LINGERIE FIGHTING CHAMPIONSHIPS, INC. - Annual Report: 2015 (Form 10-K)

U. S. Securities and Exchange Commission

 Washington, D.C. 20549

 

FORM 10-K

 

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended February 28, 2015

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File No. 333-148005

 

LINGERIE FIGHTING CHAMPIONSHIPS, INC.

 (Name of small business issuer as in its charter)

 

 

6955 North Durango Drive

Suite 1115-129

Las Vegas, NV 89149

 (Address of principal executive offices, Zip Code)

(702) 527-2942

 (Registrant's telephone number, including area code)

Copies to:

Asher S. Levitsky PC

Ellenoff Grossman &Schole, LLP

1345 Avenue of the Americas, Suite 1100

New York, New York 10105-0302

Phone: (212) 370-1300

Fax: (646) 895-7182

E-mail: alevitsky@egsllp.com

 

 

Securities Registered under Section 12(b) of the Exchange Act: None

 

Securities Registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes  ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant Section 13 or 15(d) of the Exchange Act.  ☐ Yes  ☒  No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☐Yes  ☒ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☐ Yes ☒No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes    ☒No

 

On August 31, 2014, the last day of our most recent second quarter, the aggregate market value of voting and nonvoting common stock held by non-affiliates of the registrant, based upon the closing bid quotation for the registrant's common stock, was approximately $16,992,160.

The number of shares of registrant's common stock outstanding as of June 2, 2015 was 19,674,977.

 

LINGERIE FIGHTING CHAMPIONSHIPS, INC.

(formerly known as Cala Energy Corp.)

2015 ANNUAL REPORT ON FORM 10-K

 

 

EXPLANATORY NOTE 

·

We issued to the holders of the LFC common stock and convertible notes a total of 16,750,000 shares of our common stock;

·

We issued 2,500,000 additional shares of common stock for $200,000 in a private placement of our common stock at a purchase price of $0.08 per share;

·

The shares of common stock issued to the holders of the LFC common stock and convertible notes represents approximately 85.1% of our outstanding common stock after giving effect to the reverse split, the reverse acquisition and the private placement;

·

Our business became the business of LFC;

·

We changed our corporate name to Lingerie Fighting Championships, Inc.;

·

We changed our fiscal year to the calendar year, which is the fiscal year of LFC prior to the reverse acquisition;

·

Shaun Donnelly, who was the sole director and chief executive officer of LFC, became a director and chief executive officer;

·

LFC was merged into us on April 2, 2015.

 

On April 7, 2015, we filed with the SEC an 8-K (the "Super 8-K") which described the business of LFC and included its audited financial statements for the period from July 21, 2014 (inception) to December 31, 2014.  Information concerning the business of LFC, which is now our business, including risks associated with the business of LFC, LFC's financial statements and pro forma financial statements, and the exhibits relating to the reverse acquisition, including the share exchange agreement, and the contemporaneous private placement, are contained in the Super 8-K and are not included in this Form 10-K.  On May 20, 2015, we filed a quarterly report on Form 10-Q (the "March 2015 10-Q") for the quarter ended March 31, 2015, which reflected the business of LFC for the three months ended March 31, 2015.

This Form 10-K describes our business as it existed on February 28, 2015, and the risks associated with such business (other than those relating to our status as a shell company), and does not describe our current business.  It also includes our audited financial statements for the years ended February 28, 2015 and 2014 based on our operations as they existed during such years.  The information contained in Part III of this Form 10-K reflects information concerning our current directors, officers, and principal shareholders.  As a result of the reverse acquisition, LFC is the accounting acquiring party, and, as a result, in future filings, the comparable financial statements for prior periods will reflect the operations of LFC.

Readers should carefully read the Super 8-K and the March 2015 10-Q for information concerning our current operations.

All share and per share information in this Form 10-K reflects the 800-for-one reverse split which became effective on March 20, 2015.

References in this annual report to "we," "us," and words of like import refer to Lingerie Fighting Championships, Inc. which was then known as Cala Energy Corp.  References to LFC refer to Lingerie Fighting Championships, Inc. prior to the reverse application.

 

FORWARD LOOKING STATEMENTS

 

This annual report on Form 10-K contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this annual report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.

 

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Obtaining financial and investment information from the investor;

•

Obtaining a written suitability questionnaire and purchase agreement signed by the investor; and

•

Providing the investor a written identification of the shares being offered and the quantity of the shares.

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Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive and financial officer. Based on that evaluation, our chief executive and financial officer concluded that because of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of February 28, 2015.

 

Management's Report of Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act.  Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404").   Management assessed the effectiveness of our internal control over financial reporting as of February 28, 2015.  In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.  During our assessment of the effectiveness of internal control over financial reporting as of February 28, 2015, management identified material weaknesses related to (i) the lack of any accounting personnel other than our chief financial officer, who was not a full-time employee, (ii) the lack of internal audit functions, and (iii) a lack of segregation of duties within accounting functions.  As of February 28, 2015, we had one executive, our chief executive and financial officer, who was a consultant who provided services on an as-needed basis.  As a result there was no segregation of duties.

 

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Subsequent to February 28, 2015, we completed the reverse acquisition of LFC.  LFC did not have disclosure controls and procedures or internal controls over financial reporting at the time of the acquisition, as a result of which we do not have such controls in place on the date of this annual report.  We cannot assure you that we will be able to develop, implement and maintain effective controls in the future.

This annual report does not include an attestation report of our registered accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this annual report.

The conclusion of chief executive officer and chief financial officer regarding our disclosure controls and procedures is based solely on management's conclusion that our internal control over financial reporting was not effective.

Management does not believe that there have been any changes in our internal control over financial reporting, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Name	Age	Position
Shaun Donnelly	47	Chief executive officer, president and director
Terry Butler	56	Chief financial officer and director

Mr. Butler accrued compensation at the rate of $10,000 per month during fiscal 2014 and the first six months of fiscal 2015; however, we did not pay any compensation to Mr. Butler during either fiscal 2015 or fiscal 2014.  Mr. Butler did not accrue compensation subsequent to the second quarter of fiscal 2015, and at February 28, 2015, Mr. Butler contributed his accrued compensation, in the amount of $270,000, to capital, as a result of which we have no further obligation to Mr. Butler with respect to compensation for periods prior to February 28, 2015.

Executive Employment Contracts

 

We have no employment agreements with any of our officers.

 

Equity Compensation Plan Information

 

Our board of directors and stockholders approved the 2010 long term incentive plan, which covers the issuance of 2,125 shares.  No shares were issued under the plan during the year ended February 28, 2015, and there are no outstanding options under the plan.

 

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table provides information at to shares of common stock beneficially owned as of May 23, 2015:

 

  

 

The address for Mr. Donnelly and Mr. Butler is c/o Lingerie Fighting Championships, Inc., 6955 North Durango Drive, Suite 1115-129, Las Vegas 89149.  The address of Mr. Chan is 340 S. Lemon Ave., #2247, Walnut CA 91789.

None of the persons named in the table hold options or other rights to acquire common stock.

 

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

On December 31, 2014, Mr. Butler, Mr. Chan and one non-affiliated person each made a $12,000 loan to us and received a 10% senior promissory note in the principal amount of $12,000.  The notes were due December 31, 2015 or earlier in the event that we completed a private placement of our stock.  The notes were paid from the proceeds of a $200,000 private placement of our common stock on March 31, 2015, contemporaneously with the completion of the reverse acquisition with LFC.  Mr. Chan was not a related party at February 28, 2015, and is deemed to have become a related party as a result of his acquisition of more than 5% of our common stock on March 31, 2015 pursuant to the share exchange agreement relating to the reverse acquisition transaction.

In February 2015, Mr. Butler and Mr. Chan each made a loan to LFC in the amount of $1,925.  The notes had a September 30, 2015 maturity date, and were converted into 1,925,000 shares of common stock pursuant to the share exchange agreement relating to the reverse acquisition.  Prior to the issuance of the shares upon conversion of the promissory notes, neither Mr. Butler nor Mr. Chan held any equity interest in our securities.  Two non-affiliated individuals each made a $700 loan to LFC and received 700,000 shares of common stock pursuant to the share exchange agreement.

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Butler nor Mr. Chan held any equity interest in our securities.  Two non-affiliated individuals each made a $700 loan to LFC and received 700,000 shares of common stock pursuant to the share exchange agreement.

In addition, during fiscal 2015, Mr. Butler made a $100 advance to the Company.

Pursuant to the share exchange agreement relating to the reverse acquisition with LFC, on March 31, 2015, Shaun Donnelly exchanged his common stock in LFC for 9,350,000 shares of common stock, representing 47.5% of our outstanding common stock, after giving effect to the reverse acquisition transaction and a contemporaneous private placement of our common stock.  Prior to the issuance of these shares, Mr. Donnelly had no equity or other interest in us.  He became our chief executive officer and a director as a result of the reverse acquisition transaction.

 

Neither of our directors is an independent director.

ITEM 14.         PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Since we do not have a formal audit committee, our board of directors serves as our audit committee. We have not adopted pre-approval policies and procedures with respect to our accountants. All of the services provided and fees charged by our independent registered accounting firms were approved by the board of directors.  During fiscal 2015 and 2014, our board of directors consisted of one individual, Mr. Terry Butler.

 

The following is a summary of the fees for professional services rendered by MaloneBailey for the year ended February 28, 2015 and by Simon & Edward for the years ended February 28, 2015 and 2014.

MaloneBailey:

 

Simon & Edward:

Audit fees.    Audit fees represent fees for professional services performed by MaloneBailey and Simon & Edward for the audit of the applicable 2015 and 2014 annual financial statements.

 

Audit-related fees.    We did not incur any other fees for services performed by and MaloneBailey or Simon & Edward.

 

Tax Fees.      We incurred tax service fee in the amount of $0 and $1,000 for the years ended February 28, 2015 and 2014, respectively.     

 

Other fees.     MaloneBailey and Simon & Edward did not receive any other fees during 2015 or 2014.

15

PART IV

 

ITEM 15.  EXHIBITS, FINANIAL STATEMENT SCHEDULES

 

Exhibit Number		Description
3.1		Restated Articles of Incorporation of the Company, as amended *
3.2		Bylaws of the Company (1)
10.1		2010 Long-Term Incentive Plan (2)
21.1		List of subsidiaries*
23.1		Consent of MaloneBailey, LLP*
23.2		Consent of Simon & Edward, LLP*
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

 

* filed herewith.

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	LINGERIE FIGHTING CHAMPIONSHIPS, INC.
Date: June 3, 2015	By:	/s/ Shaun Donnelly
		Shaun Donnelly
		Chief Executive Officer

Signature		Title			Date
/s/ Shaun Donnelly		Chief Executive Officer and Director (Principal Executive Officer)			June 3, 2015
Shaun Donnelly   /s/ Terry Butler		Chief Financial Officer and Director (Principal Financial and Accounting Officer)			June 3, 2015
Terry Butler

17

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Lingerie Fighting Championships, Inc. (formerly Cala Energy Corp.)

 

We have audited the accompanying consolidated balance sheet of Lingerie Fighting Championships, Inc. and subsidiary (the "Company") as of February 28, 2014, and the related consolidated statements of operations and other comprehensive loss, changes in stockholders' deficit and cash flows for the year ended February 28, 2014. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lingerie Fighting Championships, Inc. and subsidiary as of February 28, 2014, and the results of its operations and its cash flows for the year ended February 28, 2014 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company is not engaged in any business activities, has not generated any revenue from continuing operations during the past two fiscal years, has a stockholders' deficiency of $179,793 and will additional financing if it is to engage in any business activities.  These matters, among others, 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 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Simon & Edward, LLP

Diamond Bar, California

May 20, 2014

F-5

F-7

Lingerie Fighting Championships, Inc. (the "Company") is a Nevada corporation incorporated on November 29, 2006 under the name Sparking Events, Inc.  The Company's corporate name was changed to Xodtec Group USA, Inc. in June 2009, Xodtec LED, Inc. in May 2010, Cala Energy Corp. in September 2013 and Lingerie Fighting Championships, Inc. on April 1, 2015.

Prior to May 31, 2012, the Company, through its subsidiaries, was engaged in the design, marketing and selling of advanced lighting solutions which are designed to use less energy and have a longer life than traditional incandescent, halogen, fluorescent light sources.  

 

On From April 2009 until July 13, 2012, through its subsidiaries, the Company was engaged in design, marketing and selling of advanced lighting solutions which are designed to use less energy and have a longer life than traditional incandescent, halogen, fluorescent light sources.   The Company was not able to generate profit from operations for during this period.  For the last years in that the Company was in that business, it financed its operations primarily from funds provided by its officers and directors.

On July 13, 2012, pursuant to agreements with one of the Company's former directors, the Company transferred the stock in its subsidiaries and its 35% ownership in an inactive company to the former director in exchange for cancellation of debt totaling $100,000.  As a result of the transfer of the subsidiaries, the Company as no longer engaged in the lighting solutions business.  The Company transferred the stock of the subsidiaries because it felt that, as a result of its continuing losses and its inability to develop the business as it had planned, it was not in the Company's best interest to continue in this business.

On July 14, 2012 Morgan Stanley Smith Barney Custodian fbo Terry Butler Roth IRA ("Butler Roth IRA") acquired, for nominal consideration, 31,236 shares of common stock from the director who acquired the subsidiaries and 24,252 shares of common stock from our then chief executive officer, who was also a director.  On July 18, 2012, the Butler Roth IRA and the Company entered into a loan agreement pursuant to which the Butler Roth IRA agreed to lend the Company up to $150,000, for which the Company issued its 6% demand promissory note in the principal amount of $150,000.  The securities were issued in Mr. Butler's name.

On September 14, 2012, the Company entered into agreement pursuant to which it issued to Terry Butler, who was then the Company's sole director and chief executive officer, 131,037 shares of common stock and 5,000,000 shares of a newly-created series of preferred stock, which was designated as the series A convertible preferred stock, in consideration of the cancellation of debt due in the amount of $819,319.

On May 23, 2013, Mr. Butler sold to Jia Hang 182,832 shares of common stock and 5,000,000 shares of series A convertible preferred stock for a total consideration of $300.  The preferred stock became convertible into 125,000 shares of common stock on May 30, 2013, upon the filing of an amendment to our articles of incorporation increasing our authorized common stock to 400,000,000 shares.  Upon such conversion Mr. Hang owned 307,832 shares of common stock, representing 72.5% of the then outstanding common stock.

The Company initially planned to focus on providing an internet based security system to companies that would like to replace security guards with video cameras that are monitored 24/7.  Through February 28, 2014, the Company did not generate any revenue from this new proposed business, and it discontinued its efforts with respect to that business.

 

The Company subsequently considered providing enhanced oil recovery services and supplying materials to existing operators of oil fields in Indonesia.  The Company was unable to develop that business and, during the year ended February 28, 2015, it investigated other potential acquisition candidates, and, on March 31, 2015, the Company acquired LFC in a reverse acquisition transaction.

At February 28, 2015, the Company did not have any subsidiaries.  At February 28, 2014, the Company had one subsidiary, Cala Energy International Corp., which was inactive at February 28, 2014 and whose existence was terminated during the year ended February 28, 2015.

F-8

Reverse Stock Split

On March 20, 2015, the Company effected a one-for-800 reverse stock split pursuant to which each share of common stock then outstanding became one-800^th of a shares, with fractional shares being rounded up to the next higher whole number of shares.   All share and per share information in these financial statements retroactively reflect this reverse split.  See Note 8.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principals of consolidation

The consolidated financial statements include the accounts of and its controlled subsidiaries. Equity investments in which the Company exercises significant influence, but does not control and is not the primary beneficiary, are accounted for using the equity method of accounting. Investments in which the Company does not exercise significant influence over the investee are accounted for using the cost method of accounting. Intercompany transactions are eliminated.  As of February 28, 2014, the Company had one subsidiary, Cala Energy International Corp., which was inactive.  At February 28, 2015, the Company had no subsidiaries.

Use of Estimates

The preparation of consolidated 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 disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Advertising and Promotion Costs

Costs associated with advertising and promotions are expensed as incurred. The Company did not incur any advertising and promotion costs for the years ended February 28, 2015 and 2014.

Fair Value of Financial Instruments

The fair values of the Company's accrued expenses and other current liabilities approximate their carrying values due to the relatively short maturities of these instruments. The carrying value of the Company's short and long term debt approximates fair value based on management's best estimate of the interest rates that would be available for similar debt obligations having similar terms at the balance sheet date.

Income Taxes

 

F-9

NOTE 3 - GOING CONCERN MATTERS

 

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. As shown in the financial statements, during the years ended February 28, 2015 and 2014, the Company did not engage in any business activities or generate any revenue, and the Company incurred a loss from operations of $136,756 and a net loss of $128,756 for the year ended February 28, 2015 and a loss from operations and a net loss of $260,154 for the year ended February 28, 2014.  The Company has a stockholders' deficit of approximately $39,000 at February 28, 2015 and $180,000 at February 28, 2014.  In addition, the Company had a negative cash flow in operating activities of approximately $68,000 and $145,000 for the years ended February 28, 2015 and 2014, respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company may seek funding through additional issuance of common stock and/or borrowings from financial institutions; however, market conditions, together with the absence of an active trading market in the Company's common stock and the trading price of the common stock make it difficult for the Company to raise cash from the sale of equity and the Company's financial condition make it extremely difficult to borrow funds. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

F-10

NOTE 6 – CAPITAL STOCK

On May 30, 2013, the Company amended its articles of incorporation to increase the authorized common stock from 225,000,000 shares to 400,000,000 shares.  The par value of $0.001 per share remained unchanged. In June 2013, the 5,000,000 shares of series A convertible preferred stock were converted into 125,000 shares of common stock.  As a result of the conversion of the series A convertible preferred stock, the converted shares became shares of preferred stock, without designation as to class.

During May 2013, the Company sold 50,000 shares of its common stock at its fair value $4.00 per share to investors, for which it received a total of $200,000.

During October and November 2013, the Company sold 6,250 shares of its common stock at its fair value $16.00 per share to investors, for which it received a total of $100,000.

In February 2015, the chief executive officer forgave $270,000 of accrued compensation, which represented all accrued compensation through February 28, 2015.  This forgiveness of indebtedness is treated as a contribution to capital and the amount was transferred from liabilities to additional paid-in capital.

NOTE 7– INCOME TAXES

 

The Company did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because the Company has experienced operating losses for U.S. federal income tax purposes since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit.  

The Company had a change in ownership during 2013.  As a result, due to the change in ownership provisions of the Internal Revenue Code, net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a further change in ownership occur, net operating loss carryforwards may be further limited as to use in future years.

The Company has fully reserved the benefit from the tax loss carryforward as follows:

NOTE 8 – SUBSEQUENT EVENTS

The Company received the proceeds from the private placement of its common stock on April 2, 2015, and paid the 10% senior promissory notes in the principal amount of $36,000.  See Notes 4 and 5.