NOTES
TO THE (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2020 and 2019
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
GLOBAL
DIVERSIFIED MARKETING GROUP INC. (the “Company”), formerly known as Dense Forest Acquisition Corporation, was incorporated
in Delaware on December 1, 2017, and changed its name on June 13, 2018, as part of a change in control. As part of the change
in control, its then officers and directors resigned and contributed back to the Company 19,500,000 shares of the 20,000,000 outstanding
shares of its common stock, and appointed new officers and directors. On June 14, 2018, the new management of the Company
issued 12.500,000 shares of its common stock to Paul Adler, the then president of the Company.
On
November 26, 2018, the Company effected the acquisition of Global Diversified Holdings, Inc. (“GDHI”), a private New
York company owned by the Company’s president, with the issuance of 200 shares of the Company’s common stock in exchange
for all of the outstanding shares of GDHI. GDHI became a wholly-owned subsidiary of the Company, and its activity for the periods
presented are reflected in these unaudited consolidated financial statements along with the expenses of the Company.
Prior
to the acquisition of GDHI, the Company had no business and no operations. Pursuant to the acquisition, the Company acquired the
operations and business plan of GDHI, which imports and sells snack food products. For accounting purposes, GDHI is considered
to be the acquirer, and the equity is presented as if the business combination had occurred on January 1, 2017
COVID-19
On
March 11, 2020, the world health organization (“who”) declared the covid-19 outbreak to be a global pandemic. In addition
to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions
and volatility in the global financial markets. Most US states and many countries have issued policies intended to stop or slow
the further spread of the disease.
Covid-19
and the U.S’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide
guidance as to the effect the Covid-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain
and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business or
our operations.
Basis
of Presentation
The
unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting
principles in the United States of America and are presented in US dollars. The Company has adopted a December 31 year-end.
Principles
of Consolidation
The
accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.
All intercompany accounts and transactions have been eliminated in consolidation.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash, accounts receivable from customers, accounts payable, and loans payable.
The carrying amounts of these financial instruments approximates fair value due either to length of maturity or interest rates
that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the balance sheet. Actual results could differ from those estimates.
Stock-Based
Compensation
As
of March 31, 2020, the Company has not issued any share-based payments to its employees. Under the modified prospective method,
the Company uses, stock compensation expense includes compensation expense for all stock-based compensation awards granted, based
on the grant-date estimated fair value.
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. On
March 31, 2020, and December 31, 2019, the Company had $-0- and $22,291 in cash, respectively.
Accounts
Receivable
Accounts
receivable are generated from sales of snack food products to retail outlets throughout the United States. The Company performs
ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current creditworthiness,
as determined by review of their current credit information. The Company continuously monitors credit limits for its customers
and maintains a provision for estimated credit losses based on its historical experience and any specific customer issues that
have been identified. An allowance for doubtful; accounts is provided against accounts receivable for amounts management believes
may be uncollectible. The Company historically has not had issues collecting on its accounts receivable from its customers. The
Company factors certain of its receivables to improve its cash flow.
Bad
debt expense for the three months ended March 31, 2020, and 2019 was $-0-; the allowance for doubtful accounts on March 31, 2020,
and December 31, 2019, was $-0-.
Inventory
Inventory
consists of snack food products and packaging supplies, stated at the lower of cost or market.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over
the estimated useful life of the assets. Maintenance, repairs, and renewals that do not materially add to the value of the equipment
nor appreciably prolong its useful life are charged to expense as incurred.
Revenue
Recognition
Beginning
January 1, 2018, the Company implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is
expected to have an immaterial impact, if any, on our ongoing net income, we did implement changes to our processes related to
revenue recognition and the control activities within them. These included the development of new policies based on the five-step
model provided in the new revenue standard, ongoing contract review requirements, and gathering of information provided for disclosures.
The
Company recognizes revenue from product sales or services rendered when control of the promised goods are transferred to our clients
in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve
this core principle we apply the following five steps: identify the contract with the client, identify the performance obligations
in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and
recognize revenues when or as the Company satisfies a performance obligation.
Advertising
and Marketing Costs
The
Company’s policy regarding advertising and marketing is to record the expense when incurred. The Company incurred advertising
and marketing expenses of $6,682 and $3,424 during the three months ended March 31, 2020, and 2019, respectively.
Impairment
of Long-Lived Assets
The
Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may
not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived
assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.
If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or the fair value less costs to sell.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be realized.
The
Company’s wholly-owned subsidiary, with the consent of its stockholder, had elected to be taxed as an S Corporation under
the provisions of the Internal Revenue Code. Instead of paying federal corporate income taxes, the stockholder(s) of an S Corporation
are taxed individually on their proportionate share of the Company’s taxable income. Therefore, prior to the business combination
discussed above, the Company had made no provision for income taxes. Effective with the business combination, the wholly-owned
subsidiary became a C-corporation, and the loss incurred in 2018 for the period as a C-corporation approximated $270,000. See
Note 7. The Company’s income tax returns are open for examination for up to the past three years under the statute of limitations.
There are no tax returns currently under examination.
Comprehensive
Income
The
Company has which established standards for reporting and display of comprehensive income, its components, and accumulated balances.
When applicable, the Company would disclose this information on its Statement of Stockholders’ Equity. Comprehensive income
comprises equity except those resulting from investments by owners and distributions to owners. The Company has not had any significant
transactions that are required to be reported in other comprehensive income.
Basic
Income (Loss) Per Share
Basic
income (loss) per share has been calculated based on the weighted average number of shares of common stock outstanding during
the period.
Recent
Accounting Pronouncements
Adoption
of ASC 842 - On January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases, or
ASC 842, which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the
balance sheet. As permitted by ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application.
As a result, the consolidated balance sheet prior to January 1, 2019, was not restated, continues to be reported under ASC Topic
840, Leases, or ASC 840, which did not require the recognition of operating lease liabilities on the balance sheet, and
is not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating
leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges
are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is
recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recognition for
operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant
difference in our results of operations presented in our consolidated income statement for each period presented.
We
adopted ASC 842 using a modified retrospective approach for all leases existing on January 1, 2019. The adoption of ASC 842 had
a substantial impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use
asset and the liability for operating leases. Accordingly, upon adoption, leases that were classified as operating leases under
ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $44,602 to operating lease right-of-use
assets and the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments,
determined under ASC 840, discounted using our secured incremental borrowing rate at the effective date of January 1, 2019, using
the original lease term as the tenor. As permitted under ASC 842, we elected several practical expedients that permit us to not
reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously
capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant
impact on the measurement of the operating lease liability.
NOTE
2 – GOING CONCERN
As
of March 31, 2020, the Company had cash and cash equivalents of $-0- and an accumulated deficit of $26,020,400. Additionally,
the Company had a working capital deficit of $95,670. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. The consolidated financials have been prepared assuming that the Company will continue as a going
concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. If the Company
is in fact unable to continue as a going concern, the shareholders may lose some or all of their investment in the Company.
NOTE
3 – CAPITAL STOCK
The
Company has 100,000,000 shares of $.0001 par value common stock authorized. The Company has 13,010,200 and shares of common stock
issued and outstanding as of March 31, 2020, and December 31, 2019, respectively.
The
Company has 20,000,000 shares of $.0001 par value preferred stock authorized. On February 24, 2020, the Company filed a Certificate
of Designation for a class of preferred stock designated Class A Super Voting Preferred Stock (“A Stock”). There are
1,000,000 shares of A Stock designated. Each share of such stock shall vote with the common stock and have 100,000 votes. A Stock
has no conversion, dividend, or liquidation rights. Accordingly, the holders of A Stock will, by reason of their voting power,
be able to control the affairs of the Company. The Company has issued 1,000 shares of A Stock to Paul Adler, the company’s
Chief Executive Officer, and majority shareholder giving him effective voting control over the Registrant’s affairs for
the foreseeable future.
As
a result of the issuance of super-voting rights enabling him to vote 100,000,000 shares, Mr. Adler has effective voting control
of approximately 99.55% of the Company. In conjunction with the issuance of these 1,000 preferred shares, the Company recorded
stock compensation expense, related party of $26,020,400 for the three months ended March 31, 2020.
NOTE
4 – RELATED PARTY TRANSACTIONS
During
the three months ended March 31, 2020, and 2019, the Company incurred wages of $52,500 and $49,500 respectively, related to services
provided to it by its executive officer. Additionally, during the three months ended March 31, 2020, the Company’s
CEO was awarded super-voting A Stock-see Note 3. Capital Stock
NOTE
5 – COMMITMENTS AND CONTINGENCIES
The
Company entered into a 60-month lease agreement on October 1, 2016, to rent office space. The lease requires monthly payments
of $1,600 for the first 24 months and after that increases by 3% each year, and contains one five year renewal option. Rental
expenses under this lease for the three months ended March 31, 2020, and 2019 were $4,203 and $4,055
respectively. The lease also required an advance payment of $1,600 for the last month of rent as well as a $1,600 security
deposit. Future minimum lease payments due under this operating lease, including renewal periods, are as follows:
|
Year ended December 31, 2020
|
|
$
|
20,517
|
|
|
Year ended December 31, 2021
|
|
|
20,976
|
|
|
Total minimum lease payments
|
|
$
|
41,493
|
|
NOTE
6 – LOANS PAYABLE
The
Company had various loans outstanding at March 31, 2020, and December 31, 2019 – all were short-term in nature, with varying
rates of interest and fees, and no set minimum monthly payments, as follows:
|
|
|
March 30, 2020
|
|
|
Dec. 31, 2019
|
|
|
Loan Builder
|
|
$
|
73,352
|
|
|
$
|
86,184
|
|
|
Credit Line - Blue Vine
|
|
|
73,801
|
|
|
|
12,287
|
|
|
Total loans payable
|
|
$
|
147,153
|
|
|
$
|
98,471
|
|
NOTE
6 – INCOME TAXES
For
the period ended March 31, 2020, the Company has incurred net losses and, therefore, has no tax liability. The net deferred tax
asset generated by the loss carry-forward has been fully reserved.
The
provision for Federal income tax consists of the following at March 31, 2020, and December 31, 2019:
|
|
|
2020
|
|
|
2019
|
|
|
Federal income tax benefit attributable to:
|
|
|
|
|
|
|
|
|
|
Current Operations
|
|
$
|
3,900
|
|
|
$
|
6,900
|
|
|
Less: valuation allowance
|
|
|
(3,900
|
)
|
|
|
(6,900
|
)
|
|
Net provision for Federal income taxes
|
|
$
|
0
|
|
|
$
|
0
|
|
NOTE
7 – CONCENTRATIONS
The
Company does a significant amount of its total business with 4 customers, as follows for the three months ended March 31, 2020,
and 2019 (percentage of total sales of $339,961 and $256,035 respectively):
|
|
|
2020
|
|
|
2019
|
|
|
Customer A
|
|
|
42
|
%
|
|
|
36
|
%
|
|
Customer B
|
|
|
24
|
%
|
|
|
25
|
%
|
|
Customer C
|
|
|
16
|
%
|
|
|
19
|
%
|
|
Customer D
|
|
|
11
|
%
|
|
|
11
|
%
|
NOTE
8 – SUBSEQUENT EVENTS
On
April 17, 2020, the Registrant received a forgivable loan in the amount $28,642 of under the Federal Payroll Protection Program
(“PPP”). While the rules under the PPP are complex and continue to evolve and be clarified, generally the PPP loan
will be forgiven if, during a certain measuring period that begins with the receipt of the loan, at least 75% of the loan is applied
to employee payroll expense with the balance applied to rent and utilities and the recipient employer has employees equal to 90%
of the number of employees it had prior to receipt of the loan. Management believes it will be able to make the required certifications
at the end of the 8 week period in June 2020 and the PPP Loan will be forgiven. To the extent the PPP Loan is not forgiven, it
is converted into a two-year loan with an interest rate of 1% per annum,
On
May 21, 2020, the Registrant received a loan from the Small Business Administration of $150,000 (the “SBA Loan”).
The SBA Loan bears interest at 3.75% per annum and is payable over 30 years with all payments of principal and interest deferred
for the first 12 months.