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NOTE 1 – DESCRIPTION OF BUSINESS

 

Global Fashion Technologies, Inc. ("the Company") was incorporated in Nevada on March 25, 2005.  On July 19, 2012, the Company filed an amendment with the Nevada Secretary of State to increase its authorized common stock shares to 200,000,000.  On December 9, 2013, the Company filed an amendment with the Nevada Secretary of State to increase its authorized common stock shares to 300,000,000.

On August 4, 2014, the Board of Directors of the Company and the majority shareholders of the Company, approved a reverse stock split of the outstanding shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), at a ratio of 1-for-350 (the "Reverse Stock Split") effective at 5:00 p.m. EDT on August 15, 2014.  The Amendment was filed with the Secretary of State of Nevada on August 6, 2014, and took effect on August 15, 2014 at 5:00 p.m. EDT.  As a result of the reverse stock split, every 350 shares of the Company's old authorized common stock was converted into one share of the Company's new authorized common stock.  All references to common stock shares have been adjusted to reflect the results of the reverse stock split as if it had occurred at the inception of the Company.

Global Fashion Technologies, Inc. is the holding company.  During the fourth quarter of 2013, the Company became involved in the manufacturing and global distribution of ladies apparel.  Trident Merchant Group, Inc. was an operating subsidiary which is a "value added" strategic advisory services company specializing in rendering expertise in the areas of capital planning and procurement, licensing and branding as well as financial engineering and restructuring of its client company's balance sheet and going public process.  During the second quarter of 2014, the Company formed Leading Edge Fashions, LLC, of which it controls 51%.  The non-controlling interest is recorded in the stockholders' equity section.  Effective December 31, 2014, the Company's Board of Directors determined it was in the best interest of the Company to discontinue the operations of Leading Edge Fashions, LLC.

 

Basis of Presentation: Unaudited Interim Financial Information

 

The accompanying interim condensed consolidated financial statements are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position and results of operations as of and for the periods presented. The interim results are not necessarily indicative of the results to be expected for the full year or any future period.

 

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Company believes that the disclosures are adequate to make the interim information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto included in the Company's Report on Form 10-K filed on February 3, 2016 for the years ended December 31, 2014 and 2013.

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiary Trident Merchant Group, Inc. and Leading Edge Fashion, LLC which is 51% owned.  All significant intercompany accounts and transactions have been eliminated.

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net (loss).

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and investments in money market funds. The Company considers all highly-liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.

  

Equipment

 

Property and equipment are stated at cost. Costs of replacements and major improvements are capitalized, and maintenance and repairs are charged to operations as incurred. Depreciation expense is provided primarily by the straight-line method over the estimated useful lives of the assets, seven years.

Revenue Recognition

 

Revenue for the women's fashion division is recognized at the point-of-sale for retail store sales, net of estimated customer returns. Revenue is recognized at the completion of a job or service for the consulting division. Revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority. Payment for merchandise at stores and through the Company's direct-to-consumer channel is tendered by cash, check, credit card, debit card or gift card. Therefore, the Company's need to collect outstanding accounts receivable for its retail and direct-to-consumer channel is negligible and mainly results from returned checks or unauthorized credit card transactions. The Company maintains an allowance for doubtful accounts for its consulting service accounts receivable, which management reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments. Deposits for consulting services are recognized as a sale upon completion of service.

 

The Company accounts for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer. A liability is established and remains on the Company's books until the card is redeemed by the customer, at which time the Company records the redemption of the card for merchandise as a sale or when it is determined the likelihood of redemption is remote, based on historical redemption patterns. Revenues attributable to gift card liabilities relieved after the likelihood of redemption becomes remote are included in sales and are not material.

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

 

The Company accounts for income taxes pursuant to Accounting Standards Codification ("ASC") 740, Income Taxes, which utilizes the asset and liability method of computing deferred income taxes. The objective of this method is to establish deferred tax assets and liabilities for any temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.

ASC 740 also provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold at the effective date to be recognized. During the three months ended March 31, 2015 and 2014 the Company recognized no adjustments for uncertain tax positions.

 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were recognized at March 31, 2015 and March 31, 2014. The Company expects no material changes to unrecognized tax positions within the next twelve months.

 

The Company has not filed federal and state tax returns from inception through December 31, 2015. The tax periods since inception are open to examination by federal and state authorities.

 

Impairment or Disposal of Long-Lived Assets

 

ASC Topic 360 (formerly FASB issued Statement No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144") clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business.  Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable.  When necessary, impaired assets are written down to their estimated fair value based on the best information available. 

 

 

Use of Accounting 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 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.  Actual results could differ from those estimates.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value

FASB ASC 820, Fair Value Measurements and Disclosures ("ASC 820") establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:

Level 1—Quoted market prices for identical assets or liabilities in active markets or observable inputs;

Level 2—Significant other observable inputs that can be corroborated by observable market data; and

Level 3—Significant unobservable inputs that cannot be corroborated by observable market data.

The carrying amounts of cash, accounts receivable, accrued compensation, accounts payable and other liabilities, accrued interest payable, and short-term portion of notes payable approximate fair value because of the short-term nature of these items.

Earnings (Loss) per Share

 

In accordance with SFAS No. 128, "Earnings Per Share," the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding.  Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

NOTE 3 – NOTES PAYABLE

 

 Secured Note Payable

 

The Company and its former consolidated subsidiaries entered into a settlement agreement with R.R. Donnelly & Sons Company ("Donnelly") on June 6, 2007.  As part of the settlement, the Company issued to Donnelly a Secured Promissory Note in the principal sum of $601,048, with an interest rate of 9% per annum and a requirement for monthly payments of $43,577, and granted Donnelly a first lien security interest in all of the Company's assets.  The Company was unable to meet the monthly payments and Donnelly obtained judgment in the amount of $601,048.  This note was subsequently sold to a Director of the Company.  On March 31, 2013 the Company's Board of Directors issued a "Moratorium on Accrued Interest" stating that the interest accrual on this note would cease indefinitely at March 31, 2013 and that all past due accrued interest would be added to the principal portion of the note.  The balance of this note plus accrued interest totals $ 0 and $ 931,306 at March 31, 2015 and December 31, 2014, respectively.  

 

NOTE 3 – NOTES PAYABLE (Continued)

On March 1, 2015 the principal and accrued interest in the amount of $931,306 was converted into 6,062,154 shares of common stock which was valued at $9,396,338.  The Company recorded $8,465,034 of debt extinguishment cost.

As of December 31, 2014, the Company owed $785,764 to Legacy O'Neal Investors related advances that was made on behalf of the Company to Leading Edge Fashion LLC, a discontinued operation which was controlled by the Company. The Company settled the debt on July 1, 2016 through the issuance of 600,000 shares of common stock.

On November 25, 2014 the Company issued a secured promissory note to an individual in the amount of $100,000 at 10% interest and due on April 1, 2015. The balance of this note plus accrued interest totals $102,465 and $100,833 at March 31, 2015 and December 31, 2014 respectively.  On April 1, 2016 the Company entered into a forbearance agreement.  The Company was granted an extension of the note through September 30, 2016 in consideration for 150,000 shares of common stock with interest accruing after March 29, 2016 at 12%.  The note is in default after September 30, 2016.

Unsecured Notes Payable 

The Company has an unsecured note payable in the principal amount of $67,057.  This note was issued to a vendor on August 23, 2007.  The note bears interest at the rate of 10% per annum and required monthly payments of $4,500 with final payment due on July 15, 2008.  The Company has made no payments under this note and the note is in default.  The balance of this note plus accrued interest totals $118,644 and $115,718 at March 31, 2015 and December 31, 2014 respectively.

 

Convertible Notes Payable

 

The Company has an 8% unsecured convertible note payable in the amount of $250,000.  The conversion feature has expired and the note is in default.  The balance of the principal and interest is $435,115 and $439,115, as of March 31, 2015 and December 31, 2014, respectively.

During the year ended December 31, 2012 the Company and certain holders agreed to convert the notes payable and related accrued interest totaling $791,319 into 89,000 shares of the Company's common stock.  The above balance was reflected as stock subscriptions received but not issued as of December 31, 2014 and reclassified to additional paid in capital as of March 31, 2015 and the shares are still issuable.

 

NOTE 4 – CAPITAL STOCK

 Preferred Stock

 

The Company has designated a "Class B Convertible Preferred Stock" (the "Class B Preferred".  The number of authorized shares totals 1,000,000 and the par value is $.001 per share.  The Class B Preferred shareholders vote together with the common stock as a single class.  The holders of Class B Preferred are entitled to receive all notices relating to voting as are required to be given to the holders of the Common Stock.  The holders of shares of Class B Preferred shall be entitled to 10,000 votes per share.  The Class B Preferred Stock will have the rights to liquidation as all classes of the Common Stock of the Company.  The Class B Preferred stock holders are entitled to receive non-cumulative dividends at the rate of 8% per annum, in preference and priority to any payment of any dividend on the common stock.  The Class B Preferred Stock shall be redeemed by the Corporation for 100% of the original purchase price plus the amount of cash dividends accrued on the earlier of 6 months from the date of issuance, or the date that the Corporation received its funding from any outside source in conjunction with a merger, reverse merger or any change of control.  In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Class B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any assets of the Corporation to the holders of the Common Stock, the amount of $.035 per share plus any and all accrued but unpaid dividends.

During the fourth quarter of 2011, a total of 200,000 shares of the Series B Preferred Stock were issued to a related party for legal and accounting fees paid for the Company's benefit in the amount of $7,500.

 

Common Stock

 

The Company's par value of its common stock was incorrectly stated as $0.35 in its December 31, 2014 financial statements, whic was included with its form 10-K.  This resulted in the overstatement on the balance sheet of the value of common stock by $631,110 and the understatement of additional paid-in-capital by $613,110.  There was no impact on the total stockholders' deficit.

 

As of March 31, 2015 and December 31, 2014, the Company has 5,745,654 and 1,758,500 shares of its $0.001 par value common stock issued and outstanding, respectively.   In addition, as of March 31, 2015, the Company had 2,162,665 shares of common stock issuable. The common stock subscriptions of $791,319 have been received as of December 31, 2014.  The $791,319 of subscriptions received has been reclassified to equity as of March 31, 2015.

NOTE 5 – INCOME TAXES

 

The Company uses the liability method, whereby deferred taxes and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.  On December 31 2013 and 2012, the Company has no tax liability.  The net deferred tax asset generated by the loss carry-forward has been fully reserved.  The cumulative net operating loss carry-forward is approximately $10,000,000 at December 31, 2014, and will expire in the years 2026 through 2034.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

On March 15, 2015 the Company entered into a trademark license agreement with True Beauty, LLC which controls the trademark EMME.  EMME is a market pioneer and trusted voice of the "Full-Figured" market. Under this licensing agreement the Company, will design, produce and market the EMME® Activewear Collection.  On April 13, 2016, the agreement was amended regarding the term and minimum royalties.  The Company paid $50,000 in April 2015 for its 2015 royalties.

The additional minimum royalties are as follows:

 

2016		$	100,000
2017			150,000
2018			250,000
2019			250,000
		$	750,000

As of January 18, 2016, the Company is a party to one pending litigation matter entitled Randazzo LLC v. Avani Holdings LLC & Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in order to evict Avani Holdings LLC from its rented premises in California and to recover unpaid rent. The Company does not operate out of the premises in question and has never signed any leases or other documents with the plaintiff. Consequently, there appears to be no legitimate cause of action against the Company. However, the Company is attempting to resolve the matter due to the relatively-small amount in controversy. The unpaid rent being sought by the plaintiff is $26,595.45.

As of January 18, 2016, the Company has been named as a defendant in the matter of Patrick Kalashyan v. Avani Holdings, LLC & Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff to recover monies owed on a September 23, 2011 settlement agreement signed between the Plaintiff and Avani Holdings, LLC.  The Company was never a party to this agreement and never acquired Avani Holdings, LLC.  Consequently, there is no legitimate cause of action against the Company.  The Company is vigorously defending itself as it has no legal liability for a debt of Avani Holdings, LLC.  The amount being sought by the plaintiff is $150,000 plus interest.

NOTE 7 – DISCONTINUED OPERATIONS

In December 2014, the Company's Leading Edge Fashions, LLC retail businesses in which it owned 51% was classified as discontinued operations.  Based on the Company's strategy to allocate resources to its businesses relative to their growth potential and those with the greater right to win in the marketplace, the Company determined that this business did not align with the Company's long-term growth plans.

As of March 31, 2015 and December 31, 2014, $870,045 of current liabilities from discontinued operations includes $785,764 loan payable and $84,281 accounts payable.

 

 

 

NOTE 8 – RELATED PARTY TRANSACTIONS

The Company has received advances from an Officer and member of the Board of Directors of the Company in the amount of $129,048 and $87,131 at March 31, 2015 and December 31, 2014, respectively.

The Company has accrued compensation in the amount of $340,000 at March 31, 2015 and December 31, 2014 to an Officer and member of the Board of Directors.

The Company issued in the quarter ended June 30, 2015, 2.5 million shares of the Company's common stock valued at $2,750,000 in consideration of settlement of $340,000 of outstanding payroll owed to two officers of the Company.

NOTE 9 - NET LOSS PER SHARE

 

Potentially dilutive securities are excluded from the calculation of net loss per share when their effect would be anti-dilutive. For all periods presented in the consolidated financial statements, all potentially dilutive securities have been excluded from the diluted share calculations as they were anti-dilutive as a result of the net losses incurred for the respective periods. Accordingly, basic shares equal diluted shares for all periods presented.

NOTE 10 - SUBSEQUENT EVENTS

 

The Company issued, in April 2015, a total of 1,000,000 shares of the Company's common stock valued at $1,250,000 to two key employees, Ms. Joy Nunn, the Company's CTO and Mr. Paul Serbiack, the Company's Chief Operating Officer, as sign on bonuses.  The stock value was based on the current trading price of the stock.

The Company created a new limited liability company, Pure361, LLC ("Pure361") in May 2015.  The Company owns 51% of Pure361.  Pure361 entered into a license agreement with Pure System International Ltd. ("Pure").

On August 21, 2015, the Company entered into a separation agreement with a former executive of the Company.  The Company agreed to pay $37,500 and issue 200,000 shares of the Company's common stock subject to a lock-up/leak-out agreement.  The former employee will receive one percent of any net profit of Pure 361 LLC (a limited liability company formed in the state of Delaware on May 18, 2015, which the Company has a 51 percent ownership in) for a period of five years beginning with the first profitable year.

The Company issued in the quarter ended June 30, 2015,  71,426 shares of its common stock for consulting services valued at $89,283 and additional 500,000 shares related to a placement agent agreement.   The 500,000 shares issued to the private placement agent is a cost of capital.

 

 

NOTE 10 - SUBSEQUENT EVENTS (Continued)

In 2016, the Company issued an additional 315,000 shares of its common stock to third-parties for services rendered, 50,000 shares to a director for his services, 200,000 shares to a note holder in conjunction with the extension of the terms of a note; 87,500 shares related to conversion of monies due to a related party, and 1,139,001 shares to five individuals for monies received from subscription agreements that were entered into with the Company.

Management has evaluated the impact of events occurring after March 31, 2015 up to the date of the filing of these interim unaudited condensed consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation.