FBEC FBEC Worldwide Inc (CE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS AND GOING CONCERN

Organization and Business

FBEC Worldwide, Inc., f/k/a Frontier Beverage Company, Inc. (the "Company", “FBEC”, “we”, “us” or “our”) is a Wyoming corporation that was formed in November 2002 and commenced operations in April 2003. The Company was originally formed to provide fully automated remote data backup services for small to medium sized businesses. Currently, the Company is engaged in developing additional beverage products.

On March 1, 2010, the Company entered into a purchase agreement with Innovative Beverage Group Holdings, Inc., a Nevada corporation and a trademark assignment for the purchase of the intellectual property rights of a beverage created and developed by Innovative known as “Unwind.” The Company subsequently applied for and received a separate trademark featuring its new logo and the term Unwind Ultimate Relaxation in 2010. The Company intends to reformulate the product.

On February 3, 2014, the Company purchased 90% of Dance Broadcast Systems, Inc. for 10,000 Series A Preferred Stock with a stated value of $1,000,000 and a par value of $.001. The preference allows the holder to vote 66.67% of the available votes for all purposes regardless of the other votes outstanding as long as one share of this series is outstanding. The designation for the Series A Preferred Stock was filed with the Secretary of State of Nevada on January 24, 2014. This transaction was recorded as a reverse merger with January 13, 2014 now becoming the inception date for accounting purposes. This transaction caused a change of control of the company to Vinyl Groove Productions, Inc.

In May 2014, the Company sold its 51% stake in Blue 22 Entertainment for the receipt of 50 million common shares of NX Global, Inc. stock. Because the stock received does not have a current filing on Pink Sheets and no active market exists for the shares, no value has been placed on the stock received. The subsidiary had no assets or liabilities on the date of disposal and no consideration was received.

In June 2014, the Company entered into an agreement to be the distributor at retail of a oil emulsification product used to separate oil from various waste streams produced from oil wells, and oil storage or shipping. The Company agreed to issue 5,000 Series C preferred shares, when available, after filing a designation which will be earned upon issuance. As of the date of this report, the Series C Preferred Stock designation has not been filed nor have any preferred shares been issued under the agreement. The product is no longer marketed by the Company.

On June 30, 2014, the Company increased its authorized common shares from 500,000,000 to 950,000,000.

On September 6, 2014, the Company increased its authorized common shares from 950,000,000 to 1,970,000,000.

All remaining entertainment subsidiaries were disposed on June 26, 2014. The company does not retain any rights nor any liabilities of the disposed of subsidiaries. The disposal resulted in a gain on the sale of $53,329 (see Note 4).

On October 16, 2014, the Company increased its authorized common shares from 1,970,000,000 to 2,970,000,000.

On October 28, 2014, the Company was re-domiciled to the State of Wyoming and increased its authorized common shares to 5,000,000,000.

On December 8, 2014, the Company changed its name to FBEC Worldwide, Inc.

On December 23, 2014, the company effected 1:1,000 reverse split on the outstanding shares. All share and per share amounts herein have been retroactively restated to reflect the split.

On June 29, 2015, the Company entered into an Intellectual Property Purchase Agreement, Consulting Agreement, and Royalty Agreement with G. Randall & Sons, Inc. These agreements provide for the asset purchase of the proprietary hemp-based formula used in the Company’s beverage energy shot. G. Randall and Sons will provide ongoing consulting services in blending new formula(s) and working directly with FBEC to improve and blend existing formulas. The Company purchased the asset for $50,000. The purchase includes a $15,000 cash payment and a $35,000 8% Convertible Note with a 6 month maturity date and conversion features of 75% of the average closing price 20 days previous to conversion.

On November 12, 2015, the Company entered into a joint venture agreement operating as FBEC CBD Globe LLC. The joint venture provides the Company with a product pipeline and revenue stream from the products of CBD Globe Distributors Ltd. The Company is responsible to provide various services for the venture. All revenue from the CBD Globe product line are to be received by the venture. The venture is for one year and may be terminated by either party with 30 day written notice as long as all conditions in the contract have been met (see Form 8-K filed with the Securities and Exchange Commission on November 17, 2015).

On November 30, 2015, the Company entered into a joint venture agreement operating as FBEC Dube Group LLC. The joint venture provides the Company with a product pipeline and revenue stream from the products of Dube Hemp Beverages, Inc. The Company is responsible to provide various services for the venture. All revenue from the Dube product line are to be received by the venture. The venture is for one year and may be terminated by either party with 30 day written notice as long as all conditions in the contract have been met (see Form 8-K filed with the Securities and Exchange Commission on November 30, 2015).

On March 18, 2016, the Company amended its Articles of Incorporation changing its authorized common shares to 2,200,000,000.

On April 10, 2017, the Company amended its Articles of Incorporation changing its authorized common shares to 7,700,000,000.

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplates continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business. At December 31, 2016, the Company has an accumulated deficit of $6,141,739 and for the period from January 13, 2014 (date of inception) through December 31, 2015 incurred net loss of $6,141,739. These factors raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties, nor do they include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

The Company’s ability to continue in business is dependent upon obtaining sufficient financing or attaining profitable operations. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers amounts held by financial institutions and short-term investments with an original maturity of 90 days or less to be cash and cash equivalents. In the future, the Company may periodically make deposits with financial institutions in excess of the maximum federal insurance limits (FDIC) of $250,000 per bank. As of December 31, 2015, the Company had $45,309 cash or cash equivalents.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of wholly-owned subsidiaries Blue 22 Entertainment, Inc. and 22 Social Club, Inc. and 90% owned Dance Broadcast System, Inc. All intercompany accounts and transactions have been eliminated. All subsidiaries had been sold or disposed of at December 31, 2014. There were no activities of the joint ventures entered into in 2015.

Stock-based Compensation

The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718 and accounts for stock-based compensation to non-employees in accordance with FASB ASC 505. The fair value of option awards is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.

Net Loss per Share

The Company calculates earnings per share (“EPS”) based on the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of Common Stock outstanding plus all potentially dilutive shares of Common Stock outstanding during the period. Such potential dilutive shares of Common Stock consist of stock options, non-vested shares (restricted stock), shares underlying convertible debt and warrants. During the period from inception through December 31, 2015, all shares underlying the convertible debt were excluded as their impact would have been anti-dilutive.

Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted FASB ASC 740 “Accounting for Income Taxes” as of its inception which requires an asset and liability approach to calculating deferred income taxes. Pursuant to FASB ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Notes Payable

Direct costs incurred with the issuance of notes payable are deferred and amortized over the life of the loan. For the year ended December 31, 2016, the Company incurred amortization expense of $791,589 associated with debt discounts related to derivative liabilities.

  Fair Value of Financial Instruments

The Company assessed the classification of its derivative financial instruments as of December 31, 2016, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

The Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of cash, accounts receivable and accounts payable approximate their carrying amounts due to the short maturity of these instruments. At December 31, 2015 and 2016, the Company did not have any other financial instruments.

ASC 820 Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, accrued compensation and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

The Company uses Level 3 inputs to estimate the fair value of its derivative liabilities.

At December 31, 2016, the Company financial instruments consist of the derivative liabilities related to convertible notes which were valued using the lattice pricing model, a level 3 input.

Commitments and Contingencies

The Company follows ASC 450-20 , Loss Contingencies , to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no commitments or contingencies as of December 31, 2015.

Recent Accounting Pronouncements

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 3 – SHARE CONVERSIONS

During the preparation of this filing, the Company discovered that a certain lender may have converted its debt into more common shares than is allowed by usury laws and the promissory note in place. The amount is unknown and the Company has advised the lender of the potential breach and will take all actions necessary to discern the values of an expected claim and advise the lender of the condition and the potential methods of recovery available .

NOTE 4 – RELATED PARTY TRANSACTIONS

In March 2014, the Company issued to officers and directors, and a prior officer a total of 25,750 common shares for the settlement of $93,500 of liabilities resulting in a loss on the extinguishment of liabilities of $12,000 for the period from January 13, 2014 (date of inception) through December 31, 2014.

As of June 26, 2014, the Company owed $43,000 in accrued salary to a former officer and director which was disposed along with the disposal of the subsidiary and recorded as a gain on sale of subsidiary.

During 2014, liabilities owed to a former affiliate of the Company, of $9,767 and an entity controlled of $16,858 were converted to notes payable totaling $26,625. The notes are unsecured, due on demand and bear no interest.

As of December 31, 2015, the Company has outstanding advances to former officers and directors aggregating $22,675. The advances are unsecured, due on demand and bear no interest.

On April 28, 2015 Vinyl Groove Productions sold controlling interest of the Company to S & L Capital LLC.

On May 1, 2015 S&L Capital LLC converted 8,999 Series A preferred shares to 53,406,528 restricted common shares. The Company issued 150,000,000 restricted common shares to Robert Sand as required by his employment contract.

On September 12, 2015, Midam Ventures LLC bought controlling interest of the Company by purchasing 1,000 Preferred Series A shares from S&L Capital LLC. One share of the Series A Preferred Stock was canceled.

NOTE 5 – STOCKHOLDERS’ DEFICIT

At December 31, 2016, the Company had 2,200,000,000 authorized shares of Common Stock and 20,000,000 authorized shares of Preferred Stock, both with a par value of $0.001 per share.

Preferred Stock

At December 31, 2016, the Company had 1,000 shares of its Series A Preferred Stock issued and outstanding. The shares were issued to founders at inception on January 13, 2014. We are authorized to issue up to 20,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. If the Company issues shares of Preferred Stock and we are subsequently liquidated or dissolved, the preferred shareholders would have preferential rights to receive a liquidating distribution for their shares prior to any distribution to common shareholders.

Common Stock

At December 31, 2016, the Company had 138,889,083 shares of its Common Stock issued and outstanding. Holders of Common Stock are entitled to one vote per share and are to receive dividends or other distributions when and if declared by the Company's Board of Directors.

In May 2015, the Company issued 15,500,000 common shares for the conversion of $16,500 of debt.

In June 2015, agreements were reached to issue 10,000,000 restricted common shares for services which partially issued in June and completed in July with a value of $927,000.

In August 2015, the Company issued 10,007,499 common shares for debt conversion with a value of $13,057.

In September 2015, the Company issued 4,000,000 restricted common shares for services with a value of $81,600. 6,250,000 restricted common shares were issued for debt conversion with a value of $12,500. The Company entered into an agreement to issue 2,000,000 restricted common shares per an officers employment contract with a value of $189,200. These employment shares are included in this filing but have not been issued.

In October 2015, the Company issued 3,100,000 common shares for $310 in debt conversion.

In November 2015, the Company issued 2,000,000 restricted common shares for services with a value of $62,000.

In December 2015, the Company entered into an agreement to issue 5,000,000 restricted common shares for services no value has been assigned as services had not been performed prior to December 31, 2015. The value these shares has been included common shares with an offset to additional paid in capital in these financial statements but were not issued as of its filing.

In February 2016, the Company issued 6,000,000 common shares for $600 in debt conversion.

In February the Company received and cancelled 100,000,000 common shares from a shareholder with no consideration required or paid.

In April 2016, the Company issued 4,054,054 common shares for $30,000 in debt conversion.

In June 2016, the Company received and cancelled 57,000,000 common shares from a shareholder with no consideration required or paid.

In July 2016 the Company issued 2,887,097 common shares for $8,950 in debt conversion.

In August 2016, the Company issued 3,225,806 common shares for $10,000 in debt conversion.

In September 2016, the Company issued 2,081,165 common shares for $4,000 in debt conversion.

In October 2016, the Company issued 1,316,837 common shares for $16,737 in debt conversion. In November 2016, the Company issued 5,726,526 common shares for $81,170 in debt conversion.

In December 2016, the Company issued 1,750,000 common shares for $10,500 in debt conversion.

Certain of the Company’s outstanding convertible notes are secured by 15,000 common shares of the Company which were issued and held in escrow as of December 31, 2015. Still held as of the date of filing.

Note outstanding as of February 3, 2014:

At the date of the reverse merger, February 3, 2014, the Company had an outstanding balance of convertible notes payable of $280,339 which were convertible into common stock at a 50% discount to the lowest bid of stock’s market price during the last 20 days prior to conversion date. The notes are unsecured, due on demand and bear no interest.

The Company identified embedded derivatives related to the convertible notes outstanding as of February 3, 2014. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the convertible note and to adjust the fair value as of each subsequent balance sheet date. As of February 3, 2014, the Company determined a fair value of $600,727 of the embedded derivatives.  The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions:  

The fair value of all outstanding embedded derivatives was determined to be $902,551 at December 31, 2014 using the Black Scholes Option Pricing Model with the following assumptions:

During 2014 and 2015, the Company adjusted the recorded fair value of the derivative liability on the dates of conversion of these notes. The aggregate fair value of these embedded derivative liabilities on the dates of conversion was determined to be $399,953 and this amount was reclassified to equity on the date of resolution of these derivative liabilities. The fair value was estimated using the Black Scholes Option Pricing Model with the following assumptions:

The aggregate loss associated with these derivative liabilities was $701,777 for the period from January 13, 2014 (date of inception) through ended December 31, 2015 due to the change in fair value.

Note issued on March 10, 2014:

On March 10, 2014, a convertible note agreement was entered into for a total of $50,000 due on January 5, 2015 with an interest of 8% per annum. A cash draw against that note was received of $10,000. The additional $40,000 resulted from accounts payable converted to convertible debt. The agreement allows conversion into shares of common stock at 50% discount to the average of the three lowest intraday trading prices during the 15 days prior to conversion date.

The Company identified embedded derivatives related to the Convertible Promissory Note entered into on March 10, 2014. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $107,668 of the embedded derivative.  

The initial fair value of the embedded debt derivative of $107,668 was allocated as a debt discount up to the face value of the note ($50,000) with the remaining $57,668 recognized as a loss on derivative liabilities. The debt discount was fully amortized to interest expense during 2014.

During the period from January 13, 2014 (date of inception) through December 31, 2014, the $50,000 note payable was fully converted into 567,600 shares of common stock. The aggregate fair value of these embedded derivative liabilities on the dates of conversion was determined to be $97,156 and this amount was reclassified to equity on the date of resolution of these derivative liabilities.

The fair value of the embedded derivatives under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:

The aggregate loss associated with these derivative liabilities was $47,156 for the period from January 13, 2014 (date of inception) through ended December 31, 2014 due to the change in fair value.

Note issued on June 4, 2014:

On June 4, 2014, a convertible note agreement was entered into for a total of $103,344 with an interest of 0% per annum. The $103,344 represents the conversion of accounts payable to convertible debt. The agreement allows conversion into shares of common stock at 50% discount to the lowest intraday trading prices during the 15 days prior to conversion date. The note was converted in full at December 31, 2014.

The Company identified embedded derivatives related to the Convertible Promissory Note entered into on June 4, 2014. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $215,674 of the embedded derivative.

The initial fair value of the embedded debt derivative of $215,674 was allocated as a debt discount up to the face value of the note ($103,344) with the remaining $112,330 recognized as a loss on derivative liabilities. The debt discount was fully amortized to interest expense during 2014.

During the period of January 13, 2014 (period of inception) through December 31, 2014, the Company issued 339,872 common shares for the conversion of the principal amount of $103,344. The Company adjusted the recorded fair value of the derivative liability on the dates of conversion and determined the aggregate fair value to be $264,475 and this amount was reclassified to equity on the date of resolution of these derivative liabilities.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:  

The aggregate loss associated with these derivative liabilities was $161,131 for the period from January 13, 2014 (date of inception) through ended December 31, 2014 due to the change in fair value.

Note issued on May 15, 2015 with a maturity date of November 15, 2015:

On May 15, 2015, a convertible note agreement was entered into for a total of $37,500 with an interest of 0% per annum. The agreement allows conversion into shares of common stock at 38% discount to the lowest intraday trading prices during the 20 days prior to conversion date. The note became convertible at its maturity on November 15, 2015. No conversions have been made and the note is in default which triggers 10% interest per annum until paid on the face value of the note beginning on the maturity date.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $62,556 of the embedded derivative.

The initial fair value of the embedded debt derivative of $62,556 was allocated as a debt discount up to the face value of the note ($37,500) with the remaining $25,056 recognized as a loss on derivative liabilities. The debt discount of $4,687 was amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:

The aggregate loss associated with these derivative liabilities was $121,487 for the year ended December 31, 2015 due to the change in fair value.

Note issued on May 29, 2015:

On May 29, 2015, a convertible note agreement was entered into for a total of $25,000 with an interest of 8% per annum. The agreement allows conversion into shares of common stock at the lower of $0.01 or 50% discount to the lowest intraday trading prices during the 20 days prior to conversion date. The note was immediately convertible and $12,500 of the note has been converted. The note is in default.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $422,306 of the embedded derivative.

The initial fair value of the embedded debt derivative of $422,306 was allocated as a debt discount up to the face value of the note ($25,000) with the remaining $397,306 recognized as a loss on derivative liabilities. The debt discount was fully amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:

The aggregate loss associated with these derivative liabilities was $581, 203 for the year ended December 31, 2015 due to the change in fair value and loss on conversion.

Note issued on June 11, 2015 with a maturity date of December 11, 2015:

On June 11, 2015, a convertible note agreement was entered into for a total of $75,000 with an interest of 0% per annum. The agreement allows conversion into shares of common stock at 37.5% discount to the lowest intraday trading prices during the 15 days prior to conversion date. The note became convertible at its maturity on December 11, 2015. No conversions have been made and the note is in default which triggers 12% interest per annum until paid on the face value of the note beginning on the maturity date.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $99,047 of the embedded derivative.

The initial fair value of the embedded debt derivative of $99,047 was allocated as a debt discount up to the face value of the note ($75,000) with the remaining $24,047 recognized as a loss on derivative liabilities. The debt discount of $2,260 was amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:  

The aggregate loss associated with these derivative liabilities was $216,037 for the year ended December 31, 2015 due to the change in fair value.

Note issued on June 17, 2015 with a maturity date of December 17, 2015:

On June 17, 2015, a convertible note agreement was entered into for a total of $75,000 with an interest of 0% per annum. The agreement allows conversion into shares of common stock at 37.5% discount to the lowest intraday trading prices during the 15 days prior to conversion date. The note became convertible at its maturity on December 11, 2015. No conversions have been made and the note is in default which triggers 12% interest per annum until paid on the face value of the note beginning on the maturity date.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $118,368 of the embedded derivative.

The initial fair value of the embedded debt derivative of $118,368 was allocated as a debt discount up to the face value of the note ($75,000) with the remaining $43,368 recognized as a loss on derivative liabilities. The debt discount of $1,663 was amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:

The aggregate loss associated with these derivative liabilities was $216,037 for the year ended December 31, 2015 due to the change in fair value.

Note issued on August 26, 2015:

On August 26, 2015, a convertible note agreement was entered into for a total of $30,000 with an interest of 8% per annum. The agreement allows conversion into shares of common stock at 50% discount to the lowest intraday trading prices during the 10 days prior to conversion date.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $77,517 of the embedded derivative.

The initial fair value of the embedded debt derivative of $77,517 was allocated as a debt discount up to the face value of the note ($30,000) with the remaining $47,517 recognized as a loss on derivative liabilities. The debt discount of $35,509 was fully amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:  

The aggregate loss associated with these derivative liabilities was $83,611 for the year ended December 31, 2015 due to the change in fair value.

Note issued on August 26, 2015:

On August 26, 2015, a convertible note agreement was entered into for a total of $26,625 with an interest of 0% per annum. The agreement allows conversion into shares of common stock at 50% discount to the lowest intraday trading prices during the 20 days prior to conversion date. The note was immediately convertible and has been fully converted as of August 31, 2015.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $68,875 of the embedded derivative.

The initial fair value of the embedded debt derivative of $68,875 was allocated as a debt discount up to the face value of the note ($26,625) with the remaining $42,250 recognized as a loss on derivative liabilities. The debt discount was fully amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:

The aggregate loss associated with these derivative liabilities was $500,810 for the year ended December 31, 2015 due to the change in fair value and loss on conversion.

Note issued on December 24, 2015:

On December 24, 2015, a convertible note agreement was entered into for a total of $50,000 with an interest of 10% per annum. The agreement allows conversion into shares of common stock 50% discount to the lowest intraday trading prices during the 15 days prior to conversion date with a ceiling of $0.003.

The Company identified embedded derivatives related to the Convertible Promissory Note as of its maturity date. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each conversion date and subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $418,331 of the embedded derivative.

The initial fair value of the embedded debt derivative of $418,331 was allocated as a debt discount up to the face value of the note ($50,000) with the remaining $366,831 recognized as a loss on derivative liabilities. The debt discount of $479 was amortized to derivative expense during 2015.

The fair value of the embedded derivative under this note was determined using the Black Scholes Option Pricing Model based on the following assumptions:  

The aggregate loss associated with these derivative liabilities was $818,262 for the year ended December 31, 2015 due to the change in fair value.

In February 2016, the Company entered into a convertible debt agreements with total principal amount of $43,750 with an original issue discount of $3,750 and 12% default interest per annum. The note is convertible at a 38% discount to the lowest market price of the 15 days preceding the conversion request. The note is due August 3, 2016.

On February 23, 2016, the Company received from its majority shareholder 100,000,000 restricted common shares for immediate cancellation. There was no consideration to the majority shareholder.

In March 2016, the Company entered into a convertible debt agreements with total principal amount of $25,000 and 10% simple interest per annum. The note is convertible at a 70% discount to the lowest market price of the 20 days preceding the conversion request. The note is due September 21, 2016.

In April 2016, the Company entered into a convertible debt agreement with a principal amount of $150,000 with 8% interest per annum. This note is convertible at a fixed rate of $.0008. These notes are convertible any time after 179 days from the date of the note at the option of the holder.

On December 20, 2016, the Company entered into a convertible debt agreement with a principal amount of $92,000 with 10% interest per annum. This note is convertible at 60% the lowest one day trading price for the common stock in the prior twenty days to the conversion date. The note matures six months after the issue date and is convertible on after that date unless an event of default occurs then the note can be converted at the option of the holder.

The Company has changed the pricing model from the Black Scholes pricing model to the lattice pricing model to reflect a more likely valuation in this filing.

The Convertible Note derivatives were valued as of issuance, conversion/redemption, replacement/amendment/assignment, and the quarterly periods 12/31/15 to 12/31/16. The following assumptions were used for the valuation of the derivative liability related to the Notes:

The Convertible Note derivatives were valued as of the quarterly periods 12/31/15 to 12/31/16.

The December 31, 2015 financial statements have been restated to reflect the changed pricing model. The impact was an increase to Derivative Liability and Liability Expense $1,014,390.

NOTE 7 – INCOME TAXES

Income taxes are accounted for in accordance with FASB ASC 740, which requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, the guidance requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or the entire deferred tax asset will not be realized.

The Company has net operating losses at December 31, 2016 of $3,358,663 expiring through 2035. Utilization of these losses may be limited by the "change of ownership" rules as set forth in section 382 of the Internal Revenue Code.

The difference between the expected income tax expense (benefit) and the actual tax expense (benefit) computed by using the federal statutory rate of 35% is as follows:

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset, are as follows:

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.