ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a Nevada corporation formed on June 6,
2007. Our headquarters are in Tampa, FL. We have been engaged in our current business model since January 1, 2015.
We have experienced recurring losses and negative
cash flows from operations since inception, including in our current business model. We anticipate that our expenses will increase as
we ramp up our expansion, which likely will lead to additional losses, until such time that we approach profitability, or which there
are no assurances. We have relied on equity financing to fund operations. There can be no guarantee that we will ever become profitable,
or that adequate additional financing will be realized in the future or otherwise may be available to us on acceptable terms, or at all.
If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our expansion efforts. We will need to
generate significant revenues to achieve profitability, of which there are no assurances.
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 $6,565,942 at December 31, 2020, had a net loss of $1,175,452 (including $127,500 of non-cash
stock compensation and $832,885 in losses related to convertible debt, interest and discount amortization) and net cash used in operating
activities of $335,293 for the year ended December 31, 2020. 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.
Results of Operations for the year ended December
31, 2020 compared to the year ended December 31, 2019
The following information should be read in conjunction
with our financial statements and related notes thereto included elsewhere in this Form 10-K.
Revenues
We generated no revenues during our fiscal years
ending December 31, 2020 and 2019.
Operating Expenses
For the year ended December 31, 2020, professional
fees decreased $18,535 or 30.9% to $41,525 compared to $60,060 for the year ended December 31, 2019. Professional fees consist mostly
of accounting, audit and legal fees. The decrease of $18,535 in the current year is mainly attributed to a decrease in legal fees. In
the prior year we incurred additional legal fees related to the preparation and filing of our Form 1-A.
Consulting expense was $5,000 compared to $54,720
for the years ended December 31, 2020 and 2019, respectively, a decrease of $49,720 or 90.9%. The decrease is due to the decrease in issuing
common stock for services. In the prior year we granted common stock for total non-cash expense of $54,320. In addition, in the prior
year we had a hired a consultant for investor relation and related services. We are no longer using those services in the current period.
We issued no stock for services in the current year.
Compensation expense was $211,500 and $2,107,000
for the years ended December 31, 2020 and 2019, respectively. In the prior year we issued 25,000,000 common shares each to both our Chairman
and CEO for services for total non-cash expense of $2,000,000. We also issued our Chairman 500,000 shares of series A preferred stock
for total non-cash compensation expense of $20,000.
General and administrative expense was $211,819
and $119,504 for the years ended December 31, 2020 and 2019, respectively, an increase of $92,315 or 79.9%. The
increase in the current period can be largely attributed to an increase in depreciation of $31,657, development expense of $22,922, web
design expense of $10,450 and investor relation expense of $20,390, all related to increased efforts to fully develop our product and
bring it to market. We also had an increase in investor relation expense of $20,390, for assistance with our Offering Statement.
Total other expense for the year ended December 31,
2020, was $705,608. Other income/expense includes $561,576 of debt discount amortization, a $350,986 loss on the issuance of convertible
debt, an early payment penalty of $49,162 and a gain in the change of fair value of derivatives of $79,677. These are all expenses related
to our convertible debt. We also incurred $49,958 of interest expense.
Total other expense for the year ended December
31, 2019, was $1,546,484. Other expense includes $341,011 of debt discount amortization, a $1,575,107 loss on the issuance of convertible
debt and a gain in the change of fair value of derivatives of $445,318. These are all expenses related to our convertible debt. We also
incurred $55,693 of interest expense.
Net Loss
For the year ended December 31, 2020, we had a
net loss of $1,175,452 as compared to a net loss of $3,888,468 for the year ended December 31, 2019. Our net loss was lower in the current
period primarily due to the expense associated with the other non-cash expense from the issuance of convertible debt and common stock
issued for services.
8
Liquidity and Capital Resources
Net cash used in operating activities was $335,293
for year ended December 31, 2020. During the year ended December 31, 2019 we used cash of $236,036 in operating activities.
We used $36,710 and $96,874 on the purchase of
property and equipment for years ended December 31, 2020 and 2019, respectively.
We received a net total of $366,656 from financing
activities for the year ended December 31, 2020. This consisted of $460,000 from proceeds from convertible debt and $75,000 from the sale
of common stock. We repaid $165,000 of our convertible debt and $3,344 against other loans. We received a net total of $435,844 from financing
activities for the year ended December 31, 2019, including $439,000 from a convertible promissory note offset by repayment of related
party loans of $3,156.
As of December 31, 2020, we have the following
amounts due on our convertible debt.
Note Holder Date Maturity Date Principal
Critical Accounting Estimates and Policies
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 and the disclosure of contingent assets and liabilities of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Note 1 to the Financial Statements describes
the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited
to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies
are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.
We are subject to various loss contingencies arising
in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability,
as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency
is accrued when management concludes that it is probable that an asset has been impaired, or a liability has been incurred and the amount
of the loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals
should be adjusted.
We recognize deferred tax assets (future tax benefits)
and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis
of assets and liabilities. The deferred tax assets and liabilities represent the expected future tax return consequences of those
differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled. Future
tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not
that this deferred tax asset will be realized.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to
investors.
Recent Accounting Pronouncements
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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable to smaller reporting companies.
9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REMSLEEP HOLDINGS, INC.
Report of Independent Registered Public Accounting Firm F-2
Statements of Operations for the Years ended December 31, 2020 and 2019 F-4
Statements of Cash Flows for the Years ended December 31, 2020 and 2019 F-6
Notes to Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders of REMSleep
Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of REMSleep Holdings, Inc. (“the Company”) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’
equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in
the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has
an accumulated deficit and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability
to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Embedded Conversion Features
on Notes Payable — Refer to Notes 1 and 5 to the financial statements
Critical Audit Matter Description
The Company has issued several notes payable
during the year with conversion rates that are adjustable at a discounted rate to public trading prices near the conversion date. The
terms allow for variable amounts of shares to be converted for a set dollar value; this and other factors require the embedded conversion
feature to be accounted for as a derivative and revalued at the conversion date or each period end if still outstanding. Calculations
and accounting for the notes payable and embedded conversion features require management’s judgments related to initial and subsequent
recognition of the debt and related features, use of a valuation model, and value of the inputs used in the selected valuation model.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures related to evaluating the
Company’s accounting for notes payable and related accounts included the following, among others:
· Testing of substantially all transactions related to this matter.
We have served as the Company’s auditor since 2018. Spokane, Washington
F-2
REMSLEEP HOLDINGS, INC.
BALANCE SHEETS
ASSETS
Current assets:
Inventory deposit - 8,000
Prepaid expenses - 7,909
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Commitments and Contingencies - -
STOCKHOLDERS’ DEFICIT:
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 230,662 $ 253,297
The accompanying notes are an integral part
of these financial statements.
F-3
REMSLEEP HOLDINGS, INC.
STATEMENTS
OF OPERATIONS
For the Years Ended December 31,
Operating Expenses:
Other expense:
Early payment penalty (49,162 ) -
Gain on forgiveness of debt 226,398 -
Provision for income taxes - -
Net loss per share, basic and diluted $ (0.01 ) $ (0.09 )
The accompanying notes are an integral part
of these financial statements.
F-4
REMSLEEP HOLDINGS, INC.
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS
ENDED DECEMBER 31, 2020 AND 2019
Shares Amount Shares Amount Shares Amount be issued Capital Deficit Total
Warrants issued with convertible debt - - - - - - - 71,813 - 71,813
Warrant down round protection - - - - - - - 3,349 - 3,349
The accompanying notes are an integral part
of these financial statements.
F-5
REMSLEEP HOLDINGS, INC.
STATEMENTS
OF CASH FLOWS
For the Years Ended December 31,
Cash Flows from Operating Activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation expense - 54,320
Gain on forgiveness of debt (226,398 ) -
Changes in Operating Assets and Liabilities:
Cash Flows from Investing Activities:
Purchase of property and equipment (36,710 ) (86,874 )
Net cash used by investing activities (36,710 ) (96,874 )
Cash Flows from Financing Activities:
Repayment of convertible notes payable (165,000 ) -
Proceeds from sale of common stock 75,000 -
Supplemental cash flow information:
Interest paid in cash $ - $ -
Taxes paid $ - $ -
Supplemental non-cash disclosure:
The accompanying notes are an integral part
of these financial statements.
F-6
REMSLEEP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2020
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, 2020 or 2019.
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, 2020
F-7
The following table presents assets and liabilities
that are measured and recognized at fair value as of December 31, 2020 on a recurring basis:
Description Level 1 Level 2 Level 3 Total Gains
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
Inventory
Inventories are valued at the lower of cost or
net realizable value. Management compares the cost of inventories with the net realizable value and allowance is made for writing down
their inventories to net realizable value, if lower. As of December 31, 2020 and 2019, there was no allowance for slow moving or obsolete
inventory. The Company periodically assessed its inventory for slow moving and/or obsolete items. If any are identified an appropriate
allowance for those items is made and/or the items are deemed to be impaired.
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.
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.
F-8
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, 2020, the Company had
approximately 209,383,191 of potentially dilutive shares of common stock from convertible debt, 15,974,026 potentially dilutive shares
of common stock warrants, 5,000,000 shares from Series A preferred stock and 50,000,000 from Series B preferred stock.
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, 2020 and
2019, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
Recent Accounting Pronouncements
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 $6,565,942 at December 31, 2020, had a net loss of $1,175,452 (including $127,500 of non-cash
stock compensation and $832,885 in losses related to convertible debt, interest and discount amortization) and net cash used in operating
activities of $335,293 for the year ended December 31, 2020. 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.
The industry in which we operate depends heavily
upon our ability to obtain raw material and manufacture our product as well as the overall level of consumer and business spending. A
sustained deterioration in general economic conditions (including distress in financial markets, turmoil in specific economies around
the world, public health crises, and additional government intervention), particularly in the United States, may have a negative financial
impact to our Company. Adverse conditions as a result of the global COVID-19 outbreak, will and may continue to impact our manufacturing
processes and ultimately our ability to sell our product.
F-9
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:
Depreciation expense
Depreciation expense for the years ended December
31, 2020 and 2019 was $49,153 and $17,496, 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,
2020, there is $45,000 and $19,355 of principal and interest due on this loan. As of December 31, 2019, there is $45,000 and $17,091 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, 2020 and 2019 there is $8,212 and $11,556, respectively, due on this
loan.
F-10
NOTE 5 - CONVERTIBLE NOTES
The following table summarizes the convertible
notes and related activity as of December 31, 2020:
A summary of the activity of the derivative liability
for the notes above is as follows:
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 )
Increase to derivative due to new issuances 891,730
Decrease to derivative due to conversion/repayments (897,519 )
Derivative loss due to mark to market adjustment 79,677
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, 2020 is as follows:
Inputs December 31, 2020 Initial Valuation
Dividend rate - -
F-11
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
Risk-free rate .10% - .13
Dividend rate -
Years to maturity .81 - .99
(1) Company used the average of the stock prices of the dates of conversion.
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, 2020 and December
31, 2019, 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, 2020, total accrued interest is $44,921.
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 expired on April
1, 2020 and has been renewed for two more years. In addition to Mr. Wood’s regular compensation, he received $6,700 in bonuses in
2019. As of December 31, 2020 and 2019, there is $2,000 and $0 of accrued compensation, respectively, due to Mr. Wood.
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, 2020 and 2019, there is $33,000 and $24,000 of accrued compensation, respectively, due to Mr. Bird.
Mr. Bird’s employment agreement has been renewed in 2020 for two more years.
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.
On November 23, 2020, 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 $0.0025, the closing stock
price of the Company’s common shares on the date of grant, for total non-cash compensation expense of $1,250. 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.
On November 23, 2020, the Company granted 500,000
shares of Series A preferred stock to Mr. Wood for services rendered to the Company. The shares were valued at $0.0025, the closing stock
price of the Company’s common shares on the date of grant, for total non-cash compensation expense of $1,250. 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.
On November 23, 2020, the Company granted 250,000
shares of Series B preferred stock to Mr. Bird for services rendered to the Company. The shares were valued at $0.0025, the closing stock
price of the Company’s common shares on the date of grant, multiplied by 100, for total non-cash compensation expense of $62,500.
The closing price for common stock multiplied by 100 was deemed an acceptable method for valuation as one share of Series B preferred
stock is convertible into 100 shares of common stock.
F-12
On November 23, 2020, the Company granted 250,000
shares of Series B preferred stock to Mr. Wood for services rendered to the Company. The shares were valued at $0.0025, the closing stock
price of the Company’s common shares on the date of grant, multiplied by 100, for total non-cash compensation expense of $62,500.
The closing price for common stock multiplied by 100 was deemed an acceptable method for valuation as one share of Series B preferred
stock is convertible into 100 shares of common stock.
During the years ended December 31, 2020 and 2019,
the Company paid $22,650 and $14,200, respectively, to the brother of the CEO for website design and other computer related services.
During the years ended December 31, 2020 and 2019,
the Company paid $1,000 and $0, respectively, to the son of the CEO for services.
NOTE 7 - COMMON STOCK
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.
During the year
ended December 31, 2020, Armada Capital Partners LLC converted $20,850 and $110 of
principal and interest, respectively, into 5,202,346 shares of common stock. As of December 31, 2020, this loan has been fully converted.
During the year
ended December 31, 2020, BHP Capital NY Inc converted $7,394 and $35 of principal and interest, respectively, into 1,919,620 shares
of common stock. As of December 31, 2020, this loan has been fully converted.
During the year
ended December 31, 2020, Jefferson Street Capital LLC converted $13,750 of principal and $2,205 of interest, respectively, into
3,989,090 shares of common stock. As of December 31, 2020, this loan has been fully converted.
During the year
ended December 31, 2020, Odyssey Capital Funding LLC converted $35,000 of principal and $2,890 of interest, respectively, into
8,630,042 shares of common stock. As of December 31, 2020, this loan has been fully converted.
F-13
During the year
ended December 31, 2020, 37,890,381 shares of common stock were issued in conversion of 50,262,343 warrants.
During the year
ended December 31, 2020, Power Up Lending Group LTD converted $188,300 of principal and $7,650 of interest, respectively, into
62,639,262 shares of common stock. As of December 31, 2020, this loan has been fully converted.
During the year
ended December 31, 2020, Granite Global Value converted $174,265 of principal into 116,523,399 shares of common stock.
During the year
ended December 31, 2020, the Company sold 15,000,000 shares of common stock pursuant to the terms of its Form 1-A, Regulation A Offering
Statement, for total cash proceeds of $75,000. On July 27,2020, the Company filed a Form 1- and withdrew its
Offering Statement on Form 1-A originally qualified on December 16, 2019 and the Post-Qualification Amendment to such Form 1-A qualified
on March 31, 2020.
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.
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.
See Note 6 for preferred stock issued to a related
party.
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:
Federal income tax benefit attributable to:
Net provision for Federal income taxes $ - $ -
F-14
The cumulative tax effect at the expected rate of 21% of significant
items comprising our net deferred tax amount is as follows:
Deferred tax asset attributable to:
Net deferred tax asset $ - $ -
At December 31, 2020, the Company had net operating
loss carry forwards of approximately $1,343,000 that maybe offset against future taxable income. No tax benefit has been reported
in the December 31, 2020 or 2019 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, 2020 was an increase of $211,000.
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, 2020, 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.
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