating loss
|
$ 134,600
|
$ 92,800
|
Valuation allowance
|
(134,600)
|
(92,800)
|
Net
|
$ -
|
$ -
|
A reconciliation of income tax provision to the provision that would be recognized under the statutory rates is as follows:
|
|
|
|
|
|
|
December 31, 2018
|
December 31, 2017
|
|
|
|
Benefit attributable to operating loss
|
$ 41,800
|
$ 150,000
|
Impact of change in tax rate
|
-
|
(57,200)
|
Valuation allowance
|
(41,800)
|
(92,800)
|
Net provision
|
$ -
|
$ -
|
The amount taken into income as deferred tax assets must reflect that portion of the income tax loss carry forwards that is more likely-than-not to be realized from future operations. The Company has chosen to provide an allowance of 100% against all available income tax loss carry forwards, regardless of their time of expiry.
As of December 31, 2017, the Company saw a decrease in deferred tax assets from income tax loss carry forwards. The significant decline in the carry forwards was due the passage of the Tax Cuts and Jobs Act on December 20, 2017 that reduced effective tax rates for future periods to 21% from 34%. The decline in value of the income tax loss carry forwards has no impact on our statement of operations.
No provision for income taxes has been provided in these financial statements due to the net loss. At December 31, 2018, the Company has net operating loss carry forwards, which expire commencing in 2031, totaling approximately $641,000, the benefit of which has not been recorded in the financial statements.
Note 7.
Equity Transactions
Between May and August, 2018, third party investors purchased 746,800 shares of the Companys common stock at a price of $0.25 per share for gross proceeds of $186,700. The Company relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933 in connection with the sale of the common stock described above.
On October 15, 2018, the Companys Board of Directors declared a five-for-one reverse stock split of the Companys common stock. The record date for the stock split was October 15, 2018. Shareholders of record as of the close of business on the record date received one share of common stock of the Company for every five shares that they owned on such date. The earnings per share calculations and share data for all periods presented have been recast to reflect the impact of the stock split on outstanding shares.
F-9
Note 8.
Subsequent Events
On August 7, 2018 the Company entered into agreements with LGM, Org and Lean Green Machine, Inc. (collectively LGM) to acquire licenses LGM may be awarded by the state of California in Long Beach and the City of Commerce. These agreements were terminated in February, 2019.
On March 12, 2019 Pierre Corp entered into a Letter of Intent to acquire licenses in Lynwood, California where Pierre Corp would pay $850,000 to the vender to purchase the right to cultivate marijuana in that local. At this time the agreement is not legally binding until the definitive agreement is signed at a later date. The Seller must deliver to Pierre Corp in this agreement the updated and renewed licenses.
On January 17, 2019, Rodney Throgmorton loaned the Company $20,000.
F-10
FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
|
|
|
|
F-12
|
Balance Sheets as of September 30, 2019 and 2018;
|
F-13
|
Statements of Operations for the three and nine months ended September 30, 2019 and 2018
|
F-14
|
Statement of Stockholders Equity (Deficit) for the nine months ended September 30, 2019 and 2018;
|
F-15
|
Statements of Cash Flows for nine months ended September 30, 2019 and 2018;
|
F-16
|
Notes to Financial Statements
|
F-11
|
|
|
|
|
|
Pierre Corp.
|
Balance Sheets
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31,
2018
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
|
$ 5,130
|
|
$ 1,285
|
Prepaid assets
|
|
|
6,869
|
|
5,700
|
Total current assets
|
|
|
1,999
|
|
6,985
|
Total assets
|
|
|
$ 11,999
|
|
$ 6,985
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
$ 13,615
|
|
$ 15,028
|
Accounts payable - related party
|
|
|
189,374
|
|
164,841
|
Notes payable
|
|
|
326,900
|
|
244,000
|
Notes payable - related party
|
|
|
6,000
|
|
6,000
|
Convertible notes, net of unamortized discount of $52,621 and $0, respectively
|
|
62,379
|
|
-
|
Derivative liability
|
|
|
97,869
|
|
-
|
|
|
|
|
|
|
Total current liabilities
|
|
|
696,137
|
|
429,869
|
Total liabilities
|
|
|
696,137
|
|
429,869
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
Preferred stock, $0.001 par value, 500,000,000 shares authorized,
|
|
|
|
|
|
none issued and outstanding
|
|
|
-
|
|
-
|
Common stock, $0.001 par value, 200,000,000 shares authorized,
|
|
|
|
|
|
29,076,800 and 29,051,800 shares issued and outstanding at
|
|
|
|
|
|
September 30, 2019 and December 31, 2018, respectively
|
|
|
29,077
|
|
29,052
|
Additional paid in capital
|
|
|
208,983
|
|
189,048
|
Accumulated deficit
|
|
|
(922,198)
|
|
(640,984)
|
Total stockholders' deficit
|
|
|
(684,138)
|
|
(422,884)
|
Total liabilities and stockholders' deficit
|
|
|
$ 11,999
|
|
$ 6,985
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
|
F-12
|
|
|
|
|
Pierre Corp.
|
Statements of Operations
|
(Unaudited)
|
|
|
|
|
|
|
For the Three
|
For the Three
|
For the Nine
|
For the Nine
|
|
Months Ended
|
Months Ended
|
Months Ended
|
Months Ended
|
|
September 30, 2019
|
September 30, 2018
|
September 30, 2019
|
September 30, 2018
|
Operating expenses:
|
|
|
|
|
Depreciation
|
$ -
|
$ 386
|
$ -
|
$ 1,158
|
General and administration
|
70,502
|
49,236
|
197,813
|
119,669
|
|
|
|
|
|
Total operating expenses
|
(70,502)
|
(49,622)
|
(197,813)
|
(120,827)
|
|
|
|
|
|
Amortization of debt discount
|
(37,358)
|
-
|
(45,995)
|
-
|
Interest expense
|
(2,354)
|
-
|
(3,193)
|
-
|
Change in fair value of derivative liability
|
(25,720)
|
-
|
(34,213)
|
-
|
Total other expense
|
(65,432)
|
-
|
(83,401)
|
-
|
|
|
|
|
|
Net loss
|
$ (135,934)
|
$ (49,622)
|
$ (281,214)
|
$ (120,827)
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
Basic and diluted
|
$ (0.00)
|
$ (0.00)
|
$ (0.01)
|
$ (0.00)
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
Basic and diluted
|
29,076,800
|
29,051,935
|
29,066,230
|
28,622,218
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
|
F-13
|
|
|
|
|
|
Pierre Corp.
|
Statements of Changes in Stockholders Deficit
|
For the nine months ended September 30, 2019 and 2018
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
Additional paid-in
|
Accumulated
|
|
|
Shares
|
Amount
|
capital
|
Deficit
|
Total
|
|
|
|
|
|
|
Balance, December 31, 2018
|
29,051,800
|
$ 29,052
|
$ 189,048
|
$ (640,984)
|
$ (422,884)
|
Net loss
|
-
|
-
|
-
|
(47,655)
|
(47,655)
|
Balance, March 31, 2019
|
29,051,800
|
29,052
|
189,048
|
(688,639)
|
(470,539)
|
Common shares issued with convertible note
|
25,000
|
25
|
6,225
|
-
|
6,250
|
Net loss
|
-
|
-
|
-
|
(97,625)
|
(97,625)
|
Balance, June 30, 2019
|
29,076,800
|
29,077
|
195,273
|
(786,264)
|
(561,914)
|
Common shares to be issued with convertible note
|
-
|
-
|
13,710
|
-
|
13,710
|
Net loss
|
-
|
-
|
|
(135,934)
|
(135,934)
|
Balance, September 30, 2019
|
29,076,800
|
$ 29,077
|
$ 208,983
|
$ (922,198)
|
$ (684,138)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
28,305,000
|
$ 28,305
|
$ 3,095
|
$ (442,083)
|
$ (410,683)
|
Net loss
|
-
|
-
|
-
|
(19,345)
|
(19,345)
|
Balance, March 31, 2018
|
28,305,000
|
28,305
|
3,095
|
(461,428)
|
(430,028)
|
Sale of common stock
|
600,000
|
600
|
149,400
|
-
|
150,000
|
Net loss
|
-
|
-
|
-
|
(51,860)
|
(51,860)
|
Balance, June 30, 2018
|
28,905,000
|
28,905
|
152,495
|
(513,288)
|
(331,888)
|
Sale of common stock
|
146,800
|
147
|
36,553
|
-
|
36,700
|
Net loss
|
-
|
-
|
-
|
(49,622)
|
(49,622)
|
Balance, September 30, 2018
|
29,051,800
|
$ 29,052
|
$ 189,048
|
$ (562,910)
|
$ (344,810)
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
|
F-14
|
|
|
|
Pierre Corp.
|
|
Statements of Cash Flows
|
|
(Unaudited)
|
|
|
For the Nine Months Ended
|
For the Nine Months Ended
|
|
|
September 30, 2019
|
September 30, 2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net loss
|
$ (281,214)
|
$ (120,827)
|
|
Adjustment to reconcile net loss to
|
|
|
|
cash used in operating activities:
|
|
|
|
Depreciation expense
|
-
|
1,158
|
|
Amortization of debt discount
|
45,995
|
-
|
|
Loss on change in derivative liability
|
34,213
|
-
|
|
Net change in:
|
|
|
|
Prepaid assets
|
(1,169)
|
(5,700)
|
|
Accounts payable
|
(1,413)
|
1,430
|
|
Accounts payable - related party
|
24,533
|
8,341
|
|
|
|
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
(179,055)
|
(115,598)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Sale of common stock
|
-
|
186,700
|
|
Proceeds from convertible notes
|
100,000
|
-
|
|
Proceeds from notes payable, related party
|
-
|
20,012
|
|
Payments from notes payable, related party
|
-
|
(52,500)
|
|
Proceeds from notes payable, unrelated party
|
82,900
|
20,000
|
|
|
|
|
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
182,900
|
174,212
|
|
|
|
|
|
NET CHANGE IN CASH
|
3,845
|
58,614
|
|
Cash, beginning of period
|
1,285
|
-
|
|
Cash, end of period
|
$ 5,130
|
$ 58,614
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Cash paid on interest expenses
|
$ -
|
$ -
|
|
Cash paid for income taxes
|
$ -
|
$ -
|
|
NON-CASH TRANSACTIONS
|
|
|
|
Common stock issued with convertible notes
|
$ 19,960
|
$ -
|
|
Debt discount created by derivative liability
|
$ 63,656
|
$ -
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
|
F-15
Pierre Corp.
Notes to the Financial Statements
September 30, 2019
(Unaudited)
Note 1.
Basis of Presentation
The accompanying unaudited interim financial statements of Pierre Corp. (Pierre or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC), and should be read in conjunction with the audited financial statements and notes thereto contained in the Companys Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for our interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2018, as reported in the Form 10-K of the Company, have been omitted.
Significant Accounting Policies
Fair Value of Financial Instruments
The carrying value of short-term instruments, including cash, accounts payable and accrued expenses, and short-term notes approximate fair value due to the relatively short period to maturity for these instruments. The notes payable approximate fair value since the related rates of interest approximate current market rates
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows:
Level 1:
inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2:
inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3:
inputs to the valuation methodology are unobservable and significant to the fair value
F-16
Fair Value Measurements
The Companys assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.
The following table presents information about the Companys liabilities measured at fair value on a recurring basis and the Companys estimated level within the fair value hierarchy of those assets and liabilities as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
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Fair value measured at September 30, 2019
|
|
|
Total carrying
value
at September 30,
2019
|
|
Quoted prices in active
markets
(Level 1)
|
|
Significant other
observable
inputs
(Level 2)
|
|
Significant
Unobservable
inputs
(Level 3)
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|
|
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|
Liabilities:
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|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
97,869
|
|
$
|
-
|
|
$
|
-
|
|
$
|
97,869
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|
|
|
|
|
|
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|
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Fair value measured at December 31, 2018
|
|
|
Total carrying
value
at December 31,
2018
|
|
Quoted prices in active
markets
(Level 1)
|
|
Significant other
observable
inputs
(Level 2)
|
|
Significant
Unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
There were no transfers between Level 1, 2 or 3 during the period.
The table below presents the change in the fair value of the derivative liability during the nine months ended September 30, 2019:
Fair value as of December 31, 2018
$ -
Fair value on the date of issuance recorded as a debt discount
63,656
Fair value on the date of issuance recorded as a loss on derivatives
29,653
Gain on change in fair value of derivatives
4,560
Fair value as of September 30, 2019
$ 97,869
Convertible debt
The Company records a beneficial conversion feature related to the issuance of convertible debts that have conversion features at fixed or adjustable rates. The beneficial conversion feature for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features. The beneficial conversion feature will be accreted by recording additional noncash interest expense over the expected life of the convertible notes.
F-17
Beneficial Conversion Features
If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (BCF). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the
BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, The Company adopted this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standards available transition practical expedients.
The new standard also provides practical expedients for a companys ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities. The Company also made an accounting policy election to combine lease and non-lease components of operating leases for all asset classes. The adoption of this new standard did not impact the Company.
F-18
In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The Company adopted the provisions of the guidance on January 1, 2019 with no material impact on the Companys consolidated financial statements and disclosures.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Note 2.
Going Concern
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At September 30, 2019 the Company had not yet achieved profitable operations and expects to incur further losses in the development of its business, all of which raise substantial doubt about the Companys ability to continue as a going concern. The Companys ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.
Note 3. Related Party Transactions
The related party advances are due to the former director and President of the Company for funds advanced. The advances are unsecured, non-interest bearing and have no specific terms for repayment. As of September 30, 2019, the advances totaled $6,000.
Effective March 1, 2012, the Company agreed to pay the President of the Company $4,000 per month for management services if funds are available or to accrue such amount if funds are not available. Effective July 1, 2016, the Company agreed to pay the President of the Company $2,000 per month for management services if funds are available or to accrue such amount if funds are not available. Effective October 1, 2018, the Company agreed to pay the President of the Company $6,000 per month for management services if funds are available or to accrue such amount if funds are not available. Effective April 30, 2019, the Company agreed to pay the President of the Company $11,500 per month for management services if funds are available or to accrue such amount if funds are not available. The agreement is verbal and can be cancelled at any time. Accounts payable related party are the fees earned but not yet paid of $189,877 and $164,841 at September 30, 2019 and December 31, 2018, respectively.
F-19
Fees earned during the period are as follows:
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Nine months ended September 30, 2019
|
Nine months ended September 30, 2018
|
|
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|
|
Management fees
$ 87,000
$ 18,000
Robert Sawatsky, who was previously the President and CEO of the Company provided consulting services to the Company related to public company reporting with no expected compensation for the period ending June 30, 2019. During the nine months ended September 30, 2019 Mr. Sawatsky advanced $3,000 to the Company. The advance is unsecured, non-interest bearing and has no specific terms for repayment.
Note 4. Notes Payable
During the nine-month period ended September 30, 2019, the Company received advances of $82,900. The advances are unsecured, non-interest bearing and have no specific terms for repayment. As of September 30, 2019 and December 31, 2018 the advances totaled $326,900 and $244,000, respectively.
Note 5. Convertible Notes Payable
On April 25, 2019, the Company borrowed $30,000 from an unrelated third party. The loan had an original issuance discount of $2,500 plus an additional $2,500 to pay for transaction fees of the lender, which will be amortized over the life of the note. In addition the Company was required to pay transaction fees of the lender of $2,500 which is included in accounts payable. The loan bears interest at a rate of 9% and is due and payable on October 25, 2019 and is currently past due. The Company may prepay the loan by paying the lender the outstanding loan principal and accrued interest plus premiums ranging from 5% to 25% and accrued interest. The unpaid principal is convertible into shares of the Companys common stock at the conversion price. The conversion price is 50% of the lowest trading price of the Companys common stock during the 20 consecutive trading days immediately prior to the date of conversion. Due to the variable conversion feature the note conversion feature was bifurcated from the note and recorded as a derivative liability. The day one derivative liability was $28,112 which was recorded as a discount on the note payable and a day one loss on the derivative liability of $9,362. In addition, the note holder was issued 25,000 shares of common stock with a relative fair value of $6,250 which was recorded as a debt discount and will be amortized over the life of the note.
On June 4, 2019, the Company borrowed $55,000 from an unrelated third party. The loan had an original issuance discount of $5,000 which will be amortized over the life of the note. The loan bears interest at a rate of 10% and is due and payable on March 4, 2020. At any time on or before December 1, 2019 the Company may prepay the loan by paying the lender the outstanding loan principal and accrued interest plus premiums ranging from 20% to 40%. After December 1, 2019, the Company may not repay the loan without the consent of the lender. At any time after December 1, 2019, the unpaid principal is convertible into shares of the Companys common stock at the conversion price. The conversion price is 65% of the lowest trading price of the Companys common stock during the 20 consecutive trading days immediately prior to the date of conversion. Due to the variable conversion feature the note conversion feature was
F-20
bifurcated from the note and recorded as a derivative liability. The day one derivative liability was $33,615 which was recorded as a discount on the note payable.
On September 9, 2019, the Company borrowed $30,000 from an unrelated third party. The loan had an original issuance discount of $2,500 plus an additional $2,500 to pay for transaction fees of the lender, which will be amortized over the life of the note. The loan bears interest at a rate of 9% and is due and payable on March 9, 2020. The Company may prepay the loan by paying the lender the outstanding loan principal and accrued interest plus premiums ranging from 5% to 25% and accrued interest. The unpaid principal is convertible into shares of the Companys common stock at the conversion price. The conversion price is 50% of the lowest trading price of the Companys common stock during the 20 consecutive trading days immediately prior to the date of conversion. Due to the variable conversion feature the note conversion feature was bifurcated from the note and recorded as a derivative liability. The day one derivative liability was $31,581 which was recorded as a day one loss on the derivative liability. In addition, the note holder will be issued 25,000 shares of common stock with a relative fair value of $13,710 which was recorded as a debt discount and will be amortized over the life of the note.
As of September 30, 2019, the total derivative liability on the above notes was adjusted to a fair value of $97,869. During the nine months ended September 30, 2019, $45,995 of the discount was amortized leaving an unamortized balance of $52,621. The fair value of the conversion option was estimated using the Black-Scholes option pricing model and the following assumptions during the period: fair value of stock $0.25 - $1.10, volatility of 55% - 59% based on a comparable company peer group, expected term of 0.32 1.00 years, risk-free rate of 1.7% - 2.3% and a dividend yield of 0%.
Note 6.
Capital Stock
During the nine months ended September 30, 2019 the Company issued 25,000 shares of its restricted common stock to the third party that provided the Company with the $30,000 loan described in Note 5. An additional 25,000 shares were committed for issuance as of September 30, 2019 associated with the September 9, 2019 convertible note payable. The shares were issued subsequent to period end.
F-21