Notes
To Condensed Financial Statements (Unaudited)
1.
BUSINESS
2050
Motors, Inc., (the “Company”) was formed to import, market, and sell electric cars manufactured in China. 2050 Motors
has entered into an agreement with Jiangsu Aoxin New Energy Automobile Co., Ltd., located in Jiangsu, China (“Aoxin”),
for the distribution in the United States of a new electric automobile, known as the e-Go EV.
2.
GOING CONCERN
The
Company’s ability to continue in existence is dependent on its ability to develop additional sources of capital, and/or
achieve profitable operations, positive cash flows, and the successful distribution of the vehicles in the USA markets. Management’s
plan is to aggressively pursue its present business plan. Since inception the Company has funded its operations through the issuance
of common stock and related party funding and advances, and will seek additional debt or equity financing as required. However,
there can be no assurance that the Company would be successful in raising such additional funds. The accompanying financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Information
The
accompanying Condensed Consolidated Balance Sheet as of June 30, 2016, the Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 2016 and 2015, and the Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2016 and 2015 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States (“U.S. GAAP”).The unaudited interim consolidated
financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial
position as of June 30, 2016, the results of operations for the three and six months ended June 30, 2016 and 2015, and the cash
flows for the six months ended June 30, 2016 and 2015. The results of operations for the three and six months ended June 30, 2016
are not necessarily indicative of the results to be expected for the year ending December 31, 2016.
These
unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on April
6, 2016.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Cash
Cash
consists of deposits in one large national bank.
2050
Motors , Inc.
Notes
To Condensed Financial Statements (Unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
Costs
Costs
incurred for producing and communicating advertising are expensed when incurred and included in selling general and administrative
expenses. Advertising expense amounted to $0 for the three and six months ended June 30, 2016 and 2015, respectively.
Property
and Equipment
Property
and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance
and repairs, which do not improve or extend the lives of the respective assets are expensed. At the time property and equipment
are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts.
Gains or losses from retirements or sales are credited or charged to income. Property and equipment are depreciated over the useful
lives of the asset using the straight line method.
Depreciation
is calculated using straight-line method over the assets estimated useful lives as follows:
Furniture
and fixtures
|
7
years
|
Leasehold
improvements
|
Lessor
of lease term or life of related assets
|
Vehicles
and parts
|
3
years
|
Tools
and equipment
|
5
years
|
Depreciation
expense for the six months ended June 30, 2016 and 2015 totaled $19,800 and $9,218, respectively. Depreciation expense for the
three months ended June 30, 2016 and 2015 totaled $9,900 and $4,658, respectively.
Impairment
of Long-Lived Assets and Assets
The
Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows is less than
the carrying amount of the asset, an impairment loss is recorded. No impairment losses were recognized for the three and six months
ended June 30, 2016 and 2015.
Earnings
Per Share
Basic
earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted earnings per share is computed by dividing net income by the weighted average number
of shares outstanding during the period increased to include the number of additional shares of common stock that would have been
outstanding if the potentially dilutive securities had been issued. For the three and six months ended June 30, 2016, and 2015,
the Company has incurred losses; therefore the effect of any Common Stock equivalent would be anti-dilutive during those periods.
There were no warrants, options, or other stock equity outstanding as of June 30, 2016 and 2015.
Concentration
of Credit Risk
Cash
is mainly maintained by one highly qualified institution in the United States. At various times such amounts are in excess of
federally insured limits. Management does not believe that the Company is subject to any unusual financial risk beyond the normal
risk associated with commercial banking relationships. The Company has not experienced any losses on our deposits of cash.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent
Accounting Pronouncement
In
May 2014, the FASB issued ASU No. 2014-09 ” Revenue from Contracts with Customers ” (Topic 606). Topic 606 supersedes
the revenue recognition requirements in Topic 605, “Revenue Recognition”, including most industry-specific revenue
recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments create a new Subtopic 340-40,
“Other Assets and Deferred Costs—Contracts with Customers”. In summary, the core principle of Topic 606 is that
an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments
in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within
that reporting period. Early application is not permitted. Management is currently evaluating the impact this guidance will have
on Company’s financial position and statement of operations.
In
June 2014, FASB issued amendment 2014-10 that eliminates certain financial reporting requirements for Development Stage Entities.
This amendment is effective for annual reporting periods beginning after December 15, 2014 and interim periods therein. Early
application is permitted. The Company adopted this amendment effective July 1, 2014 by removing the following disclosures:
a)
Presentation of inception-to-date information in the statement of income, cash flows and shareholder equity.
b)
Labeling
the financial statements as those of a development
stage
entity.
c)
Description of the development
stage
activities in which the
entity
is
engaged.
In
August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-15, “Presentation of Financial Statements – Going Concern”, Subtopic 205-40, “Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern.” The amendments in this ASU apply to all entities and require
management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles
that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt,
(2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating
effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration
of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated,
and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to
be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods
and interim periods thereafter. Early application is permitted. Management is currently evaluating the impact this guidance will
have on Company’s financial position and results of operations.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740, Income Taxes. This statement requires an asset and liability approach
for accounting for income taxes. The accounting principles generally accepted in the United States of America provides accounting
and disclosure guidance about positions taken by an entity in its tax returns that might be uncertain.
The
accounting principles generally accepted in the United States of America provides accounting and disclosure guidance about positions
taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes
that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon
examination. The Company files income tax returns in the U.S. and various state jurisdictions. The Company is subject to examinations
by U.S. Federal and State tax authorities from 2012 (inception) to the present, generally for three years after they are filed.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign
Currency Risk
Any
significant changes in foreign currency exchange rates may have significant impact on Company’s future financial statements
upon fulfilling certain purchase commitments in accordance to the license agreement disclosed in Note 7.
4.
VEHICLE DEPOSITS
Vehicle
deposit represents one prototype test model for delivery into the United States in the fourth quarter of 2016. This vehicle will
undergo an advanced crash test known in the Automobile Safety Industry as the “overlap crash test”.
5.
LICENSE AGREEMENT
In
2012 and 2013, the Company made a total payment of $50,000 and signed an exclusive license agreement with Aoxin to import, assemble
and manufacture the advanced carbon fiber electric vehicle, the e-Go EV model. The cost of this license agreement has been recognized
as a long-term asset and is evaluated, by management, for impairment losses at each reporting period.
6.
SHORT-TERM LOANS
On
August 29, 2014 and September 30, 2014, the Company issued two loans for a total amount of $100,000 due to a shareholder. The
loans bear 12% interest and matured on February 28, 2015 and March 30, 2015, respectively. Under a loan addendum, the maturity
of the loans was extended until December 31, 2016. As of June 30, 2016, the total unpaid principal balance of the loans is $66,500.
The
Company received a $7,400 cash advance during the second quarter of 2016 from an unrelated party. The cash advance is non-interest
bearing and due on August 1, 2016.
7.
PROMISSORY NOTE AND EQUITY PURCHASE AGREEMENT
The
Company issued a $75,000 non-refundable Promissory Note to an investor as a pre-condition to an Equity Purchase Agreement. The
promissory note bears 10% interest per annum with a one year maturity date. The note is recognized as a deferred finance charge
and is being amortized over the contract period.
The
Equity Purchase Agreement allows the Company to issue Put Notices and the right to sell up to $10,000,000 of its no par value
common stock at 88% of its market value. The market value is based on a ten day valuation period immediately preceding the Put
Notice. The right to sell the shares becomes an obligation to sell as of the closing date after the Put Notice has been issued
to the investor. The investor at no time can own more than 9.99% of the Company’s common stock outstanding as of the closing
date.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
8.
COMMITMENTS AND CONTINGENCIES
In
November 2013, the Company signed a new facility lease. The monthly lease amount was $2,400. The lease term commenced on December
15, 2013 and terminated on December 31, 2015. The lease was continued on a month to month basis and was terminated on February
29, 2016.
Effective
March 1, 2014, the Company signed a lease for four thousand square feet of industrial space in North Las Vegas. The term of the
lease is for three years and cost $2,200 per month. The lease expires on April 30, 2017.
Effective
September 16, 2015, the Company renewed its residential lease agreement in California for its traveling consultants. Effective
September 2015, the Company extended the lease agreement for one more year with a new monthly amount of $2,300. As of June 30,
2016, the Company discontinued its lease, which was assumed by a consultant of the Company.
During
April through June 2016, the Company paid $450 per month, on a month to month basis, to rent a space at a local car gallery in
order to display its prototype electric car.
In
November 2014, the Company signed a one year lease agreement for a storage facility. The Company prepaid the entire lease amount
with 10,000 shares of Company’s common stock for an amount of approximately $13,000. The lease terminated on November 11,
2015 and was not extended.
Rent
expense amounted to $32,483 and $45,113 for the six months ended June 30, 2016 and 2015, respectively. Rent expense amounted to
$12,867 and $22,557 for the three months ended June 30, 2016 and 2015, respectively.
According
to the license agreement signed between the Company and Aoxin, in order to maintain exclusive rights for the United States (US),
the Company is required to purchase and sell certain amount of e-Go EV model vehicles per year for a certain period of time starting
from the completion of the requirements established by the United States Department of Transportation’s protocols for the
e-Go EV model. The table below demonstrates the required amount of vehicles that the Company needs to sell per year.
First year
|
|
|
2,000
|
|
Second year
|
|
|
6,000
|
|
Third year
|
|
|
12,000
|
|
Fourth year
|
|
|
24,000
|
|
Fifth year
|
|
|
48,000
|
|
|
|
|
92,000
|
|
As
part of the license agreement, the Company is committed to pay expenses related to any required airbag testing procedures. The
cost of these airbags could be as little as $500,000 or as much as $2 million.
The
Company may from time to time, become a party to various legal proceedings, arising in the ordinary course of business. The Company
investigates these claims as they arise. Management does not believe, based on current knowledge, that there were no such claims
outstanding as of June 30, 2016.
9.
REVOLVING LINE OF CREDIT
On
February 12, 2016, the Company signed a twelve months revolving line of credit agreement with a consulting firm which is also
utilized for consulting services. The line amount is $100,000 and carries interest at 12% per annum. As of June 30, 2016, the
outstanding balance was $100,580.
10.
EQUITY
Effective
January 28, 2016, the Company issued 200,000 shares of company’s common stock, valued at $0.1574 per share, to a third party
in exchange for consulting and advisory services for a period of six months.
Effective
May 2, 2016, the Company signed an agreement to receive seven months of marketing services in exchange for 835,000 shares of the
Company’s common stock valued at $125,000 plus $36,000 cash. As of June 30, 2016, the Company has yet to issue the shares
and is presented on the Condensed Balance Sheet as Common stock issuable. Of the $36,000 cash, $16,000 was still payable as of
June 30, 2016.