NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Fresh Harvest Products, Inc., a New Jersey corporation (the “Company”), is engaged in the software and mobile application development and video production businesses.
The Company previously operated as a natural and organic food products company before management decided to transition the Company’s line of business to capitalize on its relationships within the rapidly growing Software-as-a-Service (SaaS), enterprise software and mobile application markets.
During October 2012, the Company began integrating a digital plan and strategy which will shift the Company’s focus on expanding the online network and community, as well as an expansion of online services, with a focus on developing various SaaS models in the health, wellness, fitness, lifestyles of health and sustainability (LOHAS) and healthcare industries.
The Company expects to develop, license and acquire software applications that will generate revenue through subscription fees, in-app upgrades, purchases and advertising. The Company is currently working on several software applications including a calorie calculator and food comparison software solution so that consumers can be informed and compare what foods they are eating and be able to accurately calculate their daily calories per item, as well as compare foods with each other to learn and understand what the healthier options are. The Company is actively seeking strategic partners and acquisition targets in order to grow and expand.
NOTE 2. LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
The accompanying financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.
For the quarters ended July 31, 2014 and 2013, the Company reported a net income of $285,605 and net loss of $16,155, respectively.
As of July 31, 2014, the Company maintained total assets of $0, total liabilities including long-term debt of $2,683,837 along with an accumulated deficit of $9,902,005.
The Company believes that additional capital will be required to fund operations through the year ended October 31, 2014 and beyond, as it attempts to generate increasing revenue, and develop new products. The Company intends to attempt to raise capital through additional equity offerings and debt obligations. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying quarterly financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company’s insolvent financial condition also may create a risk that we may be forced to file for protection under applicable bankruptcy laws or state insolvency statutes. The Company also may face the risk that a receiver may be appointed. The Company may face additional risks resulting from our current financial condition. For these and other reasons, our management recognizes the adverse difficulties and continuing severe challenges we face. Apart from the limited funds that The Company has received there can be no assurance that the Company will receive any financing or funding from any source or if any financing should be obtained, that existing shareholders will not incur substantial, immediate, and permanent dilution of their existing investment.
The Company’s operations are subject to certain additional risks and uncertainties including, among others, dependence on outside suppliers and manufacturers, competition, dependence on its exclusive license and relationship with the licensor, uncertainties regarding patents and proprietary rights, dependence on key personnel, and other business risks. In addition, there is no assurance, assuming the Company is successful in raising additional capital that the Company will be successful in achieving profitability or positive cash flow.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the quarters ended July 31, 2014 and 2013.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in a non-interest bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of July 31, 2014 and October 31, 2013.
Net Loss Per Share Calculation
Basic net loss per common share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.
Revenue Recognition and Sales Incentives
Sales will be recognized when an online transaction is processed, which occurs when a user of one of the Company’s software products purchases the products online or in an app. Sales are reported net of sales incentives, which could include discounts and promotions.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
Advertising
Advertising is expensed when incurred. For the three month period ended July 31, 2014 and 2013, advertising expense was $0 and $0, respectively. For the nine month period ended July 31, 2014 and 2013, advertising expense was $0 and $0, respectively.
Fair value of financial instruments
Fresh Harvest’s financial instruments include cash and cash equivalents, accounts payable, accrued liabilities, and debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of the debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. Fresh Harvest’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
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 must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or 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 assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and interest, certain notes payable and notes payable – due to related parties, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 6).
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial feature.
Derivative financial instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company's stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
If the conversion feature within convertible debt meet the requirements to be treated as a derivative, Fresh Harvest estimates the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Share-based compensation
The Company accounts for common stock issued to employees, directors, and consultants in accordance with the provisions of the Accounting Standards Codification (ASC) 718 Stock Based Compensation. The compensation cost relating to share-based payment transactions will be recognized in the financial statements. The cost associated with common stock issued to employees, directors and consultants will be recognized, at fair value, on the date issued. Awards granted to non-employee consultants will be subsequently re-measured to current fair value until performance is completed or a performance commitment exists.
Recently Issued Accounting Pronouncements
As of and for the fiscal quarter ended July 31, 2014, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company evaluated subsequent events through the date of this report; the date the financial statements were available for issue.
NOTE 4. NOTES PAYABLE - RELATED PARTIES
As of July 31, 2014 and October 31, 2013 the Company had $32,312 in outstanding notes payable to related parties. As of July 31, 2014 and October 31, 2013, the Company had $5,896. And $3,231, respectively, in outstanding interest to related parties. The outstanding notes payable have one-year terms and 10% interest rates. The principal amount of the notes and accrued and unpaid interest is convertible into common shares of the Company upon the due date at $0.0001 per share, subject to adjustments.
NOTE 5. NOTES PAYABLE
The Company did not enter into any notes payable during the quarter ended July 31, 2014. As of July 31, 2014 and October 31, 2013, the notes payable were as follows:
Date of Note
Issuance
|
|
Original Principal Balance
|
|
|
Maturity
Date
|
|
Interest
Rate %
|
|
|
Conversion Rate
|
|
|
Principal
Balance
7/31/14
|
|
|
Principal
Balance
10/31/13
|
|
11/1/13
|
|
$
|
50,000
|
|
|
11/1/14
|
|
|
10
|
%
|
|
lesser $0.0003 or 50% discount to market
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
2/1/13
|
|
|
50,000
|
|
|
2/1/14
|
|
|
10
|
%
|
|
lesser $0.0015 or 50% discount to market
|
|
|
|
50,000
|
|
|
|
50,000
|
|
10/31/12
|
|
|
104,278
|
|
|
10/31/13
|
|
|
10
|
%
|
|
lesser $0.0015 or 50% discount to market
|
|
|
|
104,278
|
|
|
|
104,278
|
|
3/16/12
|
|
|
50,000
|
|
|
9/16/12
|
|
|
10
|
%
|
|
$
|
0.00200
|
|
|
|
60,000
|
|
|
|
60,000
|
|
2/14/12
|
|
|
14,900
|
|
|
2/14/13
|
|
|
10
|
%
|
|
$
|
0.00100
|
|
|
|
24,900
|
|
|
|
24,900
|
|
2/10/12
|
|
|
25,000
|
|
|
8/10/12
|
|
|
10
|
%
|
|
$
|
0.00119
|
|
|
|
25,000
|
|
|
|
25,000
|
|
1/26/12
|
|
|
40,000
|
|
|
7/26/12
|
|
|
10
|
%
|
|
$
|
0.00113
|
|
|
|
8,000
|
|
|
|
8,000
|
|
1/26/12
|
|
|
65,595
|
|
|
7/26/12
|
|
|
10
|
%
|
|
$
|
0.00113
|
|
|
|
27,595
|
|
|
|
27,595
|
|
10/18/11
|
|
|
1,900
|
|
|
10/18/11
|
|
|
8
|
%
|
|
no written agreement
|
|
|
|
6,900
|
|
|
|
6,900
|
|
10/11/11
|
|
|
2,500
|
|
|
4/11/12
|
|
|
12
|
%
|
|
$
|
0.00390
|
|
|
|
2,500
|
|
|
|
2,500
|
|
8/25/11
|
|
|
108,101
|
|
|
2/25/12
|
|
|
10
|
%
|
|
$
|
0.01000
|
|
|
|
2,631
|
|
|
|
2,631
|
|
10/3/10
|
|
|
20,000
|
|
|
10/3/12
|
|
|
10
|
%
|
|
lesser $0.01 or 20% discount to market
|
|
|
|
20,000
|
|
|
|
20,000
|
|
10/31/09
|
|
|
4,000
|
|
|
10/31/10
|
|
|
8
|
%
|
|
no written agreement
|
|
|
|
4,000
|
|
|
|
4,000
|
|
8/31/09
|
|
|
5,000
|
|
|
8/31/12
|
|
|
12
|
%
|
|
lesser $0.01 or 20% discount to market
|
|
|
|
5,000
|
|
|
|
5,000
|
|
8/26/09
|
|
|
20,000
|
|
|
8/26/12
|
|
|
12
|
%
|
|
lesser $0.01 or 20% discount to market
|
|
|
|
20,000
|
|
|
|
20,000
|
|
8/25/09
|
|
|
20,000
|
|
|
8/25/12
|
|
|
12
|
%
|
|
lesser $0.01 or 20% discount to market
|
|
|
|
20,000
|
|
|
|
20,000
|
|
2/26/07
|
|
|
30,000
|
|
|
2/26/09
|
|
|
12
|
%
|
|
lesser $0.50 or 35% discount to market
|
|
|
|
30,000
|
|
|
|
30,000
|
|
4/17/07
|
|
|
20,000
|
|
|
4/17/09
|
|
|
10
|
%
|
|
lesser $0.45 or 35% discount to market
|
|
|
|
20,000
|
|
|
|
20,000
|
|
6/14/07
|
|
|
15,000
|
|
|
6/15/09
|
|
|
10
|
%
|
|
lesser $0.50 or 25% discount to market
|
|
|
|
15,000
|
|
|
|
15,000
|
|
1/29/07
|
|
|
15,000
|
|
|
1/29/09
|
|
|
10
|
%
|
|
$
|
0.95000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
4/17/07
|
|
|
15,000
|
|
|
4/17/09
|
|
|
10
|
%
|
|
lesser $0.45 or 35% discount to market
|
|
|
|
15,000
|
|
|
|
15,000
|
|
12/23/06
|
|
|
18,000
|
|
|
12/23/08
|
|
|
10
|
%
|
|
$
|
0.95000
|
|
|
|
18,000
|
|
|
|
18,000
|
|
11/30/06
|
|
|
50,000
|
|
|
11/30/08
|
|
|
10
|
%
|
|
$
|
0.85000
|
|
|
|
50,000
|
|
|
|
50,000
|
|
9/16/06
|
|
|
100,000
|
|
|
9/9/08
|
|
|
12
|
%
|
|
35% discount to market
|
|
|
|
38,000
|
|
|
|
38,000
|
|
10/1/05
|
|
|
15,000
|
|
|
4/1/07
|
|
|
10
|
%
|
|
$
|
0.50000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
646,804
|
|
|
$
|
596,804
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,071
|
)
|
|
|
(31,071
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
615,733
|
|
|
$
|
565,733
|
|
The Company currently has a total of twenty-four convertible promissory notes that are in default and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders.
NOTE 6. Derivative LIABILITY
The following tables summarize the components of the Company’s derivative liabilities and linked common shares as of July 31, 2014 and October 31, 2013 and the amounts that were reflected in income related to derivatives for the quarter and year then ended:
|
|
July 31, 2014
|
|
|
|
Indexed
|
|
|
Fair
|
|
The financings giving rise to derivative financial instruments
|
|
Shares
|
|
|
Values
|
|
Compound embedded derivative
|
|
|
4,525,190,451
|
|
|
$
|
(174,594
|
)
|
|
|
October 31, 2013
|
|
|
|
Indexed
|
|
|
Fair
|
|
The financings giving rise to derivative financial instruments
|
|
Shares
|
|
|
Values
|
|
Compound embedded derivative
|
|
|
2,549,713,618
|
|
|
$
|
(435,515
|
)
|
The following tables summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the three months ended July 31, 2014 and 2013:
The financings giving rise to derivative financial instruments and the income effects:
|
|
Nine Months Ended
|
|
|
|
July 31, 2014
|
|
|
July 31, 2013
|
|
Compound embedded derivative
|
|
$
|
319,588
|
|
|
$
|
(150,207
|
)
|
Day one derivative loss
|
|
|
(8,667
|
)
|
|
|
(22,000
|
)
|
Total derivative gain (loss)
|
|
$
|
310,921
|
|
|
$
|
(172,207
|
)
|
The Company’s Convertible Notes gave rise to derivative financial instruments. The Notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.
Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from the Convertible Notes and classified in liabilities:
|
|
July 31, 2014
|
|
|
July 31, 2013
|
|
Quoted market price on valuation date
|
|
$
|
0.0002
|
|
|
$
|
0.0003
|
|
Contractual conversion rate
|
|
$
|
0.00010 - $0.00024
|
|
|
$
|
0.00011 - $0.00023
|
|
Range of effective contractual conversion rates
|
|
|
--
|
|
|
|
--
|
|
Contractual term to maturity
|
|
0.25 Years
|
|
|
1.00 Year
|
|
Market volatility:
|
|
|
|
|
|
|
|
|
Volatility
|
|
138.28% - 238.13
|
%
|
|
138.28% - 238.13
|
%
|
Contractual interest rate
|
|
5% - 12
|
%
|
|
5% - 12
|
%
|
The following table reflects the issuances of compound embedded derivatives and changes in fair value inputs and assumptions related to the compound embedded derivatives during the quarter ended July 31, 2014 and the year ended October 31, 2013.
|
|
July 31,
2014
|
|
|
October 31,
2013
|
|
Beginning balance
|
|
$
|
435,515
|
|
|
$
|
334,526
|
|
Issuances:
|
|
|
|
|
|
|
|
|
Convertible Note Financing
|
|
|
50,000
|
|
|
|
50,000
|
|
Changes in fair value inputs and assumptions reflected in income
|
|
|
(310,921
|
)
|
|
|
50,989
|
|
Ending balance
|
|
$
|
174,594
|
|
|
$
|
435,515
|
|
The fair value of the compound embedded derivative is significantly influenced by the Company’s trading market price, the price volatility in trading and the interest components of the Monte Carlo Simulation technique.
NOTE 7. STOCKHOLDERS’ EQUITY
Series A Preferred Stock
Certificate of Designations
On February 23, 2011, the Company filed a Certificate of Designations of Series A Convertible Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of New Jersey. The Certificate of Designations, subject to the requirements of New Jersey law, states the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”). In summary, the Certificate of Designations provides:
Number
5,000,000 shares of the Company’s Preferred Stock are designated as shares of Series A Convertible Preferred Stock.
Dividends
Any dividends (other than dividends on common stock payable solely in common stock or dividends on the Series A Preferred Stock payable solely in Series A Preferred Stock) declared or paid in any fiscal year will be declared or paid among the holders of the Series A Preferred Stock and common stock then outstanding in proportion to the greatest whole number of shares of common stock which would be held by each such holder if all shares of Series A Preferred Stock were converted into shares of common stock pursuant to the terms of the Certificate of Designations. The Company’s Board of Directors is under no obligation to declare dividends on the Series A Preferred Stock.
Conversion
Each share of Series A Preferred Stock is generally convertible into 100 shares of the Company’s common stock (the “Conversion Rate”).
Liquidation
In the event of any liquidation, dissolution or winding up of the Company, the assets of the Company legally available for distribution by the Company would be distributed with equal priority and pro rata among the holders of the Series A Preferred Stock and common stock in proportion to the number of shares of common stock held by them, with the shares of Series A Preferred Stock being treated for this purpose as if they had been converted to shares of common stock at the then applicable Conversion Rate.
Voting
On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock would be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Company’s Certificate of Incorporation, holders of Series A Preferred Stock vote together with the holders of common stock as a single class.
NOTE 8. PROVISION FOR CORPORATE INCOME TAXES
The Company provides for income taxes by the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. This also requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The valuation allowance at July 31, 2014 was $2,985,471. The net change in allowance during the quarter ended July 31, 2014 was $97,106.
As of July 31, 2014, the Company has federal net operating loss carry forwards of approximately $8,780,000 available to offset future taxable income through 2034. The Company may be able to utilize its NOLs to reduce future federal and state income tax liabilities. However, these NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carry-forwards are subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has not undergone an IRC Section 382 analysis, it is possible that the utilization of the NOLs could be substantially limited. The Company has no tax provision for the quarterly periods ended July 31, 2014 and 2013 due to losses and full valuation allowances against net deferred tax assets.
As of July 31, 2014, the difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to loss before income taxes is as follows (in percentages):
Statutory federal income tax rate
|
|
|
(34
|
)%
|
State taxes – net of federal benefits
|
|
|
(5
|
)%
|
Valuation allowance
|
|
|
39
|
%
|
Income tax rate – net
|
|
|
0
|
%
|
Fin 48 - Accounting for Uncertain Tax Positions
The Company files income tax returns in the U.S. federal jurisdiction and various state, and local jurisdictions. The Company is no longer subject to U.S. federal income tax examination by tax authorities for the years prior to October 31, 2005. With respect to state and local jurisdictions, with limited exception, the Company and or its subsidiaries are no longer subject to income tax audits prior to October 31, 2005. In the normal course of business, the Company is subject to examination by various taxing authorities. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that may result from these open tax years.
Based on management’s review of the Company’s tax position, the Company and subsidiaries had no significant unrecognized corporate tax liabilities as of July 31, 2014 and 2013 payable to the Internal Revenue Service due to the net operating loss carry-forward, however, the Company had yet to file its 2005 through 2009 Federal, New Jersey nor New York Corporate Income Tax Returns.
NOTE 9. UNPAID PAYROLL TAXES
As of July 31, 2014, the Company owed the Internal Revenue Service and New York State payroll related taxes in the amounts of $135,875 and $30,084, respectively, plus applicable interest and penalties. The total amount due to both taxing authorities including penalties and interest was $165,959 as of July 31, 2014 and October 31, 2013, subject to further penalties and interest plus accruals on unpaid wages.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Rent
As of July 31, 2014, the Company maintains its office in New York, New York. There is a month-to-month office lease. The rent is approximately $1,050 per month for the current office location. The Company rents its office space from the father of the Company’s President and Chief Executive Officer.
For the three month period ended July 31, 2014 and 2013, rent expense was $3,150 and is included within general and administrative expenses on the statement of operations. For the nine month period ended July 31, 2014 and 2013, rent expense was $9,450 and is included within general and administrative expenses on the statement of operations.
As of July 31, 2014 and October 31, 2013, the total amount owed to related party was $46,100 and $36,650, including $30,250 and $17,450, respectively, for accumulated rent.
IRS Tax Lien
The Internal Revenue Service has placed a federal tax lien on all of the assets of the Company.
NOTE 11 SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and disclosure through January 29, 2021, the date the financial statements were available to be issued, and determined that there were no such events requiring adjustment to, or disclosure in, the accompanying financial statements, other than included below:
Change of Domicile
On November 3, 2017 the Company changed its domicile from New Jersey to Delaware and authorized shares to 20 Billion shares of common stock, par value, $0.000001 per share, and 500 Million shares of Series A Preferred Stock, par value, $0.000001 per share, and 500 Million Shares of Series B Preferred Stock, par value, $0.000001 per share. Each share of Series A and Series B Preferred Stock is convertible into 100 shares of the Company’s common stock.
Release of Federal Tax Liens
Between the period of May 2016 and April 2018 federal tax liens in the amount of $103,156 were released.
D&E Agreements – Convertible Promissory Notes and Put Option Agreement
On May 5, 2020, the Company entered into 4 agreements with D&E Holdings 20, LLC (“D&E”). The Agreements were: Convertible Promissory Note for $50,000 (the note has a 6-month term, a 10% interest rate and a conversion price of $0.0001), a Stock Purchase Agreement, a Note Purchase Agreement and a Put Option Agreement. The Put Option Agreement describes a transaction where, once D&E loans the Company a total of $100,000, then D&E may, at its sole discretion, exercise their Put Option to merge their real estate asset (a laboratory space consisting of between 30, 000 and 40,000 sq ft within the Former MetroSouth Medical Center Campus Illinois) with the Company. Upon D&E exercising the Put Option, D&E shall be issued a total of 83% of all of the outstanding shares of stock of the Company.
Increase of Authorized Common and Preferred Shares
On December 21, 2020, the Company increased its authorized shares to 1 Trillion shares of common stock, par value, $0.000001 per share, and 5 Billion shares of Series A Preferred Stock, par value, $0.000001 per share, and 5 Billion Shares of Series B Preferred Stock, par value, $0.000001 per share. Each share of Series A and Series B Preferred Stock is convertible into 100 shares of the Company’s common stock.
On December 31, 2020 the Company issued 1,050,000,000 common shares for services rendered to the Company. On December 31, 2020 five (5) Noteholders, including the Company’s Board of Director Members, converted a total of $1,965,460 of convertible promissory notes into 40,702,104,817 common shares of the Company. The Company’s two Board of Director Members converted a total of $1,644,825 of convertible promissory notes into a total of 34,267,187,500 common shares. The Company’s Board of Director Members control approximately 87.32% of the voting rights of the Company. The 3 (three) Noteholders converted a total of $325,666 of convertible promissory notes into a total of 6,439,917,317 common shares.