NOTES TO FINANCIAL STATEMENTS
December 31, 2019
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
REMSleep Holdings, Inc., (the “Company”)
was incorporated in the State of Nevada on June 6, 2007. On January 5, 2015 the name of the Company was changed to REMSleep Holdings,
Inc. and the business model was changed to reflect the new direction of the Company; to develop and distribute products to help
people affected by sleep apnea. On May 30, 2015 REMSleep LLC was formally merged into REMSleep Holdings, Inc.
Basis of Presentation
The Company’s financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts,
the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently
have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.
Cash Equivalents
The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents for the
year ended December 31, 2019 or 2018.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10
of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted
in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described
below:
Level 1: Quoted market prices available
in active markets for identical assets or liabilities as of the reporting date.
Level 2:
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level 3: Pricing inputs that are generally
unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the
short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments based upon
management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at
December 31, 2019
The following table presents assets and
liabilities that are measured and recognized at fair value as of December 31, 2019 on a recurring basis:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains and (Losses)
|
|
Derivative
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
626,831
|
|
|
$
|
445,318
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
626,831
|
|
|
$
|
445,318
|
|
The following table presents assets and
liabilities that are measured and recognized at fair value as of December 31, 2018 on a recurring basis:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains and (Losses)
|
|
Derivative
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
96,110
|
|
|
$
|
(23,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets
Fixed assets are carried at the lower of
cost or net realizable value. All fixed assets with a cost of $2,000 or greater are capitalized. Major betterments that extend
the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets
are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in operations.
Depreciation is computed using the
straight-line method over the estimated useful lives of three years for office furniture and equipment, tooling and molds and
five years for automobiles.
Income taxes
The Company follows Section 740-10-30 of
the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the Statements of Income in the period that includes the enactment date.
The Company adopted section 740-10-25 of
the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section
740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting
in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized
income tax benefits according to the provisions of Section 740-10-25.
Stock-based Compensation
In
June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. ASU 2018-07 allows companies to account for nonemployee
awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and
interim periods within those annual periods. We adopted this ASU on January 1, 2019. The adoption of ASU 2018-07 did not have a
material impact on our consolidated financial statements.
Basic and Diluted Earnings Per Share
Net income (loss) per common share is computed
pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is
computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.
Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares
of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares
outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning of the first period
presented.
As of December 31, 2019, the Company had
approximately 58,665,000 of potentially dilutive shares of common stock from convertible debt and 3,000,000 potentially dilutive
shares of common stock warrants The Company’s diluted loss per share is the same as the basic loss per share for the years
ended December 31, 2019 and 2018, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company
generating a loss.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet
and requires expanded disclosures about leasing arrangements. The new standard supersedes the present U.S. GAAP standard on
leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after
December 15, 2018, with early adoption permitted. There has been no material impact on our financial statements as a result
of adopting this standard
Topic 606, Revenue from Contracts with
Customers, of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC). The guidance
in ASC 606 was originally issued by the FASB in May 2014 in Accounting Standards Update (ASU) 2014-09, Revenue from Contracts
with Customers (Topic 606). Since then, the FASB has issued several ASUs that have revised or clarified the guidance in ASC
606. The Company has evaluated the impact of this accounting standard update and noted that it has had no material impact.
On June 20, 2018, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-07, Compensation—Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve
financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers,
etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards.
Meaning that companies will value all equity classified awards at their grant-date under ASC718 and forgo revaluing the award after
this date. The Company has chosen to early adopt this standard. There has been no material impact on our financial statements as
a result of adopting this standard.
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless
otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued
that might have a material impact on its financial position or results of operations.
NOTE 2 - GOING CONCERN
The accompanying financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has an accumulated deficit of $5,390,490 at December 31, 2019, had a net loss of $3,888,468
(including $2,074,320 on non-cash stock compensation and $1,317,550 in losses related to convertible debt) and net cash used in
operating activities of $246,036 for the year ended December 31, 2019. The Company’s ability to raise additional capital
through the future issuances of common stock and/or debt financing is unknown. The obtainment of additional financing, the successful
development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable
operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these
factors over the next twelve months raise substantial doubt about the Company’s ability to continue as a going concern. The
financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
The Company is in the final stages of product
development and plans to begin selling its product in 2020. The Company will continue to finance its operations through debt and/or
equity financing as needed.
NOTE 3 - PROPERTY & EQUIPMENT
Property and Equipment are first recorded
at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets
as follows between three and five years.
Long lived assets, including property and
equipment, to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows of
the related assets are less than their carrying values. Measurement of an impairment loss is based on the fair value of the asset.
Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Maintenance and repair expenses, as incurred,
are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation
applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on the disposition included
as income.
Property and equipment stated at cost,
less accumulated depreciation consisted of the following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Furniture/fixtures
|
|
$
|
14,904
|
|
|
$
|
14,904
|
|
Office equipment
|
|
|
7,136
|
|
|
|
2,458
|
|
Automobile
|
|
|
16,963
|
|
|
|
16,963
|
|
Tooling/Molds
|
|
|
105,301
|
|
|
|
23,105
|
|
Less: accumulated depreciation
|
|
|
(36,490
|
)
|
|
|
(18,994
|
)
|
Fixed assets, net
|
|
$
|
107,814
|
|
|
$
|
38,436
|
|
Depreciation expense
Depreciation expense for the years ended
December 31, 2019 and 2018 was $17,496 and $12,576, respectively.
NOTE 4 - LOANS PAYABLE
On October 24, 2017, the Company was notified
that a petition had been filed in the Iowa District Court for Polk County by a Mr. John M. Wesson for failure to repay a loan.
Mr. Wesson had loaned the Company $30,000 and $20,000 on October 24, 2012 and June 12, 2013, respectively. The loans were to accrue
interest at 5%. On April 26, 2018, the Company agreed to repay the loan in full including accrued interest and $5,000 for legal
fees. As of December 31, 2019, there is $45,000 and $17,091 of principal and interest due on this loan. As of December 31, 2018,
there is $45,000 and $14,841 of principal and interest due on this loan.
On March 23, 2018, the Company purchased
an automobile. The purchase price was $16,963.46. The interest rate on the loan is 5.8% and matures on April 7, 2023. Payments
on the loan, consisting of principal and interest, are $327 per month. As of December 31, 2019 there is $11,556 due on this loan.
NOTE 5 - CONVERTIBLE NOTES
The following table summarizes the
convertible notes and related activity as of December 31, 2019:
Note Holder
|
|
Date
|
|
Maturity Date
|
|
Interest
|
|
|
Balance
December 31,
2018
|
|
|
Additions
|
|
|
Conversions
|
|
|
Balance
December 31,
2019
|
|
PowerUp Lending Group LTD
|
|
7/9/18
|
|
7/9/19
|
|
|
12
|
%
|
|
$
|
45,000
|
|
|
$
|
-
|
|
|
$
|
(45,000
|
)
|
|
$
|
-
|
|
LG Capital Funding LLC
|
|
8/30/18
|
|
8/30/2019
|
|
|
10
|
%
|
|
|
32,000
|
|
|
|
-
|
|
|
|
(32,000
|
)
|
|
|
-
|
|
ONE44 Capital LLC
|
|
1/23/2019
|
|
1/23/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
100,000
|
|
|
|
(100,000
|
)
|
|
|
-
|
|
Odyssey Capital Funding, LLC
|
|
5/3/2019
|
|
5/3/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
100,000
|
|
|
|
(65,000
|
)
|
|
|
35,000
|
|
Armada Investment Fund LLC
|
|
5/30/2019
|
|
2/29/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
36,750
|
|
|
|
(15,900
|
)
|
|
|
20,850
|
|
BHP Capital NY Inc.
|
|
5/30/2019
|
|
2/29/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
36,750
|
|
|
|
(29,356
|
)
|
|
|
7,394
|
|
Jefferson Street Capital LLC
|
|
5/30/2019
|
|
2/29/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
36,750
|
|
|
|
(23,000
|
)
|
|
|
13,750
|
|
Armada Investment Fund LLC
|
|
10/4/2019
|
|
7/4/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
55,000
|
|
BHP Capital NY Inc.
|
|
10/4/2019
|
|
7/4/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
55,000
|
|
Jefferson Street Capital LLC
|
|
10/4/2019
|
|
7/4/2020
|
|
|
12
|
%
|
|
|
-
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
77,000
|
|
|
$
|
475,250
|
|
|
$
|
(420,256
|
)
|
|
$
|
241,994
|
|
|
|
|
|
Less debt discount
|
|
|
|
(33,759
|
)
|
|
|
|
|
|
|
|
|
|
|
(164,998
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
43,241
|
|
|
|
|
|
|
|
|
|
|
$
|
76,996
|
|
A summary of the activity of the derivative
liability for the notes above is as follows:
Balance at December 31, 2017
|
|
$
|
-
|
|
Increase to derivative due to new issuances
|
|
|
89,020
|
|
Derivative loss due to mark to market adjustment
|
|
|
7,090
|
|
Balance at December 31, 2018
|
|
|
96,110
|
|
Increase to derivative due to new issuances
|
|
|
1,955,295
|
|
Decrease to derivative due to conversion
|
|
|
(979,290
|
)
|
Derivative loss due to mark to market adjustment
|
|
|
(445,284
|
)
|
Balance at December 31, 2019
|
|
$
|
626,831
|
|
A summary of quantitative information about
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized
within Level 3 of the fair value hierarchy for the year ended December 31, 2019 is as follows:
Inputs
|
|
December 31, 2019
|
|
|
Initial
Valuation
|
|
Stock price
|
|
$
|
.0123
|
|
|
$
|
.55 - .0245
|
|
Conversion price
|
|
$
|
.0041
|
|
|
$
|
.244 - .0055
|
|
Volatility (annual)
|
|
|
217.34 – 363.34
|
%
|
|
|
261.04% - 410.61
|
%
|
Risk-free rate
|
|
|
1.57% - 1.88
|
%
|
|
|
1.62% - 2.58
|
%
|
Dividend rate
|
|
|
-
|
|
|
|
-
|
|
Years to maturity
|
|
|
.32 - .51
|
|
|
|
.75 - 1
|
|
A summary of quantitative information about
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized
within Level 3 of the fair value hierarchy at the time of conversion is as follows:
Inputs
|
|
|
|
|
Stock
price (1)
|
|
$
|
.01
- .051
|
|
Conversion
price (2)
|
|
$
|
.0039 - .026
|
|
Volatility
(annual)
|
|
|
238.73
– 558.68
|
|
Risk-free
rate
|
|
|
1.54%
- 2.39
|
|
Dividend
rate
|
|
|
-
|
|
Years
to maturity
|
|
|
.17
- .63
|
|
(1)
|
Company used the average of the stock prices of the dates of conversion.
|
(2)
|
Company used the average of the stock prices applicable to the conversion terms.
|
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
management.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has received support from parties
related through common ownership and directorship. These loans are unsecured, and due on demand. As of December 31, 2019 and December
31, 2018, the balance due on these loans is $179,191 and $179,191, respectively. Beginning on January 1, 2019, the balance due
accrues interest at 12.5%. As of December 31, 2019, total accrued interest is $22,399.
The Company executed an employment agreement
with its CEO, Tom Wood, on January 1, 2018. Per the terms of the agreement Mr. Wood was to be compensated $3,000 per month. The
agreement expired on January 2, 2019. The Company executed a new employment agreement with Mr. Wood on April 1, 2019. Per the terms
of the agreement Mr. Wood is to be compensated $4,000 per month. The agreement expires on April 1, 2020. In addition to Mr. Wood’s
regular compensation he received $6,700 in bonuses in 2019.
The Company executed an employment agreement
with its Chairman, Russell Bird, on January 1, 2019. Per the terms of the agreement, which is effective for one year, Mr. Bird
is to be compensated $3,000 per month. As of December 31, 2019, there is $15,000 of accrued compensation due to Mr. Bird.
On June 14, 2019, the Company granted 25,000,000
shares of common stock each to Mr. Wood and Mr. Bird for services rendered to the Company. The shares were valued at $0.04 per
share, the closing stock price on the date of grant, for total non-cash compensation expense of $2,000,000.
On June 14, 2019, the Company granted 500,000
shares of Series A preferred stock to Mr. Bird for services rendered to the Company. The shares were valued at $0.04, the closing
stock price of the Company’s common shares on the date of grant, for total non-cash compensation expense of $20,000. The
closing price for common stock was deemed an acceptable method for valuation as one share of Series A preferred stock is convertible
into one share of common stock.
During the year ended December 31, 2019,
the Company paid $14,200 to the brother of the CEO for website design and other computer related services.
NOTE 7 - COMMON STOCK
During
the year ended December 31, 2018, the Company sold 477,143 shares of common stock for total cash proceeds of $90,000.
During
the nine months ended September 30, 2018, the Company granted 1,760,000 shares of common stock for services at $0.25 per share
for total non-cash expense of $440,000. Subsequent to the year ended December 31, 2018 all of the shares were returned. As the
expense that was recorded was material to the financial statements, the fact that the services agreed upon were not performed and
that all shares were returned to the Company, the previous $440,000 of expense that was recorded as of September 30, 2018, has
been reversed as of December 31, 2018.
During the year
ended December 31, 2019, PowerUp Lending Group LTD converted $45,000 and $2,700 of principal and interest, respectively,
into 5,599,447 shares of common stock. As of December 31, 2019, this loan has been fully converted.
During the year
ended December 31, 2019, LG Capital Funding LLC converted $32,000 and $2,155 of principal and interest, respectively, into
4,356,614 shares of common stock. As of December 31, 2019, this loan has been fully converted.
During the year
ended December 31, 2019, One44 Capital LLC converted $100,000 and $7,802 of principal and interest, respectively, into 13,740,758
shares of common stock. As of December 31, 2019, this loan has been fully converted.
During the year
ended December 31, 2019, Armada Capital Partners LLC converted $15,900 and $483 of principal and interest, respectively,
into 4,385,270 shares of common stock.
During the year
ended December 31, 2019, BHP Capital NY Inc converted $29,356 and $3,043 of principal and interest, respectively, into 8,322,748
shares of common stock.
During the year
ended December 31, 2019, Jefferson Street Capital LLC converted $23,000 of principal into 6,233,766 shares of common stock.
During the year
ended December 31, 2019, Odyssey Capital Funding LLC converted $65,000 and $4,593 of principal and interest, respectively,
into 17,005,708 shares of common stock.
During the year
ended December 31, 2019, the Company granted 1,000,000 shares of common stock for services. The shares were valued at $0.037,
the closing stock price on the date of grant, for total non-cash expense of $37,000. In addition, 909,261 shares were issued by
the transfer agent for stock granted in a prior period. The stock was debited to common stock to be issued for $228,604.
See Note 6 for stock issued to related
parties.
NOTE 8 - PREFERRED STOCK
The Company is currently authorized to
issue 5,000,000 shares of Series A Preferred Stock, par value $0.001 per share value with 1:25 voting rights. The Series A Preferred
Stock ranks equal to the common stock on liquidation, pays no dividend and is convertible to common stock for one share of common
for one share of Series A Preferred Stock.
See Note 6 for preferred stock issued to
a related party.
The Company is currently authorized to
issue 5,000,000 shares of Series B Preferred Stock, par value $0.001 per share. Each share of Series B Preferred Stock has a 1:100
voting right and is convertible into 100 shares of common stock. No dividends will be paid and in the event of liquidation all
shares of Series B will automatically convert into common stock. There are no shares of Series B Preferred Stock issued and outstanding.
The Company is currently authorized to
issue 5,000,000 shares of Series C Preferred Stock, par value $0.001 per share value. Each share of Series C Preferred Stock has
a 1:50 voting right and is convertible into 50 shares of common stock. No dividends will be paid and in the event of liquidation
all shares of Series C will automatically convert into common stock. There are no shares of Series C Preferred Stock issued and
outstanding.
NOTE 9 - INCOME TAX
Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry
forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The U.S. federal income tax rate is 21%.
The provision for Federal income tax consists of the following
December 31:
|
|
2019
|
|
|
2018
|
|
Federal income tax benefit attributable to:
|
|
|
|
|
|
|
Current Operations
|
|
$
|
817,000
|
|
|
$
|
87,000
|
|
Less: valuation allowance
|
|
|
(817,000
|
)
|
|
|
(87,000
|
)
|
Net provision for Federal income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The cumulative tax effect at the expected rate of 21% of significant
items comprising our net deferred tax amount is as follows:
|
|
2019
|
|
|
2018
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
1,132,000
|
|
|
$
|
315,000
|
|
Less: valuation allowance
|
|
|
(1,132,000
|
)
|
|
|
(315,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2019, the Company had net
operating loss carry forwards of approximately $1,132,000 that maybe offset against future taxable income. No tax benefit
has been reported in the December 31, 2019 or 2018 financial statements since the potential tax benefit is offset by a valuation
allowance of the same amount. The change in the valuation allowance for the year ended December 31, 2019 was an increase of
$817,000.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act
establishes new tax laws that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate
to 21% effective January 1, 2018.
Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual
limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
ASC Topic 740 provides guidance on the
accounting for uncertainty in income taxes recognized in a company’s financial statements. Topic 740 requires a company to
determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits
of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount
to recognize in the financial statements.
The Company includes interest and penalties
arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December
31, 2019, the Company had no accrued interest or penalties related to uncertain tax positions.
NOTE 10 - WARRANTS
On May 30, 2019, the Company issued 1,500,000
warrants in conjunction with convertible debt. The warrants are exercisable for 3 years at $0.07 per share. The warrants were evaluated
for purposes of classification between liability and equity. The warrants do not contain features that would require a liability
classification and are therefore considered equity.
Using the fair value calculation, the relative
fair value between the debt issued and the warrants was calculated to determine the warrants recorded equity amount of $41,853,
accounted for in additional paid in capital.
Warrants
|
|
|
1,500,000
|
|
Share price
|
|
$
|
0.045
|
|
Exercise Price
|
|
$
|
0.07
|
|
Term
|
|
|
3 years
|
|
Volatility
|
|
|
406
|
%
|
Risk Free Interest Rate
|
|
|
2.0
|
%
|
Dividend rate
|
|
|
-
|
|
On October 4, 2019, the Company issued
1,500,000 warrants in conjunction with convertible debt. The warrants are exercisable for 3 years at $0.07 per share. The warrants
were evaluated for purposes of classification between liability and equity. The warrants do not contain features that would require
a liability classification and are therefore considered equity. The Black Scholes pricing model was used to estimate the fair value
of the Warrants issued with the following inputs:
Using the fair value calculation, the relative
fair value between the debt issued and the warrants was calculated to determine the warrants recorded equity amount of $36,606,
accounted for in additional paid in capital.
The Black Scholes pricing model was used
to estimate the fair value of the Warrants issued with the following inputs:
Warrants
|
|
|
1,500,000
|
|
Share price
|
|
$
|
0.0245
|
|
Exercise Price
|
|
$
|
0.07
|
|
Term
|
|
|
3 years
|
|
Volatility
|
|
|
356.53
|
%
|
Risk Free Interest Rate
|
|
|
1.35
|
%
|
Dividend rate
|
|
|
-
|
|
A summary of the status of the Company’s
outstanding stock warrants and changes during the year is presented below:
Activity for the year ended December 31,
2019 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contract
Term
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
3,000,000
|
|
|
|
0.07
|
|
|
|
2.59
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
3,000,000
|
|
|
$
|
0.07
|
|
|
|
2.59
|
|
|
$
|
-
|
|
Range
of Exercise
Prices
|
|
Number
Outstanding
12/31/2019
|
|
Weighted
Average Remaining
Contractual Life
|
|
Weighted
Average
Exercise Price
|
$0.07
|
|
3,000,000
|
|
2.59 years
|
|
$0.07
|
The aggregate intrinsic value represents
the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price as of December
31, 2019, which would have been received by the warrant holder had the warrant holder exercised their warrants as of that date.
NOTE 11 - SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10)
management has performed an evaluation of subsequent events through the date that the financial statements were available to be
issued and has determined that it does not have any material subsequent events to disclose in these financial statements other
than the following.
Subsequent
to December 31, 2019, note holders converted $76,994
and $5,239, of principal and interest, respectively, into 19,741,098 shares of common stock.
Subsequent
to December 31, 2019, warrants holders converted warrants
into 36,769,439 shares of common stock.
On January 27, 2020, the Company executed
a convertible promissory note for $168,300 with Power Up Lending Group Ltd. Total cash proceeds from the note, after fees and OID,
is $150,000. The note matures on January 27, 2021, accrues interest at 12% and is convertible into shares of common stock at 75%
of the average of the two lowest trading prices in the twenty days prior to conversion.
On March 2, 2020, the Company executed
a convertible promissory note for $80,300 with Power Up Lending Group Ltd. Total cash proceeds from the note, after fees and OID,
is $70,000. The note matures on March 2, 2021, accrues interest at 12% and is convertible into shares of common stock at 75% of
the average of the two lowest trading prices in the twenty days prior to conversion.
On April 1, 2020, the Company sold 3,000,000
shares of common stock for total cash proceeds of $15,000. The shares were sold pursuant to the offering statement recently filed
with the SEC.
Subsequent to December 31, 2019, the Company
repaid all principal and interest due on its convertible notes to both Jefferson Street Capital LLC and BHP Capital NY Inc.