NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 2016 AND 2015
NOTE 1 ORGANIZATION AND GOING CONCERN
Organization
Force Protection Video Equipment Corp., (the Company), was incorporated on March 11, 2011, under the laws of the State of Florida as M Street Gallery, Inc. On September 25, 2013, we changed our name to Enhance-Your-Reputation.com, Inc. and changed our business to providing reputation management and enhancement services. On February 2, 2015 the Company changed its name to Force Protection Video Corp. to focus on the sale of mini body video cameras and accessories to consumers and law enforcement.
Going Concern
The Companys financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the three months ended July 31, 2016, the Company recognized revenue of $15,712 and a net operating loss of $221,668. As of July 31, 2016, the Company had working capital of $22,131 and an accumulated deficit of $1,964,337.
In view of these conditions, the ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. Historically, the Company has relied upon funds from the sale of shares of stock, issuance of promissory notes and loans from its shareholders and private investors to finance its operations and growth. Management is planning to raise necessary additional funds for working capital through loans and/or additional sales of its common stock. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all. Should the Company be unable to raise this amount of capital its operating plans will be limited to the amount of capital that it can access. These financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited financial statements of Force Protection Video Equipment Corp. (the Company) as of July 31, 2016, and for the three months ended July 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended April 30, 2016, as filed with the Securities and Exchange Commission as part of the Companys Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
5
Estimates
The preparation of the Companys financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by managements application of accounting policies. On an on-going basis, the Company evaluates its estimates. Actual results and outcomes may differ materially from these estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.
Inventory
Our inventory is comprised of finished goods, cameras and recording equipment. The Companys inventory is stated at the lower of cost or market. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances. The Company does not have a history of significant bad debt and has not recorded any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.
Property and Equipment
Fixed assets are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. 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.
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. Depreciation for financial statement purposes is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
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Estimated
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Useful Lives
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Vehicles
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5 years
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Office Equipment
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3 - 5 years
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Furniture & equipment
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5 - 7 years
|
6
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions, if any, taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.
Revenue Recognition
The Company recognizes revenue when (a) pervasive evidence of an arrangement exists (b) products are delivered or services have been rendered (c) the sales price is fixed or determinable, and (d) collection is reasonably assured.
Advertising costs
Advertising costs are anticipated to be expensed as incurred. The Company recognized $2,120 and $0 in advertising costs during the three months ended July 31, 2016 and 2015, respectively.
Stock Based Compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
As of July 31, 2016 and April 30, 2016, the Company did not have any assets or liabilities that were required to be measured at fair value on a recurring basis or on a non-recurring basis.
7
Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents and accounts payable and accrued expenses. The carrying amounts of the Companys financial instruments approximate fair value because of the short term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect those estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments.
Net Income (Loss) Per Share
The computation of basic earnings per share (EPS) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS, if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
Following is the computation of basic and diluted net loss per share for the three months ended July 31, 2016 and 2015:
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Three Months Ended
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July 31,
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2016
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2015
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Basic and Diluted EPS Computation
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Numerator:
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Loss available to common stockholders'
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$
(489,212)
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$
(53,042)
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Denominator:
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Weighted average number of common shares outstanding
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58,994,673
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18,680,714
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Basic and diluted EPS
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$
(0.01)
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$
(0.00)
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Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
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Convertible promissory notes
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160,932,678
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-
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8
Concentrations of risk
During the three months ended July 31, 2016, one customer accounted for 10.2% of sales. During the three months ended July 31, 2015, one customer accounted for 16.2% of sales.
The Company relies on third parties for
the supply and manufacture of its capture devices, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. During the three months ended July 31, 2016, one supplier accounted for 91.7% of our inventory purchases.
Recent Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-16, Business Combinations (Topic 805). This ASU eliminates the requirement for retrospective application of measurement period adjustments relating to provisional amounts recorded in a business combination as of the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments will be effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company does not expect this accounting update to have a material effect on its consolidated financial statements in future periods, although that could change.
In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This ASU provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and will be effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years. We expect the adoption of this guidance will not have a material impact on our financial statements.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends the consolidation requirements in ASC 810 and significantly changes the consolidation analysis required under U.S. GAAP relating to whether or not to consolidate certain legal entities. Early adoption is permitted. The Companys effective date for adoption is January 1, 2016. The Company does not expect this accounting update to have a material effect on its consolidated financial statements in future periods, although that could change.
9
In January 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates the concept from U.S. GAAP the concept of an extraordinary item. Under the ASU, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. Early adoption is permitted. The Companys effective date for adoption is May 1, 2016. The Company does not expect this accounting update to have a material effect on its consolidated financial statements in future periods, although that could change.
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our financial statements.
NOTE 3 - FIXED ASSETS
Fixed assets consisted of the following:
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July 31,
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April 30,
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2016
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2016
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Vehicles
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15,376
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-
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Furniture and fixtures
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6,212
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6,212
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Computers and office equipment
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2,480
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1,376
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Total fixed assets
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24,068
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7,588
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Accumulated depreciation
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(1,412)
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(476)
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Total fixed assets
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$
22,656
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$
7,112
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During the three months ended July 31, 2016 and 2015, the Company recognized $936 and $0, respectively, in depreciation expense.
NOTE 4 CONVERTIBLE PROMISSORY NOTES
Following is a summary of our outstanding convertible promissory notes as of July 31, 2016:
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Current Balances
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Lender
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Issue Date
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Maturity
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Principle
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Interest
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Total
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RDW Capital, LLC Note 1
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11/10/2015
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5/10/16
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$
10,293
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$
7,664
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$
17,957
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RDW Capital, LLC Note 2
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12/31/2015
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6/30/16
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105,000
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5,089
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110,089
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RDW Capital, LLC Note 3
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3/10/2016
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9/10/16
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792
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614
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1,406
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RDW Capital, LLC Note 4
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5/13/2016
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11/13/16
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105,000
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1,818
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106,818
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RDW Capital, LLC Note 5
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5/20/2016
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11/20/16
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52,500
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909
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53,409
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Totals
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$
273,585
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$
16,094
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$
289,679
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Debt discount balance
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(78,655)
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Balance sheet balances
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$ 194,930
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10
Following is a summary of our outstanding convertible promissory notes as of April 30, 2016:
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Current Balances
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Lender
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Issue Date
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Maturity
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Principle
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Interest
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Total
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LG Capital Funding, LLC
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4/20/2016
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9/11/2016
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$
13,000
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$
34
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$
13,034
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Black Forest Capital, LLC
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10/8/2015
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10/8/2016
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19,500
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3,001
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|
22,501
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RDW Capital, LLC Note 1
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11/10/2015
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5/10/16
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157,500
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6,136
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163,636
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RDW Capital, LLC Note 2
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1/0/1900
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6/30/16
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105,000
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2,861
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107,861
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RDW Capital, LLC Note 3
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3/10/2016
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9/10/16
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792
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614
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1,406
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Totals
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$
295,792
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$
12,646
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$
308,438
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Debt discount balance
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(204,718)
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Balance sheet balances
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$
91,074
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The company determined that each convertible promissory notes conversion feature is indexed to the Companys stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the notes meets the scope exception under Financial Accounting Standards Board (FASB) Accounting Standards Codification ("ASC") 815-40-15-7 and treatment under ASC 470-20
Debt with Conversion and Other Options
is appropriate.
LG Capital Funding, LLC
On September 11, 2015 the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC ("LG") for the sale of an 8% convertible note in the principal amount of $81,000 and proceeds of $75,000 net of legal expenses (the LG Note).
The LG Note was convertible into common stock at a price equal to 60% of the lowest trading price during the 20 trading days immediately preceding the applicable conversion.
The LG Note principle was discounted for the value of the legal fees of $6,000 and the intrinsic value of the beneficial conversion feature of $68,000. The resulting $74,000 discount was fully accreted through July 31, 2016 due to full repayment of the LG Note on May 2, 2016.
During the three months ended July 31, 2016, the Company recognized no interest expense and debt discount accretion of $7,741. On May 2, 2016, LG converted the remaining $13,034 of principal and interest into 775,844 shares of common.
Black Forest Capital, LLC
On October 8, 2015 the Company sold and Black Forest Capital, LLC (Black Forest) purchased a 10% convertible note in the principal amount of $53,000 (the Black Forest Note) of which the Company received $50,000 after payment of legal fees. The Black Forest Note matured in 12 months on October 8, 2016.
The Black Forest Note was convertible into common stock, at Black Forests option anytime following the issuance date, at a price for each share of common stock equal to 40% of the lowest trading price during the 20 trading days immediately preceding the applicable conversion.
The Black Forrest Note principle was discounted for the value of legal fees of $3,000 and the intrinsic value of the beneficial conversion feature of $50,000. The calculated intrinsic value was $127,199. As this amount resulted in a total debt discount that exceeded the Black Forest Note principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of the Black Forest Note. The resulting $53,000 discount was accreted through July 31, 2016 due to repayment of the Black Forest Note.
11
During the three months ended July 31, 2016, the Company recognized no interest expense and debt discount accretion of $9,992. During the three months ended July 31, 2016, Black Forrest converted the remaining $22,499 of principal and interest into 11,076,775 shares of common stock.
RDW Capital, LLC
On November 12, 2015, the Company entered into a Securities Purchase Agreement (RDW SPA 1) with RDW Capital, LLC (RDW), a Florida limited liability company. On November 12, 2015, the Company and RDW entered into the First Amended Securities Purchase Agreement. On November 12, 2015, the Company and RDW entered into the Second Amended Securities Purchase Agreement. On February 17, 2016, the Company and RDW entered into the Third Amended Securities Purchase Agreement. On February 17, 2016, the Company and RDW entered into the Fourth Amended Securities Purchase Agreement. On May 9, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 2). RDW SPA 1, amendments thereto and RDW SPA 2 may hereinafter be referred to collectively as, the
RDW SPAs
.
RDW Note 1
- In connection with RDW SPA 1 and amendments thereto, on November 12, 2016, the Company issued to RDW a convertible note (RWD Note 1) due on April 10, 2016 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 original issue discount (
OID
) and legal and due diligence fees totaling $20,000.
RDW Note 1 principle was discounted for the value of the OID, due diligence fees and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $121,406. As this amount resulted in a total debt discount that was less than RDW Note 1 principal, the full $121,406 discount was recognized. The resulting $148,906 discount was accreted over the 5 month term of RDW Note 1 through April 10, 2016.
RDW Note 2
- In connection with RDW SPA 1 and amendments thereto, on December 31, 2015, the Company issued to RDW a convertible note (RDW Note 2) due on June 30, 2016 in the principal amount of $105,000 of which the Company received proceeds of $90,000 after payment of a $5,000 OID and due diligence fees totaling $10,000.
RDW Note 2 principle was discounted for the value of the OID, due diligence fees and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $98,086. As this amount resulted in a total debt discount that exceeds RDW Note 2 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 2. The resulting $105,000 discount was accreted over the 5 month term of RDW Note 2 through June 30, 2016.
RDW Note 3
- In connection with RDW SPA 1 and amendments thereto, on March 10, 2016, the Company issued to RDW a convertible note (RDW Note 3) due on September 10, 2016 in the principal amount of $210,000 of which the Company received proceeds of $180,000 after payment of a $10,000 OID and due diligence fees totaling $20,000.
RDW Note 3 principal was discounted for the OID, due diligence fees, stock issued to an advisor in connection with RDW Note 3 totaling $18,000, and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $227,391. As this amount resulted in a total debt discount that exceeded RDW Note 3 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 3. The resulting $210,000 discount was accreted through April 30, 2016, the date RDW Note 3 was paid down to a principal and interest balance of $1,405.
RDW Note 4
- In connection with RDW SPA 2, on May 13, 2016, the Company issued to RDW a convertible note (RDW Note 4) due on November 13, 2016 in the principal amount of $105,000 of which the Company received proceeds of $82,500 after payment of a $5,000 OID, $7,500 of legal fees and $10,000 of due diligence fees.
12
RDW Note 4 principle was discounted for the value of the OID, legal fees due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $70,000. As this amount resulted in a total debt discount that was less than RDW Note 4 principal, the full $70,000 discount was recognized. The resulting $92,500 discount is being accreted over the 6 month term of RDW Note 4 through November 13, 2016.
RDW Note 5
- In connection with RDW SPA 2, on May 20, 2016, the Company issued to RDW a convertible note (RDW Note 5) due on November 20, 2016 in the principal amount of $52,500 of which the Company received proceeds of $45,000 after payment of a $2,500 OID and $5,000 of due diligence fees.
RDW Note 5 principle was discounted for the value of the OID, due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $35,000. As this amount resulted in a total debt discount that was less than RDW Note 5 principal, the full $35,000 discount was recognized. The resulting $42,500 discount is being accreted over the 6 month term of RDW Note 5 through November 20, 2016.
RDW Note 1, RDW Note 2, RDW Note 3, RDW Note 4 and RDW Note 5 may hereinafter be referred to collectively as, the
“
RDW Notes
”
.
The RDW Notes have the following terms and conditions:
·
The principal amount outstanding accrues interest at a rate of eight percent (8%) per annum.
·
Interest is due and payable on each conversion date and on the Maturity Date.
·
At any time, at the option of the holder, the RDW notes are convertible, into shares of our common stock at a conversion price equal to sixty percent (60%) of the lowest traded price of our common stock in the twenty (20) days prior to the conversion date, at any time, at the option of the holder (the
“
Conversion Price
”
).
· T
he
RDW Notes are unsecured obligations.
·
We may prepay the RDW Notes in whole or in part at any time with ten (10) days written notice to the holder for the sum of the outstanding principal and interest multiplied by one hundred and thirty percent (130%). RDW may continue to convert the notes from the date of the notice of prepayment until the date of prepayment.
·
Default interest of twenty-four percent (24%) per annum.
·
Interest on overdue accrued and unpaid interest will incur a late fee of the lower of eighteen percent (18%) per annum or the maximum rate permitted by law.
·
Upon an event of default, RDW may accelerate the outstanding principal, plus accrued and unpaid interest, and other amounts owing through the date of acceleration (
“
Acceleration
”
).
·
Upon Acceleration, the amount due will be one hundred thirty percent (130%) of the outstanding principal amount of the Note and accrued and unpaid interest, together with payment of all other amounts, costs, expenses and liquidated damages.
·
In the event of our default, at the request of the holder, we must pay one hundred fifty percent (150%) of the outstanding balance plus accrued interest and default interest.
·
We must reserve three (3) times the amount of shares necessary for the issuance of common stock upon conversion.
·
Conversions of the RDW Notes shall not be permitted if such conversion will result in the holder owning more than four point ninety-nine percent (4.99%) of our common shares outstanding after giving effect to such conversion.
During the three months ended July 31, 2016, the Company recognized $6,483 of interest expense and $243,330 of debt discount accretion related to the RDW Notes.
During the three months ended July 31, 2016, RDW converted $147,207 of RDW Note 1 principal into 35,657,285 shares of common stock.
13
NOTE 5 COMMITMENTS AND CONTINGENCIES
Product Warranties
Our products are sold with a one (1) year manufacturers warranty. The Company has no obligation to provide warranty service or replacement. The Company does offer an extended warranty for a fee. The extended warranty expires one year from the day the manufacturer warranty expires. Warranty costs during the second year of an extended warranty are born by the manufacturer. As a result, the Company has no, or limited warranty liability exposure.
Operating Lease
On March 21, 2015, the Company entered into a lease of office space at 130 Iowa Lane, Suite 102, Carry, North Carolina 27511. The lease expires on March 31, 2018. The Company has no other noncancelable operating leases. Future minimum lease payments under this operating lease with an initial term in excess of one year as of July 31, 2016 are as follows:
Fiscal Year
2017
$10,899
2018
$14,920
2019
$10,144
Thereafter
$0
During the three months ended July 31, 2016 and 2015, rent expense for office space totaled $3,694 and $2,250, respectively.
Supplier Purchase Commitments
The Company periodically makes contractual, advance inventory purchases in the ordinary course of business. As of July 31, 2016, the Company was obligated to purchase $11,000 of inventory under a non-exclusive distribution agreement.
NOTE 6 STOCKHOLDER'S EQUITY
As of July 31, 2016 and April 30, 2015, there were 88,035,499 and 40,525,595 shares of common stock outstanding, respectively. As of July 31, 2016 and 2015 there were 1,000,000 and 0 shares of Series A Preferred Stock outstanding, respectively.
On January 19, 2016, we amended our Articles of Incorporation to increase our authorized common stock from 50,000,000 shares to 250,000,000 shares and authorized the creation of 1,000,000 shares of Series A preferred stock with each share being entitled to 200,000 (i.e., 200:1) votes per share and with no right of conversion into shares of common stock.
On August 4, 2016, we approved an amendment to our Articles of Incorporation to increase our authorized common stock from 250,000,000 shares to 750,000,000 shares and authorized Series A preferred stock from 1,000,000 shares to 5,000,000 shares. The amendment became effective September 8, 2016.
During the three months ended July 31, 2016, the company issued 47,509,904 shares of common stock upon the conversion of convertible promissory note principal and interest totaling $182,740.
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During the year ended
April 30, 2016
, the Company issued preferred stock and common stock as follows:
·
10,095 shares of common stock were issued in exchange for services valued at the close price of our stock resulting in stock compensation expense of $14,500.
·
31,912 shares of common stock were issued in connection with RDW Note 3 and valued at $18,000 as stated in the related agreements.
·
450,000 shares of common stock were issued for cash of $0.10 per share resulting in the Company receiving $45,000.
·
1,000,000 shares of non-convertible Series A Preferred Stock to Paul Feldman, CEO, which entitle him to 200,000 votes per share or an aggregate of 200,000,000 votes on all matters submitted to our common stockholders. We valued the 1,000 Series A shares at $.0001 per share or an aggregate of $1,000.
·
21,738,588 shares of common stock were issued upon the conversion of $618,708 of convertible note principal and interest.
NOTE 7 SUBSEQUENT EVENTS
Management has reviewed material events subsequent of the quarterly period ended July 31, 2016 and prior to the filing of financial statements in accordance with FASB ASC 855 Subsequent Events.
On August 4, 2016, we approved an amendment to our Articles of Incorporation to increase our authorized common stock from 250,000,000 shares to 750,000,000 shares and authorized Series A preferred stock from 1,000,000 shares to 5,000,000 shares. The amendment became effective September 8, 2016.
RDW converted $115,293 of convertible note principal into 80,281,822 shares of common stock.
On August 22, 2016, the Company entered into a Securities Purchase Agreement (RDW SPA 3) with RDW. In connection with RDW SPA 3, on August 22, 2016, the Company issued to RDW a convertible note (RWD Note 6) due on February 22, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID, $5,000 of legal fees and 15,000 of due diligence fees.
On September 6, 2016, we entered into a Registration Rights Agreement and a Securities Purchase Agreement (RDW SPA 4) with RDW. Pursuant to their terms, RDW agreed to purchase an aggregate of up to $350,000 in Subscription Amount of Notes, corresponding to an aggregate of $367,500 in Principal Amount of Notes. The purchase will occur in two (2) tranches (each a Tranche), with the first Tranche of $150,000 being closed upon execution of this Agreement (the First Closing). The second Tranche will be for $200,000 and will occur on the date that is two (2) Trading Days from the date the Registration Statement is declared effective by the Commission. In connection with the RDW SPA 4, on September 6, 2016, we issued to RDW a convertible note (RDW Note 7) due March 5, 2016, in the principal amount of $157,500, of which the Company received proceeds of $130,000 after payment of a $7,500 OID, $5,000 of legal fees and 15,000 of due diligence fees which constituted the First Closing.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our April 30, 2016 Annual Report on Form 10-K.
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words believe, may, will, estimate, continue, anticipate, intend, expect and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our estimates of our financial results and our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (the SEC) with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
As used herein, the Company, our, we, or us and similar terms refers to Enhance-Your-Reputation.com, Inc. unless the context indicates otherwise.
Overview
The Company is in the business of selling video and audio capture devices initially targeted to law enforcement agencies. The Company has established a web site at www.forceprovideo.com whereby customers can view the Companys products and place orders. We believe that given recent current events between law enforcement agencies and the public, which has been widely reported by the media, there is a significant market opportunity for the Companys products.
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Products
Our video and audio capture devices are compact, ergonomic, tamperproof and designed to capture HD video and/or audio on demand enabling our customers to capture content while engaged in a wide range of activity. We also sell accessories that enhance the functionality and versatility of our products, including mounts, such as the helmet, handlebar, roll bar and tripod mounts, as well as mounts that enable users to wear the camera on their bodies, such as the wrist housing, chest harness and head strap. Other accessories include spare batteries, charging accessories and memory drives. Our products are marketed primarily to law enforcement due to their unique need to capture important events in the course of their duties.
Our primary hardware products consist of the LE10 Law Enforcement Video Recorder, LE50 HD Body Cam, SC1 Sunglass Camera and Citadel 3G Solar Security Camera
Distribution
Customers purchase products from our website and by telephone order. All products are shipped from our manufacturer to our facility in North Carolina where we process and ship product to our customers using Federal Express or United Parcel Services. Customers pay all shipping charges.
Marketing
Currently, our sales and marketing efforts include print marketing brochures featuring our products to state and local law enforcement agencies. We create and deliver brochures to state and local law enforcement, every four (4) weeks, using U.S. Mail.
Results of Operations
We are a start-up company. We did not begin meaningful operations until our first quarter of 2016. As of July 31, 2016, we had total assets of $305,645 and total liabilities of $259,876. Since our inception to July 31, 2016, we have accumulated a deficit of $1,964,337. We anticipate that we will continue to incur losses for the foreseeable future. Our financial statements have been prepared assuming that we will continue as a going concern. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through the sale of equity or debt securities.
Three Months Ended July 31, 2016 Compared with the three months ended July 31, 2015
Revenue
Revenue is generated from the sale of our video and audio capture devices and related accessories. For the three months ended July 31, 2016, the Company recognized $15,712 of revenue compared to $15,935 during the three ended July 31, 2015. Sales were flat compared to the prior year due to the new sales team not being fully operational.
Gross profit
Gross profit was $4,308 and $6,246 during the three months ended July 31, 2016 and 2015, respectively. Our Gross margin for the three months ended July 31, 2016 and 2015 was 27.4% and 39.2%, respectively. The year-over-year decrease in gross margin was due to increased volumes of lower margin product. The Company anticipates fluctuations in the mix of product sales and cannot meaningfully determine at this early stage if our gross margin will increase or decrease with any degree of accuracy.
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Operating Expenses
General and administrative costs include costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. General and administrative costs increased during the three months ended July 31, 2016 compared to the three months ended July 31, 2015 due to the Company beginning meaningful operations to promote and sell our products and administer the Company.
Sales and marketing costs include costs to promote and sell our products. Sales and marketing costs increased during the three months ended July 31, 2016 compared to the three months ended July 31, 2015 due to increased marketing activities to brand and promote our products.
Other Income (Expense)
All the elements of other income (expense) relate to our convertible promissory notes. During the three months ended July 31, 2016, the Company incurred $6,481, of interest expense and $261,063 of debt discount accretion.
Liquidity and Working Capital
Our principal source of liquidity is cash in the bank and salable inventory. As of July 31, 2016, our current assets totaled $305,645 and were comprised primarily of $110,051 in cash and $166,457 of inventory and prepaid inventory. Due to the start-up nature of our business, we expect to incur losses as we develop and introduce our products and services. These conditions raise doubt about our ability to continue as a going concern. Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investment in order to expand the range and scope of business operations. We will try to raise additional funds through private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
For the three months ended July 31, 2016, net cash flows used in operating activities was $228,242, compared to $76,390 for the three months ended July 31, 2015.
For the three months ended July 31, 2016, net cash flows used in investing activities was $16,480, compared to $671 for the three months ended July 31, 2015.
For the three months ended July 31, 2016, we generated cash flows from financing activities of $127,500 from the issuance of convertible promissory notes compared to $45,000 from the sale of common stock for the three months ended July 31, 2015. To date, we have financed our operations primarily through the issuance of debt and equity.
OffBalance Sheet Arrangements
We have no off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements for more information regarding recent accounting pronouncements and their impact to our consolidated results of operations and financial position.
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