Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 – DESCRIPTION
OF BUSINESS
Xtreme Fighting Championships Inc., FKA/Duke Mountain
Resources, Inc. (“we”, “our”, the “Company”), a Nevada corporation, was formed on May 3, 2006 and
in the sports entertainment and media business since 2020 that is a publicly traded Mixed Martial Arts (MMA) league, producing a wide
range of live fighting events that are broadcast via traditional networks, pay-per-view and online. MMA is a full-contact combat sport
based on striking, grappling and ground fighting incorporating techniques from a broad range of martial arts and combat sports around
the world.
Previously, we were an exploration stage company
engaged in the acquisition and exploration of mineral properties and held certain leases and mining claims under our two subsidiaries,
namely: Duke Mountain Resources Canada, Inc. and Fostung Resources Ltd. These subsidiaries ceased operations in 2014 and are not currently
active.
On December 17, 2020, the Company
changed its name to Xtreme Fighting Championships, Inc.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
and Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
COVID-19
On March 11, 2020, the World
Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President
announced a National Emergency relating to the disease. There is a possibility of continued widespread infection in the United States
and abroad, with the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing
and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures.
These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies
of uncertain severity and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature
of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected
in the longer run, but we expect that it may materially affect our business, financial condition and results of operations. The extent
to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted,
including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat
its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity
and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or
any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors,
or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively
impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree.
The duration of any such impacts cannot be predicted.
The Company may incur significant
delays and/or expenses in addition to, impairing its ability to secure additional financing, relating to the worldwide COVID-19 (coronavirus)
pandemic. It is presently unknown whether and to what extent the Company’s supply chains may be affected if the pandemic persists
for an extended period of time. The Company may incur significant delays or expenses relating to such events outside of its control, which
could have a material adverse impact on its business, operating results and financial condition. The Company’s reliance on securing
additional capital for its public company expenses may be impaired due to the effect on the U.S. financial markets. The inability to obtain
appropriate financing, may affect its compliance requirements as a public company. The Company has been using its working capital from
its operating subsidiaries, to support its public company expenses. The continued drain on its working capital have forced the Company
to incur cutbacks, which may affect its future operating revenue as well as, its ability to continue operations.
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XTREME FIGHTING CHAMPIONSHIPS, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and Cash Equivalents
The Company considers all
highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with
a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000. To reduce its risk associated with the failure of such financial institution, the Company
evaluates at least annually the rating of the financial institution in which it holds deposits.
Revenue Recognition and
Unearned Revenue
Revenue is recognized in accordance
with ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). The Company performs
the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii)
determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize
revenue when (or as) the entity satisfies a performance obligation. The Company applies this five-step model to arrangements that meet
the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled
to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within
the scope of Topic 606, the Company evaluates the goods or services promised within each contract, related performance obligation and
assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that
is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Revenues were derived primarily
from sponsorship advertising.
Intangible assets
Intangible assets include the
Company’s content library of fights 1 through 42 including background stories and the XFC trade mark, purchased and recorded at
their acquisition cost. The content library intangible assets are amortized over an estimated useful life of 7 years. Useful lives of
intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may no longer be recoverable.
Goodwill and other Intangible
Assets
In accordance with ASC 350-30-65, “Intangibles
- Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which
could trigger an impairment review include the following:
| |
● |
Significant underperformance relative to expected historical or projected future operating results; |
| |
● |
Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and |
| |
● |
Significant negative industry or economic trends. |
When the Company determines that the carrying value
of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value
of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures
any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with
the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment
exists and in projecting cash flows. There was no impairment loss recognized during the period ended June 30, 2022.
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XTREME FIGHTING CHAMPIONSHIPS, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Property and Equipment
Property and equipment are carried at historical cost
less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using
the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets
are retained in the venue equipment, and accumulated depreciation accounts until they are removed from service. When an asset is retired,
sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and
any gain or loss is included in operations. Repairs and maintenance are expensed as incurred.
The estimated useful lives of property and equipment
are generally as follows:
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least
annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying
amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book
value. The Company did not record any impairment charges during the period ended June 30, 2022.
Fair Value Measurements and Financial Instruments
The Company follows the provisions
of FASB ASC Topic 820, Fair Value Measurements, included in ASC Topic 820, Fair Value Measurements and Disclosures, for
fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized
or disclosed at fair value in the financial statements on a nonrecurring basis.
ASC 820 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 which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets
or liabilities.
Level 2 – Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are
supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted
cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant
judgment or estimation.
The Company's financial instruments consist of cash
accounts payable and convertible notes. The carrying amount of these financial instruments approximates fair value due either to
length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
The Company has no financial assets or liabilities that are measured on a recurring basis as of June 30, 2022.
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XTREME FIGHTING CHAMPIONSHIPS, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Convertible debt
The Company records a beneficial
conversion feature (“BCF”) related to the issuance of convertible notes that have conversion features at fixed or adjustable
rates. The beneficial conversion feature for the convertible instruments is recognized and measured by allocating a portion of the proceeds
as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic
value of the conversion features. The beneficial conversion feature will be accreted by recording additional noncash interest expense
over the expected life of the convertible notes.
Stock Based Compensation
Stock-based compensation is
accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial
statements of the cost of employee and non-employee services received in exchange for an award of equity instruments over the period
the employee or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC
also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair
value of the award.
Earnings (Loss) per Common Share
Net income (loss) per common share is calculated in
accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding during the period. In periods where the Company has a net
loss, the computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares
outstanding as their effect would be anti-dilutive.
Related Party Transactions
A party is considered to be related to the Company
if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting
parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Income Taxes
The Company accounts for income taxes pursuant to
the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”) which requires, among other things,
an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes
it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision
of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the
merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10,
the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management
believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other positions.
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XTREME FIGHTING CHAMPIONSHIPS, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Tax positions that meet the
more likely than not recognition threshold is measured at the largest amount of tax benefit that is more than 50 percent likely of being
realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed
the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet
along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company believes its tax
positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain
tax benefits.
The Company has adopted ASC
740-10-25, “Definition of Settlement,” which provides guidance on how an entity should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively
settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively
settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to
be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income
tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are
filed.
Recent Accounting Pronouncements
Management has considered all
recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management
believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
NOTE 3 - GOING CONCERN
The accompanying consolidated
financial statements are prepared assuming the Company will continue as a going concern. On June 30, 2021, the Company had an accumulated
deficit of $38,652,384, negative working capital of $1,227,299 and net loss of $932,420 during the period ended June 30, 2022. These factors
raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial
statements. The ability of the Company to continue as a going concern is dependent upon obtaining additional capital and financing. Management
intends to attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its
strategy to raise additional funds, there can be no assurances to that effect. Without additional capital, we will be unable to achieve
our business objectives, and may be forced to curtail our operations, reduce headcount, and/or temporarily cease our operations until
requisite capital is secured. The consolidated financial statements do not include any adjustments relating to classification of assets
and liabilities that might be necessary should the Company be unable to continue as a going concern.
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