Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
1 – ORGANIZATION
Organization,
Nature of Business and Trade Name
Intelligent
Highway Solutions, Inc. (the “Company” or “IHS”) was formed on April 22, 2011; IHS is a technology based
intelligent highway solutions contractor. Through June 30, 2013, the Company’s primary focus was in the California transportation
market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance
services for the State’s transportation infrastructure. Since that time, the Company has devoted its time to electrical
service contracts. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads,
traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors
and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication
will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler
safety and convenience.
NOTE
2 – GOING CONCERN
The
Company’s financial statements are prepared using generally accepted accounting principles in the United States of America
applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow
it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining
adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it
could be forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient
to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in 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. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial
condition and results of operations during the period in which such changes occurred.
Actual
results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes
are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Contracts
Receivable
Contracts
receivable from construction, operations and maintenance are based on amounts billed to customers. The Company provides an allowance
for doubtful collections which is based upon a review of outstanding receivable, historical collection information, and existing
economic conditions. Normal contracts receivable are due 30 days after issuance of the invoice. Contract retentions are usually
due 30 days after completion of the project and acceptance by the owner. Contracts receivable past due more than 60 days are considered
delinquent. Delinquent contracts receivable are written off based on individual credit evaluation and specific circumstances of
the customer. The Company had bad debt expense of $181,778and $0 during the years ended December 31, 2015 and 2014, respectively.
The allowance for doubtful accounts is $57,281 as of December 31, 2015.
Property,
Plant and Equipment
Property
and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments
that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the
period.
Depreciation
is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
Estimated
Useful Life
|
Furniture
and fixtures
|
3
- 5 years
|
|
|
Machinery
and equipment
|
5
years
|
|
|
Vehicles
|
5
years
|
For
federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements
purposes, depreciation is computed under the straight-line method. Balances of each asset class as of December 31, 2015 and 2014
were:
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property,
Plant and Equipment (continued)
|
|
December
31, 2015
|
|
|
December 31,
2014
|
|
Machinery
and equipment
|
|
$
|
2,149
|
|
|
$
|
2,149
|
|
Furniture
and fixtures
|
|
|
6,273
|
|
|
|
6,273
|
|
Vehicles
|
|
|
15,249
|
|
|
|
15,249
|
|
Sub
Total
|
|
$
|
23,671
|
|
|
$
|
23,671
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(18,713
|
)
|
|
|
(8,731
|
)
|
Total
|
|
$
|
4,958
|
|
|
$
|
14,940
|
|
Depreciation
expense for the years ended December 31, 2015 and 2014 was $9,984 and $7,123, respectively.
Accrued
Expenses and Other Liabilities
Accrued
expenses and other liabilities consisted of the following at December 31, 2015 and 2014:
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Deferred
rent payable
|
|
$
|
-
|
|
|
$
|
(51
|
)
|
Payroll
tax liabilities
|
|
|
758,773
|
|
|
|
767,109
|
|
Other
payroll accruals
|
|
|
45,851
|
|
|
|
25,234
|
|
Other
|
|
|
562,486
|
|
|
|
210,562
|
|
Total
|
|
$
|
1,367,110
|
|
|
$
|
1,002,854
|
|
Revenues
and Cost of Revenues
Revenues
from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term
contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the
ratio of the actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to
be the best available measure of progress on these contracts. Revenues from cost-plus-fee contracts are recognized on the basis
of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues
and Cost of Revenues (continued)
Cost
of revenues include all direct material, sub-contract, labor, and certain other direct costs, as well as those indirect costs
related to contract performance, such as indirect labor and fringe benefits. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changed in job performance, job conditions and estimated profitability may result in revisions to cost and income,
which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes
in estimates in the current period. Claims for additional contract revenue are recognized when realization of the claim in probable
and the amount can be reasonably determined.
The
asset, “cost and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized
in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,”
represents billings in excess of revenues recognized.
Cost
of sales totaled $214,454 and $787,899 during the years ended December 31, 2015 and 2014, respectively.
Reclassifications
Certain
prior-year amounts have been reclassified in order to conform to the current-year presentation.
Fair
Value Measurements
The
fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices
and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair
value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The
fair value hierarchy is defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable market-based inputs or inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market data.
Convertible
debt
The
Company records a beneficial conversion feature related to the issuance of convertible debts 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 non-cash interest expense over the expected life of the convertible notes.
Net
Loss Per Share
Net
loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified
period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and
potential common shares during the specified period. For the years ended December 31, 2015 and 2014, potential common shares are
not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares
are excluded when the effect would be to reduce net loss per share. There were 13,660,833,053 and 9,303,825 such potentially
dilutive shares excluded for the years ended December 31, 2015 and 2014, respectively.
Recent
Accounting Pronouncements
The
Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact
on the Company’s financial position, or statements.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
4 – CONTRACTS RECEIVABLE, NET
Contracts
receivable consisted of the following at December 31, 2015 and 2014:
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Completed
contracts
|
|
$
|
-
|
|
|
$
|
-
|
|
Contracts
in progress
|
|
|
57,281
|
|
|
|
139,908
|
|
Unbilled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
57,281
|
|
|
|
139,908
|
|
Retentions:
|
|
|
|
|
|
|
|
|
Completed
contracts
|
|
|
-
|
|
|
|
-
|
|
Contracts
in progress
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
57,281
|
|
|
|
139,908
|
|
Allowance
for doubtful accounts
|
|
|
(57,281
|
)
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
139,908
|
|
NOTE
5 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The
following is a summary of the contracts in progress at December 31, 2015 and 2014:
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Costs
incurred on uncompleted contracts
|
|
$
|
-
|
|
|
$
|
1,001,458
|
|
Estimated
net loss on uncompleted contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
1,001,458
|
|
Billings
to date
|
|
|
-
|
|
|
|
(885,657
|
)
|
|
|
$
|
-
|
|
|
$
|
115,801
|
|
This
amount is included in the accompanying balance sheet under the following captions at December 31, 2015 and 2014:
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Costs
and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
-
|
|
|
$
|
115,801
|
|
NOTE
6 - FAIR VALUE MEASUREMENTS
On
a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table
presents information about the Company’s liabilities measured at fair value as of December 31, 2015 and 2014:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
December 31, 2015
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
|
-
|
|
|
$
|
1,005,791
|
|
|
|
-
|
|
|
$
|
1,005,791
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
December 31, 2014
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
|
-
|
|
|
|
167,970
|
|
|
|
-
|
|
|
|
167,970
|
|
The
changes in the fair value of recurring fair value measurements are measured using the Black Scholes valuation model, and relate
solely to the derivative liability as follows:
Balance
at December 31, 2014
|
|
$
|
167,970
|
|
Derivative
liabilities recorded
|
|
|
1,495,504
|
|
Change
due to note conversion
|
|
|
(753,313
|
)
|
Gain
on convertible note exchange
|
|
|
(426,838
|
)
|
Fair
value adjustment
|
|
|
522,468
|
|
Balance
at December 31, 2015
|
|
$
|
1,005,791
|
|
NOTE
7 – NOTES PAYABLE
On
April 14, 2014, the Company received a loan in the amount of $90,000 from Innovest, LLC. The loan was due on August 14, 2014 with
a $30,000 payment due on each June 14, 2014; July 14, 2014 and August 14, 2014. The loan is unsecured and non-interest bearing.
In the event of default, the note shall bear interest at 18% per annum. Additionally, the Company was obligated to issue 50,000
shares of common stock in the event of late payments. The note holder was also issued 75,000 shares of common stock as an incentive
to enter into the note. The Company did not make the required principal payment on July 17, 2014 resulting in 50,000 shares of
common stock being issued to Innovest and the note beginning to accrue interest at the rate of 18% per annum. Additionally, the
Company did not make the required principal payment on August 17, 2014 resulting in an additional 50,000 shares of common stock
being issued to Innovest. The unpaid principal and accrued interest as of August 4, 2015 was purchased by an existing convertible
note holder. There was $0 and $60,000 of principal as of December 31, 2015 and 2014 plus accrued interest of $0 and $900 outstanding
as of December 31, 2015 and 2014.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
7 – NOTES PAYABLE (CONTINUED)
On
August 5, 2014, the Company entered into two separate note agreements for $50,000 ($100,000 total). The notes carried a fixed
interest amount of $800 and are due on October 4, 2014. If the loans were not repaid by the due date, the Company had the obligation
to issue 25,000 shares of common stock to each note holder for each consecutive week the notes were outstanding. The notes were
purchased by non-related parties on August 11, 2015 and August 19, 2015, respectively, resulting in 1,125,000 and 1,150,000 common
shares being issued to each note holder (2,275,000 total common shares) as penalties. Additionally, the note holders each received
125,000 shares of common stock as an incentive to enter into the notes and had the right to sell back 50,000 shares of common
stock to the Company for $4,200. There was a total of $0 and $100,000 in principal and $0 and $1,600 of accrued interest due at
December 31, 2015 and 2014.
On
April 17, 2014, the Company received a loan in the amount of $20,000 from Seton Securities. An additional $5,000 was received
on July 15, 2014. The loans are unsecured, due on demand and non-interest bearing. There was $25,000 in principal and no accrued
interest due at December 31, 2015 and 2014.
On
October 22, 2014, the Company received a loan from an unrelated party totaling $100,000. The note carries an interest rate of
12% per annum and is due on October 22, 2016. During the first quarter of 2015, the note was amended retroactively to October
22, 2014 to adjust the interest rate to 15% per annum. Additionally, the note is secured by the vehicles owned by the company.
There was $100,000 of principal and accrued interest of $6,627 and $2,301 due as of December 31, 2015 and 2014.
On
August 1, 2015, the Company received a short term loan of $10,000 carrying fixed interest of $1,000. The loan was repaid in full
during September 2015. There was no principal or accrued interest outstanding as of December 31, 2015.
On
August 1, 2015, the Company received a short term interest free loan of $3,700. The loan was repaid in full during September 2015.
There was no principal or accrued interest outstanding as of December 31, 2015.
On
October 29, 2015, the Company received a loan from an unrelated party of $33,000 of which $27,000 was lent to the Company in cash
and $6,000 is considered an original issue discount. The note is unsecured, carries an interest rate of 8% per annum and is due
on April 29, 2016. There was $33,000 and $0 of principal and $456 and $0 of accrued interest due as of December 31, 2015 and 2014.
NOTE
8 – CONVERTIBLE NOTES PAYABLE
On
October 26, 2012, the Company received a loan totaling $30,000 from an unrelated party. The note bears interest at 10% per annum
and had an original maturity date of April 26, 2013; however, the Company is in negotiations to extend the maturity date. There
was $30,000 in principal plus accrued interest of $9,542 and $6,542 at December 31, 2015 and 2014. The principal and accrued interest
may be converted at the option of the holder to common stock at $0.30.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
On
January 30, 2014, the Company entered into a note with an unrelated party to borrow up to $300,000 which would carry $35,000 as
an original issue discount bringing the total note to $335,000 if fully borrowed. Upon closing the agreement, the Company received
a loan totaling $50,000 which carried a prorated original issue discount of $5,833 bringing the total note to $55,833. An additional
$55,000 was borrowed during the year ended December 31, 2014 which carried a prorated original issue discount of $17,137. Additionally,
the note may be converted to common stock at the option of the holder at a rate equal to the lesser of $0.65 or 60% of the lowest
trade price in the twenty five (25) trading days prior to conversion and become convertible 180 days after the effective date
which is July 29, 2014. The note requires a minimum of two million five hundred thousand (2,500,0000) to be held in reserve in
the instance of conversion. The note carried interest at 12% per annum and is due on January 30, 2016. During the year ended December
31, 2014, the Company accepted six separate partial conversions from the note holder resulting in 2,500,000 shares of common stock
being issued in exchange for $66,462 of principal and made cash repayments of $27,917. There was no interest or principal due
as of December 31, 2015 or 2014.
On
September 3, 2014, the Company received a loan totaling $100,000 from an unrelated party. The note carried fixed interest of $10,000
and was due on September 11, 2014. Additionally, the note may be converted to common stock at the option of the holder at a rate
equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not less
than $0.00004. The note holder did not elect to convert any portion of the note and the principal plus fixed interest totaling
$110,000 was repaid on September 11, 2014. There was no interest or principal due as of December 31, 2015 or 2014.
On
February 27, 2014, the Company received a loan totaling $339,026 from an unrelated party. The note bears interest at 10% per annum
and matured on February 27, 2015. Of the $339,026 total note, $212,526 was paid to former note holders on our behalf and $1,500
was withheld as debt issue costs resulting in net cash proceeds to the company of $125,000. Additionally, the note may be converted
to common stock at the option of the holder at a rate equal to a 35% discount from the lowest daily volume weighted average price
in the five days prior to conversion, but not less than $0.00004. On various dates during the year ended December 31, 2014, the
Company accepted twenty separate partial conversions of the note resulting in a total of 4,063,247 shares of common stock being
issued in exchange for $242,526 of principal. On various dates during the year ended December 31, 2015, the Company accepted eighteen
separate partial conversions of the note resulting in 74,600,243 shares of common stock being issued in exchange for $96,500 of
principal. Additionally, the Company accepted a single conversion of accrued interest during the year ended December 31, 2014
resulting in 408,727 shares being issued in exchange for $8,369 of accrued interest. There was $0 and $96,500 in principal plus
$14,037 and $10,165 in accrued interest due at December 31, 2015 and 2014.
On
June 11, 2015, the Company received a loan totaling $59,800 from an unrelated party. The note bears interest at 10% per annum
and matures on June 11, 2016. Of the $59,800 total note, $5,000 was paid to service providers on our behalf, $7,800 was an original
issue discount and $2,000 was withheld as debt issue costs resulting in net cash proceeds to the company of $45,000. Additionally,
the note may be converted to common stock at the option of the holder at a rate equal to a 50% discount from the lowest trading
price during the five days prior to conversion. There was $59,800 and $0 in principal plus $3,325 and $0 in accrued interest due
at December 31, 2015 and 2014.
On
November 13, 2014, the Company received a loan totaling $104,000 from an unrelated party. The note carries interest at 8% per
annum and is due on August 17, 2015 with a default interest rate of 22% should the note not be repaid by the maturity date. The
holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from
the note date, or May 12, 2015, at a 52% discount from the average of the lowest three trading prices of the Company’s common
stock during the preceding ten trading days. The Company incurred a default penalty of $52,000 which was added to the principal
balance of the note on August 17, 2015. During the year ended December 31, 2015, the Company accepted twenty five separate conversions
resulting in a total of 229,814,736 common shares being issued in exchange for $104,000 of principal and two separate conversion
resulting in a total of 29,714,286 common shares being issued in exchange for $4,160 of accrued interest. There was $0 and $104,000
of principal and $2,032 and $1,094 of accrued interest payable at December 31, 2015 and 2014.
On
December 16, 2014, the Company received a loan totaling $54,000 from an unrelated party. The note carries interest at 8% per annum
and is due on September 18, 2015 with a default interest rate of 22% should the note not be repaid by the maturity date. The holder
has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note,
or June 15, 2015, date at a 52% discount from the average of the lowest three trading prices of the Company’s common stock
during the preceding ten trading days. The Company incurred a default penalty of $27,000 which was added to the principal balance
of the note on September 18, 2015. During the year ended December 31, 2015, the Company accepted three separate conversion notices
resulting in 41,153,361 common shares being issued in exchange for $6,140 of principal. On October 7, 2015, an existing noteholder
purchased the remaining principal and all accrued interest outstanding as of that date. There was $0 and $54,000 of principal
and $0 and $178 of accrued interest payable at December 31, 2015 and 2014.
On
December 12, 2014, the Company received a loan totaling $50,000 from an unrelated party. The note carries interest at 10% per
annum and is due on December 12, 2015. The holder has the right to convert the principal and accrued but unpaid interest to common
stock at any time after 180 days from the note date, or June 10, 2015, at a 40% discount from the lowest closing bid price for
the Company’s common stock for the fifteen prior trading days. During the year ended December 31, 2015, the Company incurred
a default penalty equal to 10% of the principal amount of the note, or $5,000, which was added to the existing principal outstanding.
During the year ended December 31, 2015, the original noteholder sold the outstanding principal and accrued interest to a separate
noteholder leaving the original terms of the note unchanged. There was $55,000 and $50,000 of principal and $5,687 and $260 of
accrued interest payable at December 31, 2015 and 2014.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
On
June 26, 2015, the Company received a loan totaling $55,000 from an unrelated party. The note bears interest at 10% per annum
and is due March 24, 2016. Of the $55,000 total note, $5,000 was an original issue discount resulting in net cash proceeds to
the company of $50,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to
a 45% discount from the lowest trading price during the twenty days prior to conversion but not less than $0.00005. During the
year ended December 31, 2015, the Company accepted seven separate conversion notices resulting in 57,406,767 common shares being
issued in exchange for a reduction of principal totaling $55,000. There was $0 in principal plus $2,137 and $0 in accrued interest
due at December 31, 2015 and 2014.
On
May 14, 2015, the Company received a loan totaling $4,812 from an unrelated party. The note carries interest at 12% per annum
and is due on February 18, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock
at any time after 180 days from the note date at a 55% discount from the average of the three lowest trading prices for the Company’s
common stock for the twenty prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal
and unpaid interest as of that date resulting in prepayment penalties totaling $2,406. There was $0 of principal and $0 of accrued
interest payable at December 31, 2015 and 2014.
On
May 29, 2015, the Company received a loan totaling $5,500 from an unrelated party. The note carries interest at 12% per annum
and is due on February 21, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock
at any time after 180 days from the note date at a 55% discount from the average of the three lowest trading prices for the Company’s
common stock for the twenty prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal
and unpaid interest as of that date resulting in prepayment penalties totaling $2,750. There was $0 of principal and $0 of accrued
interest payable at December 31, 2015 and 2014.
On
July 8, 2015, the Company received a loan totaling $27,466 from an unrelated party. The note carries interest at 10% per annum
and is due on July 7, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock
at any time after 180 days from the note date, or June 10, 2015, at a 40% discount from the lowest closing bid price for the Company’s
common stock for the fifteen prior trading days. During the year ended December 31, 2015, the original noteholder sold the outstanding
principal and accrued interest to a separate noteholder leaving the original terms of the note unchanged. There was $27,466 and
$0 of principal and $1,324 and $0 of accrued interest payable at December 31, 2015 and 2014.
On
July 23, 2015, the Company received a loan totaling $43,000 from an unrelated party. The note carries interest at 12% per annum
and is due on May 3, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at
any time after 180 days from the note date at a 52% discount from the average of the three lowest trading prices for the Company’s
common stock for the ten prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and
unpaid interest as of that date resulting in prepayment penalties totaling $21,500. There was $0 of principal and $0 of accrued
interest payable at December 31, 2015 and 2014.
On
August 20, 2015, the Company received a loan totaling $60,000 from an unrelated party of which $5,000 was considered an original
issue discount and $5,000 was paid to third parties on the Company’s behalf resulting in net cash proceeds of $50,000. The
note carries interest at 12% per annum and is due on May 19, 2016. The holder has the right to convert the principal and accrued
but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three
lowest trading prices for the Company’s common stock for the twenty prior trading days. There was $60,000 and $0 of principal
and $2,624 and $0 of accrued interest payable at December 31, 2015 and 2014.
On
September 30, 2015, the Company received a loan totaling $47,000 from an unrelated party of which $4,000 was considered an original
issue discount and $3,000 was paid to third parties on the Company’s behalf resulting in net cash proceeds of $40,000. The
note carries interest at 12% per annum and is due on September 30, 2016. The holder has the right to convert the principal and
accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of
the three lowest trading prices for the Company’s common stock for the twenty prior trading days. There was $47,000 and
$0 of principal and $1,422 and 0 of accrued interest payable at December 31, 2015 and 2014.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
On
August 19, 2015, the Company received a loan totaling $50,800 from an unrelated party which was paid directly to an existing noteholder
to retire the prior note in full. The note carries interest at 12% per annum and 22% per annum in the event of default and was
due on August 19, 2015 which resulted in the note being in default immediately. The holder has the right to convert the principal
and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average
of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. During the year ended
December 31, 2015, the Company accepted nine partial conversions resulting in 188,595,810 common shares being issued in exchange
for $29,617 of principal. There was $21,183 and $0 of principal and $2,213 and $0 of accrued interest payable at December 31,
2015 and 2014.
On
August 11, 2015, the Company received a loan totaling $60,800 from an unrelated party of which $50,800 was paid directly to an
existing noteholder to retire the prior note in full and $10,000 was considered an original issue discount. The note carries interest
at 15% per annum and 22% per annum in the event of default and was due on September 11, 2015. The holder has the right to convert
the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices
for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company
accepted six partial conversions resulting in 619,892,000 common shares being issued in exchange for $27,649 of principal. On
October 28, 2015, the noteholder assigned a total of $16,500 of principal to two separate parties. There was $16,651 and $0 of
principal and $1,828 and $0 of accrued interest payable at December 31, 2015 and 2014.
On
August 18, 2015, the Company received a loan totaling $57,500 from an unrelated party of which $7,500 was paid directly to third
parties on the Company’s behalf resulting in net cash proceeds of $50,000. The note carries interest at 15% per annum and
is due on February 17, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock
at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five
prior trading days. On October 12, 2015, the noteholder assigned a total of $57,500 of principal plus $1,441 of accrued interest
to an existing noteholder. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
During
the year ended December 31, 2015, the Company entered into six separate notes payable totaling $255,633 with an existing noteholder.
Of the $97,450 total, $227,633 was paid to a prior noteholders on the Company’s behalf and $2,925 was considered an original
issue discount resulting in net cash proceeds to the Company of $25,075. The unpaid principal and interest may be converted to
common stock at the option of the noteholder at a rate equal to a 45% discount from the lowest intra-day trading price of the
Company’s common stock during the twenty trading days immediately preceding the conversion date. During the year ended December
31, 2015, the Company issued a total of 708,610,688 common shares in exchange for $70,386. There was $185,248 and $0 of principal
and $4,838 and $0 of accrued interest due as of December 31, 2015 and 2014.
On
October 12, 2015, the Company entered into a note payable totaling $58,941 which was paid to an existing noteholder on behalf
of the Company. The note carries interest at 22% per annum and was due on October 12, 2015. The outstanding principal and interest
may be converted to common stock at the option of the noteholder at a rate equal to a 50% discount from the lowest price of the
Company’s common stock in the twenty trading days immediately preceding the conversion. There was $58,941 and $0 of principal
plus accrued interest of $2,842 and $0 outstanding as of December 31, 2015 and 2014.
On
November 5, 2015, the Company entered into a note payable totaling $36,000 of which $6,000 was an original issue discount resulting
in cash proceeds to the Company of $30,000. The note carries interest at 12% per annum and is due on August 30, 2016. The outstanding
principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 50% discount from
the lowest price of the Company’s common stock in the twenty trading days immediately preceding the conversion. There was
$36,000 and $0 of principal plus accrued interest of $663 and $0 outstanding as of December 31, 2015 and 2014.
On
October 28, 2015 the Company entered into a note payable for $15,000 which was paid to an existing noteholder on behalf of the
Company. The note was due immediately on October 28, 2015 and carries an interest rate of 22% per annum. The holder has the right
to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest
trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31,
2015, the Company issued a total of 119,009,000 shares of common stock as the conversion of $5,950 of principal. There was $9,050
and $0 of principal and $374 and $0 of accrued interest due as of December 31, 2015 and 2014.
On
October 5, 2015 the Company entered into a note payable for $1,500 which was paid to an existing noteholder on behalf of the Company.
The note was due immediately on October 5, 2015 and carries an interest rate of 0% per annum. The holder has the right to convert
the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices
for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company
issued a total of 150,000,000 shares of common stock as the conversion of $1,500 of principal. There was $0 of principal and $0
of accrued interest due as of December 31, 2015 and 2014.
On
September 9, 2015 the Company entered into a note payable for $11,500 of which $10,000 was paid to a third party on behalf of
the Company and $1,500 is an original issue discount. The note is due on June 15, 2016 and carries an interest rate of 10%
per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 45% discount
from the lowest intraday trading price for the Company’s common stock for the twenty prior trading days. There was $11,500
and $0 of principal due as of December 31, 2015 and 2014.
During
the year ended December 31, 2014, the Company entered into debt agreements with various individuals to borrow a total of $80,000
which was $75,000 in cash and $5,000 as a reduction of accounts payable. The notes accrue interest at 10% per annum and are due
in are due in full between March and April 2016 with no repayments due before maturity. The principal and accrued interest may
be converted at the option of the holder to common stock at $0.30. The intrinsic value of the conversion feature in these notes
resulted in debt discounts totaling $80,000 which will be amortized over the lives of the notes. $30,171 of the debt discounts
were recognized in interest expense during the year ended December 31, 2014 leaving an unamortized discount of $49,829 at December
31, 2014. Additionally, during the year ended December 31, 2014, the Company accepted the full conversion of nine notes and the
partial conversion of another to common stock at $0.30 per share resulting in 1,733,332 shares of common stock being issued in
consideration of $610,000 of principal plus 174,201 shares of common stock being issued in consideration of $55,358 of accrued
interest.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
The
following table depicts the amounts due for each convertible note as of December 31, 2014:
|
|
Maturity
Date
|
|
Principal
|
|
|
Debt
Discount
|
|
|
|
Carrying
Amount, Current
Portion
|
|
Carrying
Amount,
Long Term
Portion
|
|
|
|
Accrued
Interest
|
Note
holder 1
|
|
1/24/2015
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
50,000
|
|
$
|
-
|
|
|
$
|
14,124
|
Note
holder 1
|
|
4/28/2016
|
|
|
15,000
|
|
|
|
(9,842
|
)
|
|
|
-
|
|
|
5,158
|
|
|
|
732
|
Note
holder 4
|
|
3/21/2016
|
|
|
30,000
|
|
|
|
(18,288
|
)
|
|
|
-
|
|
|
11,712
|
|
|
|
2,342
|
Note
holder 7
|
|
5/9/2015
|
|
|
50,000
|
|
|
|
(8,836
|
)
|
|
|
41,164
|
|
|
-
|
|
|
|
8,233
|
Note
holder 10
|
|
11/4/2015
|
|
|
25,000
|
|
|
|
(10,548
|
)
|
|
|
14,452
|
|
|
-
|
|
|
|
2,890
|
Note
holder 11
|
|
7/15/2024
|
|
|
50,000
|
|
|
|
(13,425
|
)
|
|
|
36,575
|
|
|
-
|
|
|
|
7,315
|
Note
holder 12
|
|
9/3/2015
|
|
|
25,000
|
|
|
|
(8,425
|
)
|
|
|
16,575
|
|
|
-
|
|
|
|
3,315
|
Note
holder 12
|
|
10/31/2015
|
|
|
25,000
|
|
|
|
(10,411
|
)
|
|
|
14,589
|
|
|
-
|
|
|
|
2,918
|
Note
holder 13
|
|
10/21/2015
|
|
|
20,000
|
|
|
|
(8,055
|
)
|
|
|
11,945
|
|
|
-
|
|
|
|
2,389
|
Note
holder 16
|
|
12/30/2015
|
|
|
45,000
|
|
|
|
(22,438
|
)
|
|
|
22,562
|
|
|
-
|
|
|
|
4,512
|
Note
holder 17
|
|
3/26/2016
|
|
|
25,000
|
|
|
|
(15,411
|
)
|
|
|
-
|
|
|
9,589
|
|
|
|
1,918
|
Note
holder 18
|
|
4/4/2016
|
|
|
10,000
|
|
|
|
(6,288
|
)
|
|
|
-
|
|
|
3,712
|
|
|
|
742
|
Note
holder 19
|
|
4/26/13
|
|
|
30,000
|
|
|
|
-
|
|
|
|
30,000
|
|
|
-
|
|
|
|
6,542
|
Note
holder 20
|
|
2/27/15
|
|
|
96,500
|
|
|
|
(13,434
|
)
|
|
|
83,066
|
|
|
-
|
|
|
|
10,165
|
Note
holder 21
|
|
8/17/15
|
|
|
104,000
|
|
|
|
-
|
|
|
|
104,000
|
|
|
-
|
|
|
|
1,094
|
Note
holder 21
|
|
9/18/15
|
|
|
54,000
|
|
|
|
-
|
|
|
|
54,000
|
|
|
-
|
|
|
|
178
|
Note
holder 22
|
|
12/12/15
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
-
|
|
|
|
260
|
Total
|
|
|
|
$
|
704,500
|
|
|
$
|
(145,400
|
)
|
|
$
|
528,929
|
|
$
|
30,171
|
|
|
$
|
69,669
|
During
the year ended December 31, 2015, the Company made repayments on convertible notes payable of $10,000. Additionally, $113,425
of the debt discounts were recognized in interest expense during the year ended December 31, 2015 leaving an unamortized discount
of $8,541 at December 31, 2015.
The
following table depicts the amounts due for each convertible note as of December 31, 2015:
|
|
Maturity
Date
|
|
Principal
|
|
|
Debt
Discount
|
|
|
Carrying
Amount
|
|
|
Accrued
Interest
|
|
Note
holder 1
|
|
2/13/2015
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
50,000
|
|
|
$
|
19,124
|
|
Note
holder 1
|
|
4/8/2016
|
|
|
15,000
|
|
|
|
(2,342
|
)
|
|
|
12,658
|
|
|
|
2,232
|
|
Note
holder 4
|
|
3/21/2016
|
|
|
30,000
|
|
|
|
(3,288
|
)
|
|
|
26,712
|
|
|
|
5,342
|
|
Note
holder 7
|
|
5/9/2015
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
13,233
|
|
Note
holder 10
|
|
11/4/2015
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
5,389
|
|
Note
holder 11
|
|
7/15/2015
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
12,315
|
|
Note
holder 12
|
|
9/3/2015
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
5,814
|
|
Note
holder 12
|
|
10/31/2015
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
5,417
|
|
Note
holder 13
|
|
10/21/2015
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
4,389
|
|
Note
holder 16
|
|
12/30/2015
|
|
|
45,000
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
9,012
|
|
Note
holder 17
|
|
3/26/2016
|
|
|
25,000
|
|
|
|
(2,911
|
)
|
|
|
22,089
|
|
|
|
4,417
|
|
Note
holder 19
|
|
4/26/2013
|
|
|
30,000
|
|
|
|
-
|
|
|
|
30,000
|
|
|
|
9,542
|
|
Note
holder 20
|
|
2/27/2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,037
|
|
Note
holder 20
|
|
6/11/2016
|
|
|
59,800
|
|
|
|
(26,552
|
)
|
|
|
33,248
|
|
|
|
3,325
|
|
Note
holder 21
|
|
8/17/2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,032
|
|
Note
holder 21
|
|
9/18/2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Note
holder 23
|
|
12/12/2015
|
|
|
55,000
|
|
|
|
-
|
|
|
|
55,000
|
|
|
|
5,687
|
|
Note
holder 23
|
|
7/7/2016
|
|
|
27,466
|
|
|
|
-
|
|
|
|
27,466
|
|
|
|
1,324
|
|
Note
holder 23
|
|
3/24/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,137
|
|
Note
holder 23
|
|
3/24/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Note
holder 23
|
|
3/24/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49
|
|
Note
holder 23
|
|
5/15/2016
|
|
|
21,564
|
|
|
|
-
|
|
|
|
21,564
|
|
|
|
1,643
|
|
Note
holder 23
|
|
6/25/2016
|
|
|
5,500
|
|
|
|
(2,582
|
)
|
|
|
2,918
|
|
|
|
148
|
|
Note
holder 23
|
|
7/7/2016
|
|
|
77,947
|
|
|
|
-
|
|
|
|
77,947
|
|
|
|
1,452
|
|
Note
holder 23
|
|
7/7/2016
|
|
|
80,236
|
|
|
|
(44,151
|
)
|
|
|
36,085
|
|
|
|
1,495
|
|
Note
holder 23
|
|
6/15/2016
|
|
|
11,500
|
|
|
|
(3,719
|
)
|
|
|
7,781
|
|
|
|
-
|
|
Note
holder 24
|
|
2/18/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Note
holder 24
|
|
2/21/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Note
holder 24
|
|
5/3/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Note
holder 25
|
|
5/19/2016
|
|
|
60,000
|
|
|
|
(45,660
|
)
|
|
|
14,340
|
|
|
|
2,624
|
|
Note
holder 25
|
|
9/30/2016
|
|
|
47,000
|
|
|
|
(46,657
|
)
|
|
|
343
|
|
|
|
1,422
|
|
Note
holder 25
|
|
8/19/2015
|
|
|
21,183
|
|
|
|
-
|
|
|
|
21,183
|
|
|
|
2,213
|
|
Note
holder 25
|
|
10/12/2015
|
|
|
58,941
|
|
|
|
-
|
|
|
|
58,941
|
|
|
|
2,842
|
|
Note
holder 25
|
|
8/30/2016
|
|
|
36,000
|
|
|
|
-
|
|
|
|
36,000
|
|
|
|
663
|
|
Note
holder 26
|
|
9/11/2015
|
|
|
16,651
|
|
|
|
-
|
|
|
|
16,651
|
|
|
|
1,828
|
|
Note
holder 26
|
|
2/17/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Note
holder 27
|
|
10/28/2015
|
|
|
9,050
|
|
|
|
-
|
|
|
|
9,050
|
|
|
|
374
|
|
Total
|
|
|
|
$
|
977,838
|
|
|
$
|
(177,862
|
)
|
|
$
|
799,976
|
|
|
$
|
141,572
|
|
NOTE
9 – RELATED PARTY TRANSACTIONS
We
have engaged an entity controlled by the director of the Company to perform consulting services related to the development of
new technologies. Payments to this party totaled $6,909 and $2,500 during the year ended December 31, 2015 and 2014, respectively.
During
the year ended December 31, 2014, the Company received an interest free $8,000 loan from a related party to fund operations. The
loan is unsecured, due on demand and as such is included in current liabilities. There was $8,000 due as of December 31, 2015
and 2014.
During
the year ended December 31, 2014, the Company received an interest free $2,000 loan from a related party to fund operations. The
loan is unsecured, due on demand and as such is included in current liabilities. There was $2,000 due as of December 31, 2015
and 2014.
During
the year ended December 31, 2014, the Company received a $10,000 loan from a related party to fund operations. The loan plus fixed
interest of $1,000 was repaid in December 2014.
During
the year ended December 31, 2015, the Company received three separate $3,000 loans from a related party to fund operations. Each
loan was entered into by the lender paying expenses on behalf of the company. The loans plus fixed interest of $500 were repaid
during the year ended December 31, 2015.
During
the year ended December 31, 2015, the Company issued a total of 75,000,000 common shares as bonuses to officers at a total value
of $481,500. The Company also issued a total of 2,500,000 series A preferred shares as bonuses to officers and directors
at a total value of $500.
NOTE
10 – COMMON STOCK
The
Company is authorized to issue up to 10,000,000,000 shares of $0.00001 par value common stock and 50,000,000 shares of $0.0001
par value blank check preferred stock of which 10,000,000 has been designated as Series A Convertible Preferred Stock. Each share
of Series A Convertible Preferred Stock may be converted to common stock at the option of the holder at the greater of one share
of common for each share of Series A Convertible Preferred Stock or the par value of the stock divided by a 10% discount from
the volume weighted average price of the common stock of the preceding ten trading days.
During
the year ended December 31, 2014, the Company issued a total of 5,275,000 common shares for services provided by various consultants;
7,500 common shares as settlement of a payable; 752,616 common shares as settlements of certain claims brought against the company
by two separate entities; 8,796,579 common shares for total note conversions of $927,988; 582,928 common shares for total accrued
interest conversions of $63,727; 1,431,550 common shares for total cash proceeds of $87,916; 1,160,000 common shares valued at
$93,416 for default penalties on notes payable; 650,000 common shares as debt issue costs and repurchased a total of 50,000 common
shares for $4,200 of cash.
During
the year ended December 31, 2015, the Company issued 75,000,000 common shares valued at $481,500 as bonuses to officers, 5,200,000
common shares valued at $22,513 for services provided by consultants; 2,403,780,070 common shares for total note conversions of
$448,742 and 1,625,000 common shares valued at $21,415 for default penalties on notes payable.
On
June 29, 2015, the Company entered into a consulting agreement whereby the consultant would provide services for a period of 30
days in exchange for 5,000,000 shares of common stock. The common shares were valued equal to the close price as of the date of
the agreement, or $0.006 per share, resulting in a total value of $30,000.
On
July 9, 2015, the Company entered into a settlement agreement with a former note holder of the Company. The settlement agreement
required the Company to issue 500,000 shares of common stock which were valued equal to the close price as the date of the agreement,
or $0.0038 per share, resulting in a total value of $1,900.
There
were 2,552,409,195 shares issued and 2,552,359,195 outstanding as of December 31, 2015.
There
was 30,589,839 shares issued and 30,539,839 outstanding as of December 31, 2014.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
The
Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of
unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information
known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating
and settling similar matters.
As
of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is
a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental
authorities.
Payroll
Tax Liabilities
As
of December 31, 2015 and 2014, the Company had accrued $758,773 and $767,109 and in payroll tax liabilities. The payment of these
liabilities has not been made due to our limited profitability. Due to the uncertainty regarding our future profitability, it
is difficult to predict our ability to pay these liabilities. As a result, a federal tax lien has been levied that will have to
be satisfied.
Federal
Income Tax Liability
On
January 29, 2015, we received a notification from the Internal Revenue Service (the “IRS”) regarding deficiencies
in our tax return for the year ended December 31, 2011. The notice was the result of not filing our tax return for the year then
ended and included the results of an IRS examination which yielded an income tax amount due of $92,804 plus penalties and interest
totaling $34,337 for a total amount due of $127,141. While we believe we will be able to successfully reduce the tax liability
and assessed penalties to zero or near zero due to our net loss sustained during the year ended December 31, 2011, the possibility
exists we will be unsuccessful and could face an assessment for the full amount of $127,141. Because of the undeterminable nature
of our ability to successfully reduce or eliminate the amount due, the Company has accrued $127,141 as of December 31, 2015 for
these amounts due.
Office
and Warehouse Lease
The
Company is required under the terms of the rental lease to make monthly lease payments.
The
Company’s property lease is for an initial period of thirteen months from October 2011 and may be extended in two separate
thirteen-month increments for up to a total term of 39 months. The lease was not extended beyond the expiration date of January
9, 2016. The minimum future annual rental commitments are as follows:
2016
|
|
$
|
-
|
|
|
|
|
|
|
Total
annual lease commitments
|
|
$
|
-
|
|
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY
As
of December 31, 2015 the Company had a $1,005,791 derivative liability balance on the balance sheet and recorded a loss
from derivative liability fair value adjustment of $522,468 during the year ended December 31, 2015. The derivative liability
activity comes from convertible notes payable as follows:
As
discussed in Note 8 – “Convertible Notes Payable”, during 2012, the Company issued an aggregate of $30,000 Convertible
Promissory Notes to an unrelated party that matured on April 26, 2013. The Company is currently negotiating an extension of the
maturity date and anticipates to successfully do so. The note bears interest at a rate of 10% per annum and can be convertible
into the Company’s common shares, at the holder’s option, at the conversion rate of $0.30 per share. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be classified as a derivative because the exercise price of these
convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock
warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price
of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined
that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded
equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative
liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $73,451.
Of the total, $30,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $43,451
was charged to operations as non-cash interest expense. The fair value of $73,451 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the note was amortized over the term of our stock’s opening trading day to the original maturity, or two
days. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to note and determined
an aggregate fair value of $0 and recorded a gain of $1,594 from change in fair value of derivatives for the year ended December
31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model
based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 493%, (3) risk-free interest rate of
.01%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on February 27, 2014, the Company issued an aggregate of
$339,026 Convertible Promissory Notes to an unrelated party that mature on February 27, 2015. The note bears interest at a rate
of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion
rate equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not
less than $0.00004. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under
ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as
a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has
determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore
not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded
a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $312,128
which was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. The fair value of $368,056
was recorded as a derivative liability on the balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015,
the noteholder converted the outstanding principal of the note in full. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $4,106 loss
from change in fair value of derivatives for the year ended December 31, 2015.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on June 11, 2015, the Company issued an aggregate of $59,800
Convertible Promissory Notes to an unrelated party that mature on June 11, 2016. The note bears interest at a rate of 10% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 50% discount from the lowest daily volume weighted average price in the five days prior to conversion. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be classified as a derivative because the exercise price of these
convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered
to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815,
the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $118,374.
Of the total, $59,800 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $58,574
was charged to operations as non-cash interest expense. The fair value of $118,374 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note, or one year. On December 31, 2015, the Company marked-to-market
the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $102,408 and recorded
a $15,966 gain from change in fair value of derivatives for year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 377%, (3) risk-free interest rate of .49%, (4) expected life of 0.45 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on November 17, 2014
,
the Company issued an aggregate of $104,000 Convertible Promissory Notes to an unrelated party that mature on August 17, 2015.
The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s
option after 180 days from issuance, at the conversion rate equal to a 52% discount from the average of the lowest three
trading prices in the ten trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative
accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own
stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature
of the note and recorded a derivative liability. The derivative was not accounted for until the conversion features were in
effect during the year ended December 31, 2015 and as such no derivative liability was recorded during the year ended December
31, 2014.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $180,678.
Of the total, $104,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $76,678
was charged to operations as non-cash interest expense. The fair value of $180,678 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015,
the noteholder converted the outstanding principal of the note in full to common shares. On December 31, 2015, the Company marked-to-market
the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $94,164
gain from change in fair value of derivatives for year ended December 31, 2015.
As
discussed in Note 8 – “Convertible Notes Payable”, on November 17, 2014
,
the Company issued an aggregate of $104,000 Convertible Promissory Notes to an unrelated party that mature on August 17, 2015.
The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s
option after 180 days from issuance, at the conversion rate equal to a 52% discount from the average of the lowest three trading
prices in the ten trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative
accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own
stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature
of the note and recorded a derivative liability. The derivative was not accounted for until the conversion features were in
effect during the year ended December 31, 2015 and as such no derivative liability was recorded during the year ended December
31, 2014.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $97,019.
Of the total, $54,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $43,019
was charged to operations as non-cash interest expense. The fair value of $97,019 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015,
the note was purchased by a separate noteholder. On December 31, 2015, the Company marked-to-market the fair value of the derivative
liabilities related to notes and determined an aggregate fair value of $0 and recorded a $133,918 gain from change in fair value
of derivatives for the year ended December 31, 2015.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on December 12, 2014
,
the Company issued an aggregate of $50,000 Convertible Promissory Notes to an unrelated party that mature on December 12, 2015.
The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s
option after 180 days from issuance, at the conversion rate equal to a 40% discount from the lowest closing price in the
fifteen trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting
consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should
be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.
The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock
and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of
the note and recorded a derivative liability. The derivative was not accounted for until the conversion features were in effect
during the year ended December 31, 2015 and as such no derivative liability was recorded during the year ended December 31, 2014.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $105,838.
Of the total, $50,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $55,838
was charged to operations as non-cash interest expense. The fair value of $105,838 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note, or one year. On December 31, 2015, the Company marked-to-market
the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $49,398 and recorded a
$56,440 gain from change in fair value of derivatives for year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .49%, (4) expected life of 0.25 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on June 26, 2015, the Company issued an aggregate of $55,000
Convertible Promissory Notes to an unrelated party that mature on March 24, 2016. The note bears interest at a rate of 10% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $96,762.
Of the total, $55,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $41,762
was charged to operations as non-cash interest expense. The fair value of $96,762 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015,
the noteholder converted the full principal balance of the note to common stock of the Company. On December 31, 2015, the Company
marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and
recorded a $24,686 gain from change in fair value of derivatives for the year ended December 31, 2015.
As
discussed in Note 8 – “Convertible Notes Payable”, on July 29, 2015, the Company issued an aggregate of $11,000
Convertible Promissory Notes to an unrelated party that mature on March 24, 2016. The note bears interest at a rate of 10% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $20,740.
Of the total, $11,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $9,260
was charged to operations as non-cash interest expense. The fair value of $20,740 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes was amortized over the term of the note. During the year ended December 31, 2015, the noteholder converted
the full principal balance of the note to common stock of the Company. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $15,100
gain from change in fair value of derivatives for the year ended December 31, 2015.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on August 6, 2015, the Company issued an aggregate of $11,500
Convertible Promissory Notes to an unrelated party that mature on March 24, 2016. The note bears interest at a rate of 10% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $26,121.
Of the total, $11,500 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $14,621
was charged to operations as non-cash interest expense. The fair value of $26,121 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes was amortized over the term of the note. During the year ended December 31, 2015, the noteholder converted
the full principal balance of the note to common stock of the Company. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $19,939
gain from change in fair value of derivatives for the year ended December 31, 2015.
As
discussed in Note 8 – “Convertible Notes Payable”, on August 4, 2015, the Company issued an aggregate of $69,450
Convertible Promissory Notes to an unrelated party that mature on May 15, 2016. The note bears interest at a rate of 10% per annum
and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a
45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $130,775.
The fair value of $130,775 was recorded as a derivative liability on the balance sheet and the Company recognized an equal
amount as a loss on the extinguishment of debt on the inception date.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $31,887 and recorded a $14,721
loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 372%, (3) risk-free interest rate of .16%, (4) expected life of 0.37 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on September 24, 2015, the Company issued an aggregate of
$5,500 Convertible Promissory Notes to an unrelated party that mature on June 25, 2016. The note bears interest at a rate of 10%
per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate
equal to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the
conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be classified as a derivative because the exercise price of these
convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered
to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815,
the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $19,590.
Of the total, $5,500 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $14,090
was charged to operations as non-cash interest expense. The fair value of $19,590 was recorded as a derivative liability on the
balance sheet on the inception date.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $8,584 and recorded a $11,006
gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 373%, (3) risk-free interest rate of .49%, (4) expected life of 0.48 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on August 19, 2015, the Company issued an aggregate of $50,800
Convertible Promissory Notes to an unrelated party that matured on August 19, 2015. The note bears interest at a rate of 22% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 50% discount from the average of the lowest three trading prices in the twenty trading days prior to conversion. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and
Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise
price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature
is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance
with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $55,714.
The fair value of $55,714 was recorded as a derivative liability on the balance sheet and the Company recognized an equal amount
as a loss on the extinguishment of debt on the inception date.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $25,127 and recorded a $29,500
loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4) expected life of 0.25 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on August 11, 2015, the Company issued an aggregate of $60,800
Convertible Promissory Notes to an unrelated party that matured on September 11, 2015. The note bears interest at a rate of 15%
per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate
equal to a 60% discount from the average of the lowest three trading prices in the twenty five trading days prior to conversion.
The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives
and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise
price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature
is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance
with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $59,626
which was recorded as a liability on the balance sheet and the Company recognized an equal amount as a loss on the extinguishment
of debt .
The
debt discount for the notes will be amortized over the term of the note. During the year ended December 31, 2015, the noteholder
sold a $16,500 of its interest in the note resulting in a change of derivative fair value of $3,289 which was recorded as a gain
on the extinguishment of debt. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities
related to notes and determined an aggregate fair value of $149,571 and recorded a $204,722 loss from change in fair value of
derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using
the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of
198%, (3) risk-free interest rate of .16%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s
common stock of $0.0001 per share.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on August 18, 2015, the Company issued an aggregate of $57,500
Convertible Promissory Notes to an unrelated party that matures on February 17, 2016. The note bears interest at a rate of 15%
per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate
equal to a 60% discount from the average of the lowest three trading prices in the twenty five trading days prior to conversion.
The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives
and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise
price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature
is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance
with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $41,244
which was recorded as a liability on the balance sheet and a debt discount, which is up to but not more than the net proceeds
of the notes.
The
debt discount for the notes will be amortized over the term of the note. During the year ended December 31, 2015, the noteholder
sold its interest in the full balance of the note payable resulting in a gain on the extinguishment of debt of $449,034. On December
31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate
fair value of $0 and recorded a $407,790 loss from change in fair value of derivatives for the year ended December 31, 2015.
As
discussed in Note 8 – “Convertible Notes Payable”, on August 20, 2015, the Company issued an aggregate of $60,000
Convertible Promissory Notes to an unrelated party that matures on May 19, 2016. The note bears interest at a rate of 12% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 50% discount from the average of the lowest three trading prices in the twenty trading days prior to conversion. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and
Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise
price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature
is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance
with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $107,382.
The fair value of $107,382 was recorded as a derivative liability on the balance sheet with $47,382 being recognized as excess
value of derivatives and immediately charged to interest expense.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $99,012 and recorded a $8,370
gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 368%, (3) risk-free interest rate of .49%, (4) expected life of 0.38 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on September 30, 2015, the Company issued an aggregate of
$47,000 Convertible Promissory Notes to an unrelated party that matures on September 30, 2016. The note bears interest at a rate
of 12% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion
rate equal to a 50% discount from the average of the lowest three trading prices in the twenty trading days prior to conversion.
The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives
and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise
price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature
is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance
with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $86,920.
The fair value of $86,920 was recorded as a derivative liability on the balance sheet with $39,920being recognized as excess value
of derivatives and immediately charged to interest expense.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $86,776 and recorded a $144
gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 368%, (3) risk-free interest rate of .65%, (4) expected life of 0.75 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on October 7, 2015, the Company issued an aggregate of $80,236
Convertible Promissory Notes to an unrelated party that matures on July 7, 2016. The note bears interest at a rate of 8% per annum
and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a
45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $173,413.
The fair value of $173,413 was recorded as a derivative liability on the balance sheet with $93,177 being recognized as excess
value of derivatives and immediately charged to interest expense.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $159,135 and recorded a $14,278
gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 386%, (3) risk-free interest rate of .49%, (4) expected life of 0.52 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on October 7, 2015, the Company issued an aggregate of $77,947
Convertible Promissory Notes to an unrelated party that matures on July 7, 2016. The note bears interest at a rate of 8% per annum
and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a
45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $137,398.
The fair value of $137,398 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as
interest expense as the note was entered into as a reduction to an existing note with identical conversion terms. However, there
was a $25,485 loss on the extinguishment of debt recognized due to the exchange.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $124,692 and recorded a $99,207
loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 386%, (3) risk-free interest rate of .65%, (4) expected life of 0.52 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on October 12, 2015, the Company issued an aggregate of $58,941
Convertible Promissory Notes to an unrelated party that matured on October 12, 2015. The note bears interest at a rate of 22%
per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate
equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the
conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be classified as a derivative because the exercise price of these
convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered
to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815,
the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $98,458.
The fair value of $98,458 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as
interest expense as the note was entered into as a reduction to an existing note with identical conversion terms resulting in
a derivative exchange between the convertible notes payable.
December
31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate
fair value of $69,916 and recorded a $69,916 loss from change in fair value of derivatives for the year ended December 31, 2015.
The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on
the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4)
expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As
discussed in Note 8 – “Convertible Notes Payable”, on October 28, 2015, the Company issued an aggregate of $15,000
Convertible Promissory Notes to an unrelated party that matured on October 28, 2015. The note bears interest at a rate of 22%
per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate
equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the
conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be classified as a derivative because the exercise price of these
convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered
to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815,
the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $139,095.
The fair value of $139,095 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as
interest expense as the note was entered into as a reduction to an existing note with identical conversion terms resulting in
a derivative exchange between the convertible notes payable.
December
31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate
fair value of $81,535 and recorded a $86,930 loss from change in fair value of derivatives for the year ended December 31, 2015.
The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on
the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4)
expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
As
discussed in Note 8 – “Convertible Notes Payable”, on October 5, 2015, the Company issued an aggregate of $1,500
Convertible Promissory Notes to an unrelated party that matured on October 5, 2015. The note bears interest at a rate of 0% per
annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal
to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion
feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes
are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely
indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company
has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $14,146.
The fair value of $14,146 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as
interest expense as the note was entered into as a reduction to an existing note with identical conversion terms resulting in
a derivative exchange between the convertible notes payable.
During
the year ended December 31, 2015, the noteholder converted the outstanding principal of the note in full resulting in a fair value
as of December 31, 2015 of $0.
As
discussed in Note 8 – “Convertible Notes Payable”, on September 9, 2015, the Company issued an aggregate of
$11,500 Convertible Promissory Notes to an unrelated party that matures on June 15, 2016. The note bears interest at a rate of
10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion
rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging”
and determined that the embedded conversion features should be classified as a derivative because the exercise price of these
convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered
to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815,
the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $20,023.
The fair value of $20,23 was recorded as a derivative liability on the balance sheet with $8,523 being recognized as excess value
of derivatives and immediately charged to interest expense.
The
debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the
fair value of the derivative liabilities related to notes and determined an aggregate fair value of $17,750 and recorded a $2,273
gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives
for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield
of 0%, (2) expected volatility of 373%, (3) risk-free interest rate of .49%, (4) expected life of 0.46 of a year, and (5) estimated
fair value of the Company’s common stock of $0.0001 per share.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
13 – STOCK OPTIONS AND WARRANTS
The
following table summarizes all stock option and warrant activity for the year month period ended December 31, 2015:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding,
December 31, 2014
|
|
|
631,905
|
|
|
$
|
0.30
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
December 31, 2015
|
|
|
631,905
|
|
|
$
|
0.30
|
|
The
following table discloses information regarding outstanding and exercisable options and warrants at December 31, 2015:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Life
(Years)
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.30
|
|
|
|
631,905
|
|
|
$
|
0.30
|
|
|
|
1.48
|
|
|
|
631,905
|
|
|
$
|
0.30
|
|
|
|
|
|
|
631,905
|
|
|
$
|
0.30
|
|
|
|
1.48
|
|
|
|
631,905
|
|
|
$
|
0.30
|
|
In
determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
December
31, 2015
|
|
Expected
term of options granted
|
|
|
2
- 5 years
|
|
Expected
volatility range
|
|
|
394
- 408
|
%
|
Range
of risk-free interest rates
|
|
|
1.70
– 1.73
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2015 and 2014
NOTE
14 – EQUITY LINE OF CREDIT
On
August 6, 2015, the Company entered into line of credit whereby it has the right to sell to the investor up to $5,000,000 of common
stock over a period of 24 months. The Company may sell up to $100,000 of common stock, but not less than $5,000, at any time at
is sole discretion by issuing a put notice to the investor. The sales price of the stock will be equal to a 30% discount from
the average of the lowest two closing bid prices in the preceding five trading days. There is a minimum of ten trading days between
put notices. The agreement requires the Company to issue 3% of the total credit line, or $150,000, in common stock with an issue
price equal to the average of the daily volume weighted average prices of the Company’s common stock during the five business
days immediately preceding the due date of the issuance. The Company did not exercise its rights under the agreement during the
year ended December 31, 2015.
NOTE
15 – INCOME TAXES
We
did not provide any current or deferred U.S. federal income tax provision or benefit for the year ended December 31, 2014 due
to the operating losses experienced from inception to December 31, 2014. We recorded income tax expense of
$92,804 for a federal income tax due arising from an examination by the Internal Revenue Service as discussed in
Note 11 –
Commitments and Contingencies
. 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. We provided a full valuation allowance on the net deferred tax asset, consisting
of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn
income sufficient to realize the deferred tax assets during the carry forward period.
The
Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years
ended December 2014 or 2013 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain
tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.
All tax returns for the Company remain open.
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
Income
tax provision at the federal statutory rate
|
|
|
35.00
|
%
|
California
state corporation income tax rate
|
|
|
5.75
|
%
|
Effect
on operating losses
|
|
|
(40.75
|
)%
|
Net
deferred tax assets consist of the following:
|
|
2015
|
|
|
2014
|
|
Net
operating loss carry forward
|
|
$
|
2,279,219
|
|
|
$
|
1,687,889
|
|
Valuation
allowance
|
|
|
(2,279,219
|
)
|
|
|
(1,687,889
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
A
reconciliation of income taxes computed at the statutory rate is as follows:
|
|
2015
|
|
|
2014
|
|
Computed
federal income tax expense at statutory rate of 40.75% and 35%
|
|
$
|
(1,491,995
|
)
|
|
$
|
(1,248,852
|
)
|
Stock
issued for services
|
|
|
205,578
|
|
|
|
289,913
|
|
Amortization
of deferred loan costs
|
|
|
42,127
|
|
|
|
85,096
|
|
Amortization
of debt discount
|
|
|
272,552
|
|
|
|
347,944
|
|
Depreciation
and amortization
|
|
|
4,067
|
|
|
|
2,493
|
|
Change
in derivative liability
|
|
|
212,885
|
|
|
|
45,139
|
|
Stock
issued for legal settlement
|
|
|
8,108
|
|
|
|
123,922
|
|
Stock
issued for penalties
|
|
|
8,726
|
|
|
|
32,696
|
|
Excess
derivative liability charged to interest
|
|
|
236,167
|
|
|
|
38,224
|
|
Gain
on extinguishment of debt
|
|
|
(69,362
|
)
|
|
|
-
|
|
Non-deductible
penalties
|
|
|
13,991
|
|
|
|
-
|
|
Increase
in convertible notes outstanding for default penalties
|
|
|
56,279
|
|
|
|
-
|
|
Non-deductible
change in paid time off accrual
|
|
|
2,351
|
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
591,330
|
|
|
|
283,425
|
|
Income
tax expense
|
|
$
|
92,804
|
|
|
$
|
-
|
|
The
net federal operating loss carry forward will expire in 2031. This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.
NOTE
16 – SUBSEQUENT EVENTS
On
January 20, 2016, the Company issued a total of 103,292,475 common shares as the conversion of $5,165 of principal on an
existing convertible note payable.
On
January 21, 2016, the Company issued a total of 124,000,000 common shares as the conversion of $660 of principal on an existing
convertible note payable.
On
October 27, 2016, the Company issued a total of 140,000,000 common shares as the conversion of $770 of principal on an existing
convertible note payable.
On
February 2, 2017, the Company issued a total of 140,000,000 common shares as the conversion of $7,546 of principal on an existing
convertible note payable.
On
March 16, 2017, the Company issued a total of 160,000,000 common shares as the conversion of $8,712 of principal on an existing
convertible note payable.
On
March 20, 2017, the Company issued a total of 160,000,000 common shares as the conversion of $8,712 of principal on an existing
convertible note payable.
On
January 22, 2016, the Company entered into a note payable for $42,215 of which $5,000 is considered an original issue discount
resulting in cash proceeds to the Company of $37,215. The note carries interest at 8% per annum and is due on June 22, 2016.
On
March 16, 2016, the Company entered into a note payable for $43,500 of which $13,500 is considered an original issue discount
resulting in cash proceeds to the Company of $30,000. The note carries interest at 19% per annum. The Company has the option,
but not the obligation, to repay the note within 60 days of issuance at a fixed amount of $39,000.
On
November 3, 2016, the Company entered into a convertible note payable for $47,725 or which $7,725 was withheld as debt issue costs
resulting in cash proceeds to the Company of $40,000. The note bears interest at 12% per annum and is due on November 3, 2017.
The noteholder has the right to convert the outstanding principal and accrued but unpaid interest to shares of common stock at
a rate equal to 50% of the average of the lowest three trading prices of the Company’s common stock during the twenty days
immediately prior to conversion.
On
March 9, 2017, the Company, through a newly created special purpose entity, executed a share purchase agreement to acquire all
outstanding ownership interests in Crescent Construction Company, Inc.. a full service general contracting firm for total consideration
of $1,800,000. The agreement requires a cash payment of $500,000 at closing plus a note payable for $1,300,000. The note carries
interest of 6%, matures on March 31, 2022 and requires equal quarterly payments of $152,693.
As
part of the transaction, the Company entered into a revolving credit facility to borrow up to $5,000,000 of which $1,5000,000
as advanced to the company upon closing. Of the $1,500,000 advanced to the Company, $631,855 was paid for the seller and financier’s
closing costs resulting in net cash to the Company of $868,145. The credit line carries an interest rate of 12% per annum and
requires repayment based on cash collected from clients which are required to be sent to a lockbox maintained by the financier
of which the net receipts after required payments to the financier under the credit facility agreement will be provided to the
Company.