NOTES
TO THE FINANCIAL STATEMENTS
December
31, 2020
Note
1 Nature and Continuance of Operations
The
Company was incorporated on June 15, 1998 in the State of Nevada, USA and the Company’s common shares are publicly traded
on the OTC Markets OTCQB.
Up
until fiscal 2014, the Company was in the business of mineral exploration. On May 28, 2014, the Company formalized an agreement
whereby it purchased assets associated with a smokeless cannabis delivery system. The Company planned to develop this system for
commercial purposes. On December 14, 2014, this asset purchase agreement was terminated.
On
September 16, 2016, the Company entered into an exclusive distribution product license agreement with Tuffy Packs, LLC to distribute
products into the United Kingdom and 43 other essentially European countries. The Company Soled ballistic panels which are personal
body armors, that conform to the National Institute of Justice (NIJ) Level IIIA threat requirements. The Company’s plan
of operations and sales strategy included online and social media marketing, as well as attending various tradeshows and conferences.
As the Company failed to make specified payments as required, the agreement was amended to a non-exclusive basis.
On
July 17, 2020, the Company entered into an acquisition agreement to acquire the Casa Zeta-Jones Brand License Agreement from Luxurie
Legs, LLC of Delaware (“Luxurie”). Luxurie transferred all its rights, title and interest in the License Agreement
to the Company in exchange for the Company’s newly issued preferred convertible Series A stock. Upon conversion, the stock
could control up to 95% of the outstanding common shares. The agreement also required voting control, represented by newly issued
shares of super voting preferred Series B stock.
On
September 28, 2020, the Company entered into a share exchange agreement to acquire 51% interest of Posto Del Sole Inc., a jewelry
designer company to further develop the Company’s existing brands and create new designer labels. The title and rights will
be transferred when all the terms and conditions in the Securities Exchange Agreement are met. At December 31, 2020, the share
exchange had not closed and advances made to Posto Del Sole Inc. were expensed.
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 twelve months. 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, 2020, the Company had not yet achieved profitable operations, had a working capital deficit
$533,548, had accumulated losses of $1,484,442 since its inception and expects to incur further losses in the development
of its business, all of which casts 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. Subsequent to the year-end, the Company entered into a number of agreements that provide financing in amounts greater than
$16.5 million. That said, there is no assurance that the businesses being funded by this additional debt will ultimately be successful.
Note
2 Summary of Significant Accounting Policies
a)
Year end
The
Company has elected a December 31st fiscal year end.
b)
Cash and cash equivalents
The
Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
As at December 31, 2020, the Company did not have any cash equivalents. (2019 – $nil).
c)
Revenue Recognition
In
May 2014, the FASB issued guidance on the recognition of Revenue from Contracts with Customers. The core principle of the guidance
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration which the company expects to receive in exchange for those goods or services. To achieve this core
principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance
addresses several areas including transfer of control, contracts with multiple performance obligations, and costs to obtain and
fulfill contracts. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract.
The
Company adopted the ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective
method. Revenues for the year ended December 31, 2020 were not adjusted. The adoption of Topic 606 did not have a material impact
to the Company’s financial statements. Revenue from contracts with customers is generated primarily from selling products
online. The customer orders and pays for the products through an online portal. Once the payment goes through, a purchase order
is generated and submitted to the supplier. When the supplier ships the products to the customer, revenue is then recognized when
the performance obligation is completed.
The
Company recognizes revenue when a contract is in place, goods or services are delivered to the purchaser and collectability is
reasonably assured.
d)
Basic and Diluted Net Loss per Share
The
Company reports basic loss per share in accordance FASB ASC Topic 260, “Earnings per share”. Basic net income
(loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per share on the potential exercise of the equity-based
financial instruments is not presented where anti-dilutive.
e)
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 amounts reported in the financial statements and accompanying
disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company
may undertake in the future, actual results may ultimately differ from the estimates. Management believes such estimates to be
reasonable.
f)
Fair Value Measurements
The
Company follows FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, for all financial instruments
and non-financial instruments accounted for at fair value on a recurring basis. This accounting standard establishes a single
definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurement and expands disclosures about fair value measurements required under other
accounting pronouncements The Company defines fair value as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal
or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market
participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. The Company
has adopted FASB ASC 825, “Financial Instruments”, which allows companies to choose to measure eligible financial
instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected
the fair value option for any eligible financial instruments.
The
carrying value of the Company’s financial instruments including cash, accounts payable and accrued liabilities, license
fee payable, demand notes and interest payable and convertible notes payable approximate their fair value due to the short maturities
of these financial instruments.
g)
Income Taxes
The
Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements
or tax returns. In estimating future tax consequences, all expected future events other than enactment of changes in the tax laws
or rates are considered.
Due
to the uncertainty regarding the Company’s future profitability, the future tax benefits of its losses have been fully reserved.
h)
Intangible Assets
Intangible
assets are non-monetary identifiable assets, controlled by the Company that will produce future economic benefits, based on reasonable
and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet
these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially
measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those
with a indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible
asset subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if applicable,
unscheduled amortization is considered.
License
agreements have been capitalized, recorded at cost and amortized over the life of the contracts. Website costs have been capitalized
and will be subject to amortization once the website is operational. They will be amortized over the life of the license
to which it supports.
i)
Recent Accounting Standards
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”.
This new guidance includes several provisions to simplify the accounting for income taxes. The standard removes certain exceptions
for recognizing deferred taxes for investments, performing intraperiod allocation, and calculating income taxes in interim periods.
This standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.
Early adoption of this standard is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s
financial statements.
In
August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40),
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”.
This new guidance requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract
to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or
expense as incurred. Also, capitalized implementation costs related to a hosting arrangement that is a service contract will be
amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready
for its intended use. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within
those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current
expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments
held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces
the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final
ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of
the adoption of this ASU on its financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance:
ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). As the Company has no leases, this pronouncement
did not affect the Company’s financial statements.
The
Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued,
which may be in advance of their effective date. Management does not believe that any pronouncement not yet effective but recently
issued would, if adopted, have a material effect on the accompanying financial statements.
Note
3 Intangible assets
Intangible
assets are amortized on a straight-line basis over the terms of the license agreements.
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Tuffy
Packs, LLC License
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
Website
for Casa-Zeta Jones Brand
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
10,000
|
|
|
Casa
Zeta-Jones Brand License
|
|
$
|
488,094
|
|
|
$
|
64,687
|
|
|
$
|
423,407
|
|
|
|
|
$
|
548,094
|
|
|
$
|
94,687
|
|
|
$
|
433,407
|
|
Note
4 License Agreements
|
|
A.
|
The
Company entered into an exclusive product license agreement on September 16, 2016 with Tuffy Packs, LLC, a Texas corporation,
to sell Ballistic Panels in certain countries, essentially in Europe. The license was for a period of two years and may be
renewed for successive terms of two years each. The payment terms for the license was as follows:
|
|
|
1.
|
$10,000
payable within seven days after the effective date;
|
|
|
2.
|
An
additional $15,000 payable within 30 days after the effective date; and
|
|
|
3.
|
A
final payment of $25,000 payable within 90 days of the effective date.
|
At
December 31, 2018, the Company had paid $16,500 to the Licensor, leaving an unpaid balance of $33,500. To date, the Company has
recorded a total license amortization of $50,000, which fully amortizes the license.
As
a result of the failure to make payments as required under the agreement, the Company was informed on March 20, 2017, that going
forward, the agreement would be on a non-exclusive basis.
|
|
B.
|
On
July 17, 2020, the Company entered into an acquisition
agreement with Luxurie Legs, LLC, a Delaware corporation, to acquire the Casa Zeta-Jones Brand license agreement. The license
agreement, as amended, grants the Company the worldwide rights to promote and sell certain products, and license the rights
to manufacture, promote and sell such products under the brand Casa Zeta-Jones and more. The license agreement purchase
included the issuance of 92,999 Series A 3% Convertible Preferred Series A shares valued at $343,094, 10,000 Preferred
Series B voting shares valued at $nil, the assumption of $45,000 in debt and costs incurred of $100,000.
|
The
values were based on the licensor obtaining 95% of the Company’s common shares, whose value was discounted by a 50% factor,
given the lightly traded history in its shares.
The
Company is subject to the following terms:
|
|
a.
|
A
3.5 year term as follows:
|
|
|
i.
|
Year
1: execution – December 31, 2021
|
|
|
ii.
|
Year
2: January 1, 2022 – December 31, 2022
|
|
|
iii.
|
Year
3: January 1, 2023 – December 31, 2023
|
|
|
b.
|
Marketing
date November 2020, On Shelf Date February 15, 2021.
|
|
|
|
|
|
|
c.
|
Royalty
payments with a rate of 8%, net of sales, subject to guaranteed minimums noted below.
|
|
|
|
|
|
|
d.
|
Advance
prepayment of $150,000 to be applied against royalties, paid as follows:
|
|
|
i.
|
$50,000
upon signing (paid)
|
|
|
ii.
|
$50,000
on July 20, 2020 (paid)
|
|
|
iii.
|
$50,000
on September 1, 2020 (paid)
|
|
|
e.
|
Guaranteed
minimum sales and guaranteed minimum royalties:
|
|
Year
|
|
Guaranteed
Minimum Royalties
|
|
|
Guaranteed
Minimum Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
i.
|
|
7/17/20
– 12/31/21
|
|
$
|
250,000
|
|
|
$
|
3,200,000
|
|
|
ii.
|
|
1/1/22 –
12/31/22
|
|
$
|
250,000
|
|
|
$
|
3,200,000
|
|
|
iii.
|
|
1/1/23 –
12/31/23
|
|
$
|
250,000
|
|
|
$
|
3,200,000
|
|
|
|
f.
|
The
Company to provide the Licensor with 50 gift sets of Licensed Products annually.
|
Note
5 Securities Exchange Agreement
The
Company entered into a Securities Exchange Agreement on September 25, 2020 with Posto Del Sole Inc. (“PDS”) a New
York corporation, to acquire 51% of the shares of PDS and in return, the Company will issue 10,000 Preferred Series C shares.
(See Note 11). As part of the agreement, the Company is to provide monthly investments to a total aggregate of $1,000,000 during
the twelve-month period following the closing. PDS has 60 days from closing to provide the necessary financial statements and
notes in order to satisfy regulatory requirements and disclosures. As at December 31, 2020 PDS had not provided any such information,
the Securities Exchange Agreement had not closed and as a result, the Company wrote off advances of $165,000 that were made to
PDS in anticipation of closing.
Note
6 Prepaid Expenses
The
Company has the following in prepaid expenses:
|
|
|
December
31, 2020
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
Advances
for service fees
|
|
$
|
3,000
|
|
|
$
|
5,178
|
|
|
Advance
for legal fees
|
|
|
7,500
|
|
|
|
-
|
|
|
Advances
for management fees
|
|
|
20,000
|
|
|
|
-
|
|
|
Advance
for royalties
|
|
|
37,218
|
|
|
|
-
|
|
|
|
|
$
|
67,718
|
|
|
$
|
5,178
|
|
|
|
|
|
|
|
|
|
|
|
Note
7 Note Payable
The
Company has one note payable that is accruing interest at 5% per annum. The note is unsecured and matures on June 30, 2021.
|
|
|
December
31, 2020
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
Note
payable bearing interest at 5%
|
|
$
|
20,000
|
|
|
$
|
-
|
|
|
Accrued
interest thereon
|
|
|
486
|
|
|
|
-
|
|
|
|
|
$
|
20,486
|
|
|
$
|
-
|
|
Note
8 Convertible Notes and Accrued Interest Payable
A
summary of the convertible notes and accrued interest payable is as follow:
|
Face
Value
|
|
|
Conversion
Rate
|
|
Interest
rate
|
|
|
Due
Date
|
|
|
Accrued
Interest
|
|
|
Carrying
Value
|
|
|
Dec
31
2020
Total
|
|
|
Dec
31
2019
Total
|
|
|
$
|
10,000
|
|
|
$
|
0.005
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
500
|
|
|
$
|
500
|
|
|
$10,000
|
(a)
|
|
$
|
85,000
|
|
|
$
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,800
|
|
|
|
50,800
|
|
|
85,000
|
(b)
|
|
$
|
50,000
|
|
|
$
|
0.01
|
|
|
|
10
|
%
|
|
|
05/01/2022
|
|
|
|
2,500
|
|
|
|
50,000
|
|
|
|
52,500
|
|
|
-
|
(c)
|
|
$
|
5,000
|
|
|
$
|
0.01
|
|
|
|
10
|
%
|
|
|
05/01/2022
|
|
|
|
259
|
|
|
|
5,000
|
|
|
|
5,259
|
|
|
-
|
(d)
|
|
$
|
12,500
|
|
|
$
|
0.01
|
|
|
|
10
|
%
|
|
|
6/23/2021
|
|
|
|
457
|
|
|
|
7,500
|
|
|
|
7,957
|
|
|
-
|
(d)
|
|
$
|
20,000
|
|
|
$
|
0.04
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
20,000
|
|
|
$
|
68,490
|
|
|
$
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,490
|
|
|
|
68,490
|
|
|
48,490
|
(e)
|
|
$
|
25,000
|
|
|
$
|
0.05
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
19,682
|
|
|
|
25,000
|
|
|
|
44,682
|
|
|
41,690
|
(f)
|
|
$
|
25,000
|
|
|
$
|
0.05
|
|
|
|
8
|
%
|
|
|
-
|
|
|
|
31,797
|
|
|
|
25,000
|
|
|
|
56,797
|
|
|
54,797
|
(f)
|
|
$
|
23,438
|
|
|
$
|
0.05
|
|
|
|
5
|
%
|
|
|
-
|
|
|
|
16,113
|
|
|
|
23,438
|
|
|
|
39,551
|
|
|
37,789
|
(f)
|
|
$
|
649,000
|
|
|
$
|
0.05
|
|
|
|
10
|
%
|
|
|
Various
|
|
|
|
13,931
|
|
|
|
140,513
|
|
|
|
154,444
|
|
|
-
|
(g)
|
|
$
|
75,000
|
|
|
$
|
|
|
|
|
10
|
%
|
|
|
Various
|
|
|
|
911
|
|
|
|
50,860
|
|
|
|
51,771
|
|
|
-
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
85,650
|
|
|
$
|
467,101
|
|
|
$
|
552,751
|
|
|
$297,766
|
|
|
|
|
|
|
Less
long-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,759
|
|
|
-
|
|
|
|
|
|
|
Current
portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
494,992
|
|
|
$297,766
|
|
All
notes are unsecured and, except where specifically noted, are due on demand. Except for notes denoted below under (e), all accrued
interest occurred in the twelve months ended December 31, 2020. No conversion shall result in the Holder holding in excess of
9.99% of the total issued and outstanding common stock of the Company at any time.
|
|
(a)
|
On
October 28, 2020, $9,500 was converted into 1,900,000 common shares.
|
|
|
(b)
|
On
July 23, 2020, $16,900 in debt and $950 in costs were converted into 1,785,000
common shares and on November 2, 2020, $17,300 was converted into 1,730,000 common
shares.
|
|
|
(c)
|
The
notes are convertible into common stock at the discretion of the Holder at the lesser of $0.01 or 50% of the lowest closing
bid price for the Company’s stock during the 20 immediately preceding the date of delivery by Holder to the Company
of the Conversion Notice.
|
|
|
(d)
|
The
notes are convertible into common stock at the discretion of the Holder at 50% of the lowest closing bid price for the Company’s
common stock during the 30 trading days immediately preceding the date of delivery by Holder to the Company of the Conversion
Notice.
|
|
|
(e)
|
Included
in this debt is $490 due to the former CEO.
|
|
|
(f)
|
On
April 2, 2020, these notes terms were changed from non-convertible to convertible at $0.05 debt to 1 common share. They were
also amended to include the above noted clause with respect to holding less than 9.99% of the issued and outstanding common
stock. During the year ended December 31, 2020, interest accrued on this debt was $6,164 (2019 - $6,146). For comparative
purposes, these amounts previously shown as debt payable as at December 31, 2019, have been reclassified as convertible debt.
|
|
|
(g)
|
Based
on the intrinsic value of the beneficial conversion feature, as per FASB topic ASC 470-20 Debt with Conversion and other
Options, it was determined that all of the value of the following notes issued during the year ended December 31, 2020
should be allocated to equity and amortized to interest, based on the due date of the debt. A summary of the balances is as
follows:
|
|
Allocated
to
|
|
|
|
|
Amortized
|
|
|
Accrued
|
|
|
|
|
|
Equity
|
|
|
Due
Date
|
|
as
interest
|
|
|
at
10%
|
|
|
Total
|
|
|
$
|
30,000
|
|
|
03-31-2021
|
|
$
|
18,651
|
|
|
$
|
1,258
|
|
|
$
|
19,909
|
|
|
|
100,000
|
|
|
07-20-2021
|
|
|
43,752
|
|
|
|
4,493
|
|
|
|
48,245
|
|
|
|
60,000
|
|
|
08-31-2021
|
|
|
20,232
|
|
|
|
2,121
|
|
|
|
22,353
|
|
|
|
20,000
|
|
|
09-30-2021
|
|
|
5,344
|
|
|
|
570
|
|
|
|
5,914
|
|
|
|
60,000
|
|
|
10-31-2021
|
|
|
11,826
|
|
|
|
1,282
|
|
|
|
13,108
|
|
|
|
50,000
|
|
|
10-31-2021
|
|
|
8,582
|
|
|
|
890
|
|
|
|
9,472
|
|
|
|
50,000
|
|
|
10-31-2021
|
|
|
8,582
|
|
|
|
890
|
|
|
|
9,472
|
|
|
|
10,000
|
|
|
11-04-2021
|
|
|
1,474
|
|
|
|
153
|
|
|
|
1,627
|
|
|
|
110,000
|
|
|
11-18-2021
|
|
|
12,354
|
|
|
|
1,266
|
|
|
|
13,620
|
|
|
|
55,000
|
|
|
11-19-2021
|
|
|
6,160
|
|
|
|
633
|
|
|
|
6,793
|
|
|
|
27,000
|
|
|
12-31-2021
|
|
|
1,336
|
|
|
|
148
|
|
|
|
1,484
|
|
|
|
27,000
|
|
|
12-31-2021
|
|
|
1,336
|
|
|
|
148
|
|
|
|
1,484
|
|
|
|
20,000
|
|
|
12-31-2021
|
|
|
696
|
|
|
|
71
|
|
|
|
767
|
|
|
|
30,000
|
|
|
12-31-2021
|
|
|
188
|
|
|
|
8
|
|
|
|
196
|
|
|
$
|
649,000
|
|
|
|
|
$
|
140,513
|
|
|
$
|
13,931
|
|
|
$
|
154,444
|
|
|
|
(h)
|
Based
on the intrinsic value of the beneficial conversion feature, as per FASB topic ASC 470-20 Debt with Conversion and other
Options, it was determined that a portion of the value of the following notes issued during the year ended December 31,
2020 should be allocated to equity and amortized to interest, based on the due date of the debt. These notes are convertible
into common stock at the discretion of the Holder at 70% of the lowest closing bid price for the Company’s common stock
during the 20 trading days immediately preceding the date of delivery by Holder to the Company of the Conversion Notice. The
face value of each note is $25,000 and a summary of the balances is as follows:
|
|
Allocated
to equity
|
|
|
Due
date
|
|
Amortized
as
Interest
|
|
|
Accrued
Interest
at
10%
|
|
|
Total
|
|
|
$
|
10,714
|
|
|
07-31-2021
|
|
$
|
2,772
|
|
|
$
|
514
|
|
|
$
|
17,572
|
|
|
|
10,714
|
|
|
08-31-2021
|
|
|
1,618
|
|
|
|
301
|
|
|
|
16,205
|
|
|
|
7,468
|
|
|
09-30-2021
|
|
|
366
|
|
|
|
96
|
|
|
|
17,994
|
|
|
$
|
28,896
|
|
|
|
|
$
|
4,756
|
|
|
$
|
911
|
|
|
$
|
51,771
|
|
Note
9 Related Party
On
September 28, 2020, the Company entered into a renewable employment agreement with the President and CEO of the Company as described
in Note 12, Commitments.
The
President and CEO of the Company currently holds 100 Series B Preferred Super Voting shares which he is entitled to 51% voting
rights no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future,
such that he shall always have majority voting control of the Company.
Note
10 Common Stock
The
following common stock transactions occurred during the year ended December 31, 2020:
On
July 23, 2020, the Company issued 1,785,000 shares of common stock pursuant to the conversion of a note payable of $16,900 at
$0.01 per share plus legal fees of $950, totaling $17,850.
On
October 28, 2020, the Company issued 1,900,000 shares of common stock pursuant to the conversion of a note payable of $9,500 at
$0.005 per share.
On
November 2, 2020, the Company issued 1,730,000 shares of common stock pursuant the conversion of a note payable of $17,300 at
$0.01 per share.
The
following common stock transactions occurred in the year ended December 31, 2019:
On
March 25, 2019, the Company completed a private placement of 600,000 shares of common stock at a per share price of $0.05 for
gross proceeds of $30,000. This was issued during the period ended December 31, 2019.
On
February 14, 2019, the Company completed a private placement of 400,000 shares of common stock at a per share price of $0.05 for
gross proceeds of $20,000. This was issued during the period ended December 31, 2019.
There
are no shares subject to warrants or options as of December 31, 2020.
Note
11 Preferred Shares
Series
A 3% Convertible Preferred Stock, par value $0.001 with a stated valued of $100 per share
There
are 100,000 designated and authorized Series A 3% convertible preferred stock with a 9.99% conversion cap and anti-dilution rights
for 24 months from time of issuance. Holders of Series A 3% Preferred Stock shall be entitled to receive, when and as declared,
dividends equal to 3% per annum on the stated value, payable in additional shares of Series A Preferred Stock. Holders of Series
A 3% Convertible Preferred Stock have the right to vote on any matter that may be submitted to the Company’s shareholders
for vote, on an as converted basis, either by written consent or by proxy. Each share of Series A 3% Convertible Preferred Stock
may be convertible into 3420 shares of Common Stock, or as adjusted to equal the conversion ratio multiplied by a fraction, the
numerator of which shall be the number of shares outstanding on a fully diluted basis after the issuance of the dilution shares,
and the denominator shall be 360,000,000. (See Form 8K filing on August 6, 2020, Exhibit 10.3)
On
July 17, 2020, 92,999 Series A 3% Convertible Preferred Stock were issued pursuant to the License Agreement at a value of $343,094
The acquisition cost was derived using the current market price of $0.04 x 95% of the number of the issued and outstanding shares
of the Company at the time (18,057,565) x 50% of the value. (See Note 4).
As
at December 31, 2020, there were unpaid and accrued dividends of $703.
Series
B Super Voting Preferred Stock, par value $0.001
There
are 100 designated and authorized Series B Super Voting Preferred Stock. Holders with Series B Super Voting Preferred Stock have
the right to vote on all shareholder matters equal to 51% of the total vote of common stockholders. The Series B Super Voting
Preferred Stockholder is entitled to 51% voting rights no matter how many shares of common stock or other voting stock of the
Company are issued or outstanding in the future, such that the holder of Series B Super Voting Preferred Stock shall always have
majority control of the Company.
On
July 17, 2020, 100 Series B Super Voting Preferred Stock were issued pursuant to the License Agreement. The Series B Super Voting
Preferred Stock was valued at par at $Nil. Although the Series B Super Voting Preferred Stock is entitled to 51% voting rights
as described above, the stock has no dividend rate nor a conversion feature. Furthermore, the shares were not issued to the investors
but rather were granted to new unrelated management.
Series
C 2% Convertible Preferred Stock, par value $0.001 with a stated value of $100 per share
There
are 10,000 designated and authorized Series C 2% convertible preferred stock with a 9.99% conversion cap. Holders of Series C
2% Preferred Stock shall be entitled to receive, when and as declared, dividends equal to 2% per annum on the stated value, payable
in additional shares of Series C Preferred Stock. So long as any shares of Series C Preferred Stock remain outstanding, neither
the Company nor any subsidiary thereof shall, without the consent of the Holders of 80% of the shares of Series C Preferred Stock
then outstanding, redeem, repurchase or otherwise acquire directly or indirectly any Junior Securities nor shall the Company directly
or indirectly pay or declare or make any distribution upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption of any Junior Securities. Each holder of the Series
C Preferred Stock shall have the right to vote on any matter that may from time to time be submitted to the Company’s shareholders
for a vote, on an as converted basis, either by written consent or by proxy. Each share of Series C 2% Convertible Preferred Stock
may be convertible into 100 shares of Common Stock. (See Note 5)
As
at December 31, 2020, no Series C Convertible Preferred shares were issued.
Note
12 Commitments
The
Company entered into a one-year employment agreement with Jeffrey Canouse on September 28, 2020 as President and Chief Executive
Officer. The term may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial
employment term. The employment may be terminated by death or disability, terminated with or without cause or terminated by the
employee. If the employee is terminated by the Company without cause or by the employee for good reason, then the Company will
continue to pay his base salary of $8,000 for the remainder of the employment term or renewal term. Beginning on the first anniversary
date of the initial salary increase and continue on each anniversary of the increase date, the base salary shall be increased
by an amount not less than 5% times the base salary in effect, plus any additional amount as determined by the Company’s
Board of Directors. As of December 31, 2020, Canouse had received $34,000 in management fees, $24,000 of which was pursuant to
the employment agreement.
The
Company entered into a one-year employment agreement with Walter Hoelzel on September 29, 2020 as Chief Marketing Officer. The
term may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment
term. The employment may be terminated by death or disability, terminated with or without cause or terminated by the employee.
If the employee is terminated by the Company without cause or by the employee for good reason, then the Company will continue
to pay his base salary of $5,000 for the remainder of the employment term or renewal term. As of December 31, 2020, Hoelzel had
received $25,000 in consulting fees, $15,000 of which were pursuant to the employment agreement.
The
Company entered into a one-year employment agreement with Stuart Sher on September 29, 2020 as Chief Creative Officer. The term
may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment term.
The employment may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the
employee is terminated by the Company without cause or by the employee for good reason, then the Company shall continue to pay
his base salary for the remainder of the employment term or renewal term. As of December 31, 2020, Sher had received $25,000 in
consulting fees, $15,000 of which were pursuant to the employment agreement.
The
Company entered into a consulting agreement with Virtue Development Company on September 29, 2020 for project consultancy. The
consulting agreement is for 6 months with 6 months renewal options at the beginning of the 5th month. The monthly compensation
is $4,250 and as at December 31, 2020, the Company had paid $12,750 in fees pursuant to this agreement.
The
Company entered into a consulting agreement with Oscaleta Partners LLC on November 1, 2020 as project manager. The consulting
agreement may be terminated by either party at the end of the initial 6 months term by giving 30 days written notice to the other
party or at any time with cause. The monthly compensation is $25,000 and as of December 31, 2020, the Company incurred $75,000
in consulting fees.
The
Company entered into a one-year consulting agreement with Bernt Ullmann on November 23, 2020 to provide market exposure services.
The monthly compensation is $5,000 per month and as of December 31, 2020, the Company incurred $5,000 fees.
Note
13 Income Taxes
Income
tax recovery differs from that which would be expected from applying the effective tax rates to the net income (loss) as follows:
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net
loss for the year
|
|
$
|
(910,163
|
)
|
|
$
|
(42,263
|
)
|
|
Statutory
and effective tax rates
|
|
|
21.0
|
%
|
|
|
27.0
|
%
|
|
Income
taxes expenses (recovery) at the effective rate
|
|
$
|
(191,134
|
)
|
|
$
|
(11,406
|
)
|
|
Effect
of change in tax rates
|
|
|
26,276
|
|
|
|
-
|
|
|
Permanent
differences
|
|
|
44,681
|
|
|
|
-
|
|
|
Tax
benefit not recognized
|
|
|
120,177
|
|
|
|
11,406
|
|
|
Income
tax expense (recovery) and income tax liability (asset)
|
|
$
|
-
|
|
|
$
|
-
|
|
As
at December 31, 2020 the tax effect of the temporary timing differences that give rise to significant components of deferred income
tax asset are noted below. A valuation allowance has been recorded as management believes it is more likely than not that the
deferred income tax asset will not be realized.
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Tax
loss carried forward
|
|
$
|
1,135,000
|
|
|
$
|
437,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
238,421
|
|
|
|
118,244
|
|
|
Valuation
allowance
|
|
|
(238,421
|
)
|
|
|
(118,244
|
)
|
|
Deferred
taxes recognized
|
|
$
|
-
|
|
|
$
|
-
|
|
Tax
losses of $438,000 will expire between 2028 and 2039. Tax losses of $697,000 have no expiry date.
Note
14 Subsequent Events
Subsequent
to December 31, 2020, the Company issued convertible notes payable totaling $35,000, convertible at $0.05 with a rate of 10% per
annum that matures on January 31, 2022.
On
February 16, 2021, the Company entered into a Share Exchange Agreement with Sovryn Holdings, Inc. to exchange 100% of the outstanding
common shares of Sovryn Holdings, Inc. for i) 100 shares of Series B Preferred Stock of the Company to be transferred by Jeffrey
Canouse, the Company’s CEO to a designee of Sovryn and ii) 1,000 shares of Series E Convertible Preferred Stock. Upon the
effectiveness of an amendment to the Company’s Articles of Incorporation to increase the Company’s authorized common
stock, from par value $0.001 to par value $0.0001 per share, from 500,000,000 shares to 7,000,000,000 shares, all shares of Series
E Convertible Preferred Stock issued to the shareholders shall automatically convert into approximately 2,305,000,000 shares of
common stock of the Company. The Series E Convertible Preferred Stock votes on an as-converted basis with the common stock prior
to their conversion. The Series E Preferred Stock shall represent approximately 59% of the fully diluted shares of common stock
of the Company after the closing of the transactions contemplated by the Securities Purchase Agreement.
Prior
to the closing of the Share Exchange Agreement with Sovryn Holdings, Inc., the Holders of the outstanding convertible notes payable
of $764,000 will exchange their convertible notes payable to 230,000 shares of Series D Convertible Preferred Stock. These new
Series D Convertible Preferred Stock shall be convertible into common stock of the Company at a ratio of 1,000 shares of common
stock for each share of Series D Convertible Preferred Stock held. At the same time, Series A Convertible Preferred Stock that
were previously issued, can be exchanged for common stock as well.
On
February 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the
“Investors”) pursuant to which we pursuant to which it issued convertible notes in an aggregate principal amount of
$16.5 million for an aggregate purchase price of $15 million (collectively, the “Notes”). In connection with the issuance
of the Notes, the Company issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively,
the “Warrants”) and 1,000 shares of series F convertible preferred stock (the “Series F Preferred Stock”).
The
Notes each have a term of thirty-six months and mature on February 17, 2023, unless earlier converted. The Notes accrue interest
at a rate of 11% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest
is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at the Company’s election,
any interest payable on an applicable payment date may be paid in registered Common Stock of the Company (rather than cash) in
an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average
VWAP of the Common Stock for the five (5) days immediately preceding the date of conversion.
The
Notes are convertible at any time, at the holder’s option, into shares of our common stock equal to the lesser of: (i) the
amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock
Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities
of the Company that are exercisable for or convertible into such equity securities of the Company) and (ii) $1.00, subject to
adjustment herein (the “Conversion Price”), subject to certain beneficial ownership
limitations (with a maximum ownership limit of 9.99%). The conversion price is also
subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the
Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect.
Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion Price in effect shall
be equal to 75% of the average VWAP of the Common Stock for the five (5) Trading Days on the Trading Market immediately preceding
the date of conversion (the Alternative Conversion Price”); provided, however, that the Alternate Conversion Price may not
exceed $0.015 per share, as adjusted pursuant to the terms of the Notes. The conversion price is also subject to adjustment due
to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock
or common stock equivalents at an effective price per share lower than the conversion price then in effect. The Notes may not
be redeemed by the Company.
Each
Warrant is exercisable for a period of five years from the date of issuance at an initial exercise price to (i) 125%, times (ii)
the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common
Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding
securities of the Company that are exercisable for or convertible into such equity securities of the Company), subject to adjustment
herein, subject to certain beneficial ownership limitations (with a maximum ownership
limit of 9.99%). The exercise price is also subject to adjustment due to certain events,
including stock dividends, stock splits and recapitalizations.
The
Series F Preferred Stock have no voting rights and shall convert into 4.9% of our issued and outstanding shares of common stock
on a fully diluted basis upon Shareholder Approval.
Each
of the Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that
the number of shares of the Company common stock held by each of them and their affiliates after such conversion or exercise does
not exceed 9.99% of the Company’s then issued and outstanding shares of common stock.
On
February 17, 2021, Sovryn, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with NRJ TV II
CA OPCO, LLC, a Delaware limited liability company (“OpCo”) and NRJ TV III CA License Co., LLC, a Delaware limited
liability company (together with OpCo, “Sellers”). Upon the terms and subject to the satisfaction of the conditions
described in the Asset Purchase Agreement, Sovryn will acquire the licenses and Federal Communications Commission (“FCC”)
authorizations to the KNET-CD and KNLA-CD Class A television stations owned by the Sellers (the “Acquired Stations”),
certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with
certain assumed liablities in connection with the Acquired Stations (the “Asset Sale Transaction”). As consideration
for the Asset Sale Transaction, Sovryn has agreed to pay the Sellers $10,000,000, $2,000,000 of which was paid to Sellers upon
execution of the Asset Purchase Agreement, as follows: (i) an escrow deposit of $1,000,000 to be held in escrow pursuant to the
terms of an escrow agreement entered into between Sovryn and the Sellers (the “Escrow Fee”) and (ii) a non-refundable
option fee of $1,000,000 (the “Option Fee”).
The
closing of the Asset Sale Transaction (the “Closing”) is subject to, among other things, consent by the FCC to the
assignment of the FCC authorizations pertaining to the Acquired Stations, from Sellers to Sovryn (the “FCC Consent”).
The Closing shall occur no more than five (5) business days following the later to occur of (i) the date on which the FCC Consent
has been granted and (ii) the other conditions to the Closing set forth in the Asset Purchase Agreement.
Concurrently
with the closing of the Asset Purchase Agreement, the Board of Directors of the Company appointed Phil Falcone to serve as the
Company’s new Chief Executive Officer and member of the Board of Directors; Henry Turner was appointed as Chief Technology
Officer and Chief Operating Officer; and Warren Zenna as a member of the Board of Directors. Jeffrey Canouse resigned his position
as Chief Executive Officer and was appointed as Chief Compliance Officer and Secretary of the Company and will continue to be
a member of the Board of Directors. Effective 10 days after mailing to shareholders of a Schedule 14F-1 proposing changes in the
Company’s Board of Directors, Jeffrey Canouse will resign as a director of the Company and Warren Zenna will become a director
of the Company.
|
Madison Technologies Inc.
|
Form 10-K - 2020
|
Page 17
|