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-trillion-dollar alcoholic beverages sector.
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.
Because the
Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this
raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to
raise additional funds and is currently exploring alternative sources of financing. Historically, the Company has raised capital
through the issuance of convertible debt as a measure to finance working capital needs. The Company will be required to continue
to do so until such time that its consolidated operations become profitable.
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 (“U.S. GAAP”). 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 U.S. 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 June 30, 2020 and December 31, 2019, 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.
Net
Income (Loss) per Common Share
Net income
(loss) per share is calculated in accordance with 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 June 30, 2020 and 2019. 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 June 30, 2020 and 2019, the Company had convertible
notes outstanding that could be converted into approximately 35,656,806,878 and 21,654,839,922 common shares based up the closing
bid price of the Company’s common stock at June 30, 2020 and 2019, respectively. Shares which would result from the conversion
of the convertible notes were excluded from the calculation of net loss per share for 2020 and 2019 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).
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, 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 2019.
Recent
Accounting Pronouncements
Except for
rules and interpretive releases of the SEC under the authority of federal securities laws and a limited number of grandfathered
standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature
recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes
any effect will not have a material impact on the Company’s present or future financial statements.
In December
2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the
income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is
not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The
amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted.
The Company is evaluating the impact of this amendment on its consolidated financial statements.
In February
2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments
to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting
Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller
reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal
years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial
instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining
the effects adoption will have on its consolidated financial statements.
NOTE 2
– GOING CONCERN
The Company’s
consolidated financial statements are prepared using accounting principles generally accepted in the United States of America
applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating cost and allow
it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining
adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it
could be forced to cease operations.
The Company
incurred a net loss of $2,933,571 for the six months ended June 30, 2020 and a working capital deficit of $8,039,023 at June 30,
2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In order to
continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan
to obtain such resources for the Company include, obtaining debt or equity capital from various lenders, institutions and significant
stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company
will be successful in accomplishing any of its plans.
There is no
assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will
be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues
received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying
consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
NOTE 3
– RELATED PARTY TRANSACTIONS
On March 27,
2015, the Company executed a promissory note for $15,000 with its former chief financial officer and chairman Mr. Joseph C. Canouse.
The note bears interest at 6% and has a maturity date of 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.
The balance of this note was $11,000 at June 30, 2020.
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 June 30, 2020.
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 June 30, 2020.
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 June 30, 2020.
NOTE 4
– CONVERTIBLE NOTES PAYABLE
The following
tables set forth the components of the Company’s convertible notes at June 30, 2020 and December 31, 2019:
|
|
June
30, 2020
|
|
December
31,
2019
|
Principal
value of convertible notes
|
|
$
|
1,576,378
|
|
|
$
|
1,515,178
|
|
Unamortized loan
discounts
|
|
|
(50,267
|
)
|
|
|
(—
|
)
|
Total convertible
notes, net
|
|
$
|
1,526,111
|
|
|
$
|
1,515,178
|
|
On January
28, 2014, the Company converted $11,000 of a $22,000 convertible note to 24,445 common shares. 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
June 30, 2020.
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. The balance of this note was $20,000 at
June 30, 2020.
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.
The balance of this note was $28,000 at June 30, 2020.
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. The balance of this note was $3,600
at June 30, 2020.
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. The balance of this note was $64,445 at June 30, 2020.
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. The balance of this note was
$52,966 at June 30, 2020.
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. The
balance of this note was $28,000 at June 30, 2020.
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. The balance of this note was $23,000 at June 30, 2020.
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. The balance of this note was
$23,000 at June 30, 2020.
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. The balance of this note was $46,705 at June 30, 2020.
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. The balance of this note was $30,000 at June
30, 2020.
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.
The balance of these notes was $30,000 at June 30, 2020.
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. The balance of this note
was $51,414 at June 30, 2020.
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. The balance of this note was $39,342
at June 30, 2020.
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. The balance of these notes was $99,500 at June 30, 2020.
On January
1, 2018, the Company executed three promissory notes aggregating $693,819 to settle a legal matter. See Note 9 – 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. The balance of these notes was $693,819 at June 30, 2020.
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. The balance of this note was $5,500
at June 30, 2020.
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. The balance of this note
was $25,000 at June 30, 2020.
On April 3,
2020, the Company issued a convertible promissory note for $35,000. The note bears interest at 12% and has a maturity date of
December 31, 2020. The note 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. The balance of this note was $35,000
and remaining unamortized discount was $26,250 at June 30, 2020.
On May 26,
2020, the Company issued a convertible promissory note for $15,000. The note bears interest at 12% and has a maturity date of
February 26, 2021. 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 30 trading days prior to the date of conversion. The balance of this note was
$15,000 and remaining unamortized discount was $13,750 at June 30, 2020.
On June 8,
2020, the Company issued a convertible promissory note for $11,200. The note was issued with an original issue discount of $1,200,
or an effective interest rate of 12%, and has a maturity date of June 8, 2021. 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. The balance of this note was $11,200 and remaining unamortized discount was $10,267 at June 30,
2020.
As of June
30, 2020, substantially all 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 a claim as a result of these defaults. The Company is accruing interest on these convertible promissory
notes at default rates ranging between 12% and 24%.
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 June 30, 2020 and December 31, 2019, the Company determined that the fair value of these derivative liabilities totaled
$4,946,689 and $2,191,745, respectively.
The value of the derivative liabilities
was determined using the following Black-Scholes methodology:
|
|
June
30, 2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Expected
dividend yield (1)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free interest
rate (2)
|
|
|
0.2
|
%
|
|
|
1.6
– 2.6
|
%
|
Expected volatility
(3)
|
|
|
199.5
– 472.6
|
%
|
|
|
310.1
– 582.9
|
%
|
Expected life
(in years)
|
|
|
0.5
– 1.0
|
|
|
|
0.5
– 1.0
|
|
______________
(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.
|
At June 30,
2020, the number of shares of common stock underlying these convertible debentures totaled 35,656,806,878 shares.
NOTE 5
– STOCKHOLDERS’ EQUITY (DEFICIT)
Series
A Preferred Stock
The authorized
Series A preferred stock of the Company consists of 10,000,000 shares with a par value $0.00001. At June 30, 2020 and December
31, 2019, 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”. The share is convertible into
8.70% of the Company’s then outstanding common stock, but no less than 850,000,000 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.
On June 15,
2020, the Company issued 870,000,000 shares of common stock upon the conversion of the share of Series D preferred stock.
Series
E Preferred Stock
On September
17, 2019, the Company issued 12 shares of Series E convertible preferred stock to six stockholders in exchange for 361,813,930
shares of common stock. Each share of Series convertible preferred stock is convertible into 40,000,000 shares of common stock.
As a result, the Company recorded a charge of $24,000 for the net fair value of the consideration issued to the stockholders.
On May 12,
2020, the Company issued 8 shares of Series E preferred stock to Joe E. Poe, Jr., its chief executive officer, valued at $17,500
in accordance with terms of his employment agreement. Each share of Series convertible preferred stock is convertible into 40,000,000
shares of common stock.
Common
Stock
On June 16,
2020, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 9,000,000,000
common shares to 11,000,000,000 common shares with a par value $0.00001. At June 30, 2020 and December 31, 2019, the Company
had 9,508,186,067 and 8,638,186,067 shares of its common stock issued and outstanding.
On June 15,
2020, the Company issued 870,000,000 shares of common stock upon the conversion of one share of Series D preferred stock.
During the
six months ended June 30, 2019, the Company issued 190,000,000 shares of common stock in a private placement with an accredited
investor for proceeds of $38,000.
These issuances
were exempt from registration under rule 144.
NOTE 6
– INCOME TAXES
As of June
30, 2020, the Company had net operating loss carry forwards of approximately $17.0 million that may be available to reduce its
tax liability through tax year 2039. The Company estimates the benefits of this loss carry forward at $3.6 million 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 2019, due to current period losses and full valuation allowance on deferred tax assets.
For the three
months ended June 30, 2020 and 2019, a reconciliation of the federal statutory rate of 21% to the Company’s effective tax
rate is as follows:
|
|
Three
Months Ended
June 30, 2020
|
|
Three
Months Ended
June 30, 2019
|
Expected
expense (benefit) (21%)
|
|
$
|
(616,050
|
)
|
|
$
|
(501,346
|
)
|
State
income taxes, net of federal benefit
|
|
|
(139,051
|
)
|
|
|
(113,161
|
)
|
Income tax provision
(benefit)
|
|
|
(755,101
|
)
|
|
|
(614,507
|
)
|
Valuation
allowance
|
|
|
755,101
|
|
|
|
614,507
|
|
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 June 30, 2020 and December 31, 2019:
|
|
June
30, 2020
|
|
December
31, 2019
|
Deferred
tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net
operating loss carryover
|
|
$
|
3,577,870
|
|
|
$
|
2,961,820
|
|
Less:
valuation allowance
|
|
|
(3,577,870
|
)
|
|
|
(2,961,820
|
)
|
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 7
– FAIR VALUE MEASUREMENTS
The Company
has adopted the guidance under ASC 820, Fair Value Measurements, for financial instruments measured on a fair
value on a recurring basis. ASC 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, Measuring Liabilities
at Fair Value) under ASC 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,
2019:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted prices
in
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
for
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
12/31/2019
|
|
|
(Level
l)
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Convertible
promissory notes with embedded conversion option
|
|
$
|
2,191,745
|
|
|
—
|
|
—
|
|
|
|
$
|
2,191,745
|
|
Total
|
|
$
|
2,191,745
|
|
|
—
|
|
—
|
|
|
|
$
|
2,191,745
|
|
The following
table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of June 30, 2020:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted prices
in
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
for
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
06/30/2020
|
|
|
(Level
l)
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Convertible
promissory notes with embedded conversion option
|
|
$
|
4,946,689
|
|
|
—
|
|
—
|
|
|
|
$
|
4,946,689
|
|
Total
|
|
$
|
4,946,689
|
|
|
—
|
|
—
|
|
|
|
$
|
4,946,689
|
|
The following
table sets forth a summary of change in fair value of the Company’s derivative liabilities for the three months ended June
30, 2020:
Beginning balance, January
1, 2020
|
|
$
|
2,191,745
|
|
Change in fair value
of embedded conversion features of convertible promissory notes included in earnings
|
|
|
2,592,696
|
|
Embedded
conversion option liability recorded in connection with the issuance of convertible promissory notes
|
|
|
162,248
|
|
Ending balance,
June 30, 2020
|
|
$
|
4,946,689
|
|
NOTE
8 – COMMITMENTS AND CONTINGENCIES
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 June 30, 2020, the Company has accrued $17,500 in stock-based compensation expense
related to this provision.
On May 12,
2020, the Company issued 8 shares of Series E preferred stock to Joe E. Poe, Jr., its chief executive officer, valued at $17,500
in accordance with terms of his employment agreement. Each share of Series convertible preferred stock is convertible into 40,000,000
shares of common stock.
NOTE 9 – SUBSEQUENT EVENTS
In accordance
with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to June 30, 2020 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.