Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 1 – Organization and Going Concern
The Company was incorporated under the laws
of the State of Nevada on November 14, 2008. The Company was originally named “Bio-Stuff” and was a designated shell
corporation from inception to the date of acquisition of the 5BARz assets.
In 2010 the Company changed its name to 5BARz
International, Inc. and the Company acquired a set of agreements for a 50% interest in certain intellectual property underlying
the 5BARz™ RF products, and marketing rights. The 5BARz initial products are highly engineered wireless units referred to
as “cellular network extenders”. The 5BARz™ device captures cell signal and provides a smart amplification and
resend of that cell signal giving the user improved cellular reception in their home, office or while mobile. During the quarter,
the Company developed an advanced Wifi product entitled the 5BARz Fuji Broadband Router. The initial deployment of this product
was announced August 31, 2016, through a strategic alliance agreement with a top internet service provider in India.
On March 29, 2012, 5BARz International, Inc.
acquired a 60% controlling interest in CelLynx Group, Inc. (the founder of the 5BARz technology) and a 60% interest in the intellectual
property underlying the 5BARz™ products. On January 12, 2015 the Company incorporated two new subsidiaries, 5BARz International
SA de CV (99%) in Mexico, and 5BARz India Private Limited (99.9%) in India. On March 7, 2016 the Company incorporated a wholly
owned subsidiary 5BARz Technology Holdings, Inc. (100%) in the State of Nevada and on May 26, 2016 the Company incorporated a wholly
owned subsidiary, 5BARz Pte. Ltd. (100%) in Singapore.
These financial statements reflect the financial
position for the Company and its subsidiary companies, CelLynx Group Inc. (60%) and its wholly owned subsidiary CelLynx Inc. (100%),
5BARz International SA de CV (99%), 5BARz India Private Limited (99.9%), 5BARz Technology Holdings, Inc. (100%), and 5BARz Pte.
Ltd. (100%). Results of operations for subsidiary Companies are reflected only from the date of acquisition or formation of that
subsidiary for the period indicated in the respective statement.
Going concern
The accompanying condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has commenced the commercial sale of product at limited production volumes. The Company
incurred losses of $4,908,237 and $8,141,431 during the nine months ended September 30, 2016 and 2015 respectively. Cash used in
operating activities was $3,797,544 and $3,027,498 for the nine months ended September 30, 2016 and 2015 respectively. The Company
is seeking additional sources of equity or debt financing, and there is no assurance these activities will be successful. These
factors raise substantial doubt about the Company’s ability to continue as a going concern and the Company’s continued
existence is dependent upon adequate additional financing being raised to develop its sales and marketing program for the sales
of 5BARz product, to expand the Company’s product base and commence its planned operations.
Management’s assessment of the significant
mitigating factors includes several quantitative and qualitative conditions which support the Company’s ability to continue
as a going concern as follows;
F-4
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
|
·
|
Continued ability to generate proceeds from private placements
– since inception of the business in 2008, the Company has financed operations through private placements and debt, with increased volumes in the recent years. The Company’s gross proceeds from private placements, exercise of warrants, and debt for the nine months ended September 30, 2016 was $3,856,083 compared to $3,634,219 in 2015. The Company paid for services and settled debt by the issue of shares in the amount of $1,875,269 during the nine months ended September 30, 2016 compared to $1,021,527 in 2015.
|
|
·
|
Product Commercialization –
The
Company became an approved vendor and received several purchase orders for Cellular Network Extenders from two Tier 1 cellular
network operators in India. These opportunities and expansion of products by the Company represent significant steps forward in the Company’s commercialization
process. However, there
is no assurance that this profitability will be accomplished.
|
The accompanying consolidated financial statements
do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification
of liabilities that may result, should the Company be unable to continue as a going concern.
Note 2 – Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30, 2016, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2016.
For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed on April 27, 2016 for the
fiscal year ended December 31, 2015.
The accompanying unaudited consolidated financial
statements include the accounts of 5BARz International Inc., and its subsidiary companies CelLynx Group Inc. (60%) and its wholly
owned subsidiary CelLynx Inc. (100%), 5BARz International SA de CV (99%), 5BARz India Private Limited (99.9%), 5BARz Pte. Inc.
(100%), and 5BARz Technology Holdings Inc. (100%). Results of operations for subsidiary Companies are reflected only from the date
of acquisition of that subsidiary, for the period indicated in the respective statements. All intercompany accounts and transactions
have been eliminated in consolidation.
F-5
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
The Company started revenue-generating operations
in the last quarter of 2015, however these activities are in early stages and still do not generate positive cash flows from operations,
so the Company is dependent on debt and equity funding to finance its operations, and it is considered to be a development stage
company. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional
funding to commercialize the Company’s current technology and opportunities.
In June 2014, the Financial Accounting Standards
Board issued new guidance that removed all incremental financial reporting requirements from generally accepted accounting principles
in the United States for development stage entities. The Company early adopted this new guidance effective June 30, 2014, as a
result of which all inception-to-date financial information and disclosures have been removed from this report.
Use of estimates
The preparation of these 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 disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant
estimates include impairment analysis for long lived assets, income taxes, litigation and valuation of derivative instruments.
Actual results could differ from those estimates.
Research and Development Costs
Research and development costs are charged
to expense as incurred. The costs of materials and equipment that are acquired or constructed for research and development activities,
and have alternative future uses (either in research and development, marketing or production), are classified as property and
equipment and depreciated over their estimated useful lives.
Furniture & equipment
Furniture and equipment is recorded at historical
cost and is depreciated using the straight-line method over their estimated useful lives. The useful life and depreciation
method are reviewed periodically to ensure that the depreciation method and period are consistent with the anticipated pattern
of future economic benefits. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and
betterments are capitalized. Gains and losses on disposals are included in the results of operations. The furniture and equipment
is being depreciated over their estimated useful life of three to seven years.
Inventory
Inventories are carried at the lower of cost
and net realizable value. Cost is determined using the weighted-average method. As of September 30, 2016, in the US and India the
Company held an inventory of $83,138 comprised of sub-assemblies and finished goods inventories of cellular network extenders.
The Company’s inventory in Mexico included 967 units of Road Warrior cellular network extenders valued at $110,691 net of
a reserve of $54,923. The Company’s inventory reserve of $54,923 is provided for slow moving or potentially obsolete items
in Mexico, and is charged to cost of sales.
F-6
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies - continued
Goodwill and other intangible assets
The Company accounts for goodwill and intangible
assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested
for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased
below its carrying value. The Accounting Standards Codification (“Codification”) requires that goodwill be tested for
impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill
impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting
units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the
fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions.
Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.
When testing goodwill for impairment, the Company
may assess qualitative factors for some or all of its reporting units to determine whether it is more likely than not (that is,
a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Alternatively, the Company may bypass this qualitative assessment for some or all of our reporting units and perform a detailed
quantitative test of impairment (step 1). If the Company performs the detailed quantitative impairment test and the carrying amount
of the reporting unit exceeds its fair value, the Company would perform an analysis (step 2) to measure such impairment. In accordance
with the Codification, the Company reviews the carrying value of its intangibles and other long-lived assets for impairment at
least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted
cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the
carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group,
if any, exceeds its fair market value.
Long-Lived Assets Subject to Amortization
The Company amortizes
intangible assets with finite lives over their estimated useful lives and reviews them for impairment annually or whenever impairment
exists. The Company continually evaluates whether events or changes in circumstances might indicate that the remaining estimated
useful life of long-lived assets may warrant revision, or that the remaining balance may not be recoverable. When factors indicate
that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted cash
flows in measuring whether the long-lived asset should be written down to fair value. Measurement of the amount of impairment would
be based on generally accepted valuation methodologies, as deemed appropriate. The intangible assets are being amortized over their
estimated useful life of seven to ten years.
There were no long-lived assets impairment
charges recorded during the nine months ended September 30, 2016 and 2015.
Revenue recognition
The Company's revenue recognition policies
are in compliance with ASC Topic 605, “Revenue Recognition.” Revenue is recognized at the date of shipment
to customers, and when the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company
exist and collectability is reasonably assured.
F-7
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies - continued
Foreign currency translation
Transactions in foreign currencies have been
translated into US dollars using the current rate method. The functional currency of the Company’s subsidiary 5BARz International
SA de CV, in Mexico is the local currency, the Mexican Peso, and the functional currency in the Company’s subsidiary 5BARz
India Private Limited is the functional currency in India, the Indian Rupee. The functional currency in the Company’s subsidiary
5BARz Pte Inc. in Singapore is the Singapore Dollar. Assets and liabilities are translated based in the exchange rates at the balance
sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity
accounts are translated at historical exchange rates. The resulting translated gain and loss adjustments are accumulated as a component
of stockholders’ equity and other comprehensive income.
Concentrations
The Company maintains cash with major financial
institutions. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in Mexico, Singapore or Indian bank
accounts. There were aggregate uninsured cash balances of $57,923 and $13,634 at September 30, 2016 and December 31, 2015, respectively.
Comprehensive Income (Loss)
Comprehensive income is defined as the change
in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes
all changes in equity during a period except those resulting from investments by owners and distributions to owners. The guidance
requires other comprehensive income (loss) to include foreign currency translation adjustments.
Foreign Operations
The following summarizes key financial metrics
associated with the Company’s foreign operations (these financial metrics are immaterial for the Company’s operations
in the Switzerland):
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Assets- U.S.
|
|
$
|
3,907,508
|
|
|
$
|
4,396,990
|
|
Assets- Mexico.
|
|
|
114,479
|
|
|
|
172,170
|
|
Assets- India.
|
|
|
284,190
|
|
|
|
50,645
|
|
Assets - Singapore
|
|
|
253,710
|
|
|
|
—
|
|
Assets- Total
|
|
$
|
4,559,887
|
|
|
$
|
4,619,805
|
|
|
|
|
|
|
|
|
|
|
Liabilities- U.S.
|
|
$
|
9,893,592
|
|
|
$
|
9,540,657
|
|
Liabilities- Mexico
|
|
|
135,986
|
|
|
|
57,422
|
|
Liabilities- India
|
|
|
407,473
|
|
|
|
150,842
|
|
Liabilities - Singapore
|
|
|
4,255
|
|
|
|
—
|
|
Liabilities- Total
|
|
$
|
10,441,306
|
|
|
$
|
9,748,921
|
|
F-8
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies - continued
Foreign Operations - continued
|
|
For the 3 months ended
|
|
|
For the 9 months ended
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
September 30, 2016
|
|
September 30, 2015
|
Revenues- U.S.
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Revenues- Mexico.
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- India.
|
|
19,543
|
|
|
—
|
|
|
|
56,071
|
|
|
|
—
|
|
Revenues – Singapore
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- Total
|
$
|
19,543
|
|
$
|
—
|
|
|
$
|
56,071
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Income) Loss- U.S.
|
$
|
1,014,831
|
|
$
|
2,568,897
|
|
|
$
|
3,788,615
|
|
|
$
|
7,634,322
|
|
Net loss- Mexico
|
|
43,473
|
|
|
35,449
|
|
|
|
147,059
|
|
|
|
68,992
|
|
Net loss- India
|
|
310,103
|
|
|
217,425
|
|
|
|
961,072
|
|
|
|
438,115
|
|
Net loss - Singapore
|
|
1,373
|
|
|
—
|
|
|
|
11,490
|
|
|
|
—
|
|
Net Loss- Total
|
$
|
1,369,780
|
|
$
|
2,821,771
|
|
|
$
|
4,908,236
|
|
|
$
|
8,141,429
|
|
Fair value of financial instruments
The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses and other current liabilities, approximate fair value due
to the short-term nature of these instruments.
Fair value is defined as an exit
price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly
transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that
market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs
in measuring fair value as follows:
|
• Level 1.
|
Quoted prices in active markets for identical assets or liabilities.
|
|
• Level 2.
|
Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
|
|
• Level 3.
|
Significant unobservable inputs that cannot be corroborated by market data.
|
F-9
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies (continued)
The assets or liability’s fair value
measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
The following table provides a summary of the assets that are measured at fair value on a recurring basis.
|
|
Consolidated
Balance Sheet
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
Quoted Prices for Similar Assets or Liabilities in Active Markets
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
$
|
3,154,068
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,154,068
|
|
December 31, 2015
|
|
$
|
1,868,439
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,868,439
|
|
The following table sets forth a summary of
the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring
basis for the nine months ended September 30, 2016 and the 12 months ended December 31, 2015:
|
|
September 30, 2016
|
|
December 31, 2015
|
Beginning balance
|
|
$
|
1,868,439
|
|
|
$
|
547,940
|
|
Aggregate fair value of conversion feature upon issuance of common shares
|
|
|
—
|
|
|
|
(457,228
|
)
|
Change in fair value of derivative liabilities
|
|
|
(1,310,776
|
)
|
|
|
(45,356
|
)
|
Reclassification of warrants to derivative liability
|
|
|
2,475,702
|
|
|
|
1,823,083
|
|
Reclassification of stock options to derivative liability
|
|
|
120,703
|
|
|
|
—
|
|
Ending balance
|
|
$
|
3,154,068
|
|
|
$
|
1,868,439
|
|
The derivative conversion feature liabilities
are measured at fair value using the Black-Scholes pricing model and are classified within Level 3 of the valuation hierarchy.
The significant assumptions and valuation methods that the Company used to determine fair value and the change in fair value of
the Company’s derivative financial instruments are provided below:
|
|
September 30, 2016
|
|
December 31, 2015
|
Stock price
|
|
$
|
0.084
|
|
|
$
|
0.10
|
|
Volatility
|
|
|
106.01
|
%
|
|
|
91.3
|
%
|
Risk-free interest rate
|
|
|
.68
|
%
|
|
|
0.64
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life
|
|
|
1.5 - 5 years
|
|
|
|
1.5 - 2 years
|
|
F-10
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies (continued)
Both observable and unobservable inputs may
be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains
and losses for assets within the Level 3 category presented in the tables above may include changes in fair value that were attributable
to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.
Financial assets are considered Level 3 when
their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one
significant model assumption or input is unobservable.
Level 3 financial liabilities consist of the
derivative liabilities for which there is no current market such that the determination of fair value requires significant judgment
or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period
based on changes in estimates or assumptions and recorded as appropriate.
As of September 30, 2016, there were no transfers
in or out of Level 3 from other levels in the fair value hierarchy.
Derivative instruments
Derivative Financial Instruments The fair value
of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection
reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for
treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not
an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to
the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815. The accounting treatment
of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair
values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair
value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company
reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result
of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
If the Company were to enter into a financial
arrangement through the issuance of convertible debt and or warrants, for which such instruments would contain a variable conversion
feature with an indeterminable number of shares, the Company would apply a sequencing policy in accordance with ASC 815- 40-35-12
whereby such instruments, and all future issuances of financial instruments regardless of conversion terms, would be classified
as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
The Company may also apply sequencing in any circumstance, whereby the Company has entered into financial arrangements for commitments
to issue shares, for which such issuances would exceed the authorized share limit. Upon the issuance of any such instrument, the
excess shares committed to be issued, would also be reclassified as a derivative liability.
The Black-Scholes option valuation model was
used to estimate the fair value of the warrants and conversion options. The model includes subjective input assumptions that can
materially affect the fair value estimates. The Company determined the fair value of the Binomial Lattice Model and the Black-Scholes
Valuation Model to be materially the same. The expected volatility is estimated based on the most recent historical period of time
equal to the weighted average life of the warrants or conversion options. Conversion options are recorded as debt discount and
are amortized as interest expense over the life of the underlying debt instrument.
F-11
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies (continued)
Amortization of Debt Discount
The Company issued various debt with conversion
privileges for which total proceeds were allocated to individual instruments based on the relative fair value of the each instrument
at the time of issuance. The value of the debt was recorded as discount on debt and amortized over the term of the respective debt.
Stock Based Compensation
The Company records stock-based compensation
in accordance with ASC Topic 718, “Compensation – Stock Compensation.” ASC 718 requires companies to measure
compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s
requisite service period. Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s
stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns
and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
The Company uses the Black-Scholes option-pricing
model which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex
and subjective variables including the expected life of options granted and the Company’s expected stock price volatility
over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially
affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes
option-pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options.
Although the fair value of employee stock options
is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed
in a willing buyer/seller market transaction.
For non-employees, the fair value of the award
is generally re-measured on financial reporting dates and vesting dates until the service period is complete. The fair value amount
is then recognized over the period the services are required to be provided in exchange for the award, usually the vesting period.
The Company incurred stock based compensation
charges during the three and nine-month period ended September 30, 2016 and 2015 as follows;
|
|
3 months ended
September 30
|
|
9 months ended
September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
General and administrative
|
|
$
|
45,772
|
|
|
$
|
49,435
|
|
|
$
|
938,679
|
|
|
$
|
132,843
|
|
Research and development
|
|
|
—
|
|
|
|
57,198
|
|
|
|
70,347
|
|
|
|
97,028
|
|
Sales and marketing
|
|
|
—
|
|
|
|
37,455
|
|
|
|
7,007
|
|
|
|
93,637
|
|
Total
|
|
$
|
45,772
|
|
|
$
|
144,088
|
|
|
$
|
1,016,033
|
|
|
$
|
323,508
|
|
F-12
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Net loss per share
The Company reports loss per share in accordance
with the ASC Topic 260, “Earnings Per Share.”, which requires presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial
statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares
of common stock outstanding during the period plus the issuance of common shares, if dilutive, that could result from the exercise
of outstanding stock options and warrants and conversion of notes payable. These potentially dilutive securities outstanding at
September 30, 2016 and December 31, 2015 respectively of 208,919,937 and 155,670,170 were not included in the calculation of loss
per common share, because their effect would be anti-dilutive. The weighted average number of shares outstanding does not include
reciprocal shareholdings, held by the Company’s subsidiary, CelLynx Group, Inc. which is reflected as a reduction in capital
in excess of par value on the Company’s balance sheet.
The Company will not have sufficient Common
shares available to issue should all of the above conversions and exercises occur.
The Company applies sequencing with respect
to such commitments and other circumstances as disclosed in its accounting policies for derivatives.
Recent Accounting Pronouncements
In July 2015, the FASB issued ASU No. 2015-11,
“
Inventory: Simplifying the Measurement of Inventory
”, that requires inventory not measured using either the
last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable
value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal
and transportation. The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods
within those fiscal years, and will be applied prospectively. Early adoption is permitted. The Company currently uses lower of
cost or net realizable value.
The FASB issued ASU 2016-02, Leases (Topic
842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should
recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is
permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented
using a modified retrospective approach. The new standard will be effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early application is permitted for all public business entities. The Company
has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results
of operations.
F-13
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 2 – Summary of significant accounting policies (continued)
Recent Accounting Pronouncements
The FASB issued ASU 2016-09, Compensation –
Stock Compensation (Topic 718). ASU 2016-09 provides improvement to employee share-based payment accounting. ASU 2016-09 involve
the simplification of several aspects of the accounting for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business
entities the amendments in this update are effective for annual periods beginning after December 15, 2016. Early adoption is permitted
for any entity in any interim or annual period. We do not anticipate that the adoption of this standard will have a material impact
on our consolidated financial statements.
The FASB issued ASU 2016-10, Revenue from Contracts
with Customers (Topic 606). ASU 2016-10 provides guidance on identifying performance obligations and licensing. The core principle
of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and or services.
This update does not change the core principles, but rather clarify the following two aspects, identifying performance obligations
and licensing implementation guidance. The new standard will be effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early application is not permitted for all public business entities. We do not anticipate
that the adoption of this standard will have a material impact on our consolidated financial statements.
FASB, the Emerging Issues Task Force and the
SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2016 that will become effective in
subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial
accounting measures or disclosures had they been in effect during 2016 or 2015, and it does not believe that any of those pronouncements
will have a significant impact on our consolidated financial statements at the time they become effective.
Subsequent Events
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial
statements, except as disclosed in Note 16.
F-14
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 3 – Furniture & equipment
Furniture & Equipment consisted of the following at September
30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
December 31, 2015
|
Furniture and equipment
|
|
$
|
170,610
|
|
|
$
|
151,191
|
|
Research and development equipment
|
|
|
78,367
|
|
|
|
13,367
|
|
Leasehold improvements
|
|
|
62,659
|
|
|
|
56,128
|
|
|
|
|
311,636
|
|
|
|
220,686
|
|
Accumulated amortization & depreciation
|
|
|
(120,019
|
)
|
|
|
(76,719
|
)
|
Furniture & equipment net
|
|
$
|
191,617
|
|
|
$
|
143,967
|
|
During the three and nine months ended September 30, 2016 and 2015
the Company incurred amortization and depreciation expense of $15,230 (2015 – $13,882) and $43,290 (2015 - $60,945), respectively.
Note 4 – Long lived assets subject to amortization
Intangible assets are comprised of technology, trademarks and
license rights which are recorded at cost.
|
|
September 30, 2016
|
|
December 31, 2015
|
Technology
|
|
$
|
3,083,186
|
|
|
$
|
3,077,244
|
|
Marketing and distribution agreement
|
|
|
370,000
|
|
|
|
370,000
|
|
Trademarks
|
|
|
1,026
|
|
|
|
264
|
|
License rights
|
|
|
607
|
|
|
|
1,368
|
|
|
|
|
3,454,818
|
|
|
|
3,448,856
|
|
Accumulated amortization
|
|
|
(1,064,648
|
)
|
|
|
(695,271
|
)
|
Technology and other intangibles, net
|
|
$
|
2,390,170
|
|
|
$
|
2,753,585
|
|
On August 2, 2014, the company commenced amortization
of technology and other intangibles upon delivery of commercial beta devices for testing to a collaboration partner. During the
three and nine months ended September 30, 2016 and 2015, $122,736, (2015 - $122,865) and $369,312, (2015 - $368,798) was recorded
as amortization on technology and other intangibles. The Company’s estimated technology amortization over the next five years
is expected to be $2,469,338.
Note 5 - Goodwill
The changes in the carrying amount of goodwill for the nine months
ended September 30, 2016 and for the year ended December 31, 2015 is as follows:
|
|
September 30, 2016
|
|
December 31, 2015
|
Goodwill – beginning of period
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
Goodwill – end of period
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
F-15
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 6 – Sales of common stock
On September 8, 2016, the Company convened
an annual general meeting of shareholders and increased the authorized number of shares from 400,000,000 to 600,000,000. However,
the Company will still not have sufficient common shares available to issue if all the conversions and exercises occur.
During the nine
months ended September 30, 2016, the Company has issued common stock as follows:
During the period January 1, 2016 to September 23, 2016 the Company
issued 64,580,000 units at a price of $0.05 per unit for proceeds of $3,229,000. Each unit is comprised of one share and one share
purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on the attached warrant.
On January 19, 2016 the Company issued 1,578,463 shares at a price
of $0.044 per share for the settlement of convertible notes payable with a total value of $69,626. See note 7(l).
On January 20, 2016 the Company issued 200,000 shares at a price
of $0.06 per share for the partial settlement of convertible notes payable with a total value of $12,000. See note 7(e).
On February 20, 2016 the Company issued 225,000 shares at a price
of $0.09 per share in settlement of services valued at $20,250.
On February 26, 2016 the Company issued 312,650 shares at a price
of $0.05 per share for the settlement of convertible notes payable with a total value of $15,633. See note 7(n).
On February 29, 2016 the Company issued 45,455 shares at a price
of $0.11 per share in settlement of services valued at $5,000.
On March 6, 2016 the Company issued 11,500,000 shares at a price
of $0.05 per share for a conversion of convertible notes payable with a total value of $575,000. After this settlement the balance
of principal and interest due under this convertible note at March 31, 2016 was nil. See note 7(d).
On March 25, 2016 the Company issued 500,000 shares at a price of
$0.05 per share for a conversion of convertible notes payable with a total value of $25,000. See note 7(b).
On March 31, 2016 the Company issued 115,000 units at a price of
$0.05 per unit for services with a total value of $5,750. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On March 31, 2016 the Company issued 300,784 units at a price of
$0.05 per unit for services with a total value of $15,039. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On March 31, 2016 the Company issued 300,000 units at a price of
$0.05 per unit for services with a total value of $15,000. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
F-16
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 6 – Sales of common stock
(continued)
On April 1, 2016 the Company issued 300,000 units at a price of
$0.05 per unit for services with a total value of $15,000. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On May 1, 2016 the Company issued 327,863 units at a price of $0.05
per unit for services with a total value of $16,393. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On April 30, 2016 the Company issued 250,000 units at a price of
$0.05 per unit for services with a total value of $12,500. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On May 2, 2016 the Company issued 187,500 shares at a price of $0.08
per share for the settlement of convertible notes payable with a total value of $15,000. See note 7(e).
On May 2, 2016 the Company issued 1,375,000 shares at a price of
$0.06 per share for the settlement of convertible notes payable with a total value of $82,500. See note 7(e).
On May 3, 2016 the Company issued 1,500,000 shares at a price of
$0.05 per share for the settlement of convertible notes payable with a total value of $75,000. See note 7(g).
On May 15, 2016 the Company issued 391,740 shares at a price of
$0.06 per share for the settlement of convertible notes payable with a total value of $23,504. After this settlement the balance
of principal and interest due under this convertible note at June 30, 2016 $44,763. See note 7(n).
On May 20, 2016 the Company issued 1,000,000 shares at a price of
$0.05 per share for the settlement of convertible notes payable with a total value of $50,000. See note 7(g).
On May 20, 2016 the Company issued 225,000 shares at a price of
$0.06 per share in settlement of services valued at $13,500.
On May 31, 2016 the Company issued 547,100 shares at a price of
$0.05 per share for the settlement of convertible notes payable with a total value of $27,355. See note 7(r).
On May 31, 2016 the Company issued 323,200 shares at a price of
$0.065 per share for the settlement of convertible notes payable with a total value of $21,008. See note 7(o).
On May 31, 2016 the Company issued 1,660,000 shares at a price of
$0.05 per share in settlement of debt valued at $83,000.
On May 31, 2016 the Company issued 100,000 units at a price of $0.05
per unit for services with a total value of $5,000. Each unit is comprised of one common share and one share purchase warrant to
acquire a second share at a strike price of $0.20 with a two-year term.
On June 3, 2016 the Company issued 846,804 shares at a price of
$0.06 per share in settlement of debt valued at $50,808. See litigation note 14.
F-17
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 6 – Sales of common stock
(continued)
On June 30, 2016 the Company issued 547,100 shares at a price of
$0.05 per share for the settlement of convertible notes payable with a total value of $27,355. See note 7(r).
On June 30, 2016 the Company issued 214,142 units at a price of
$0.05 per unit for services with a total value of $10,707. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On July 12, 2016 the Company issued 1,750,000 shares at a price
of $0.09 per share in settlement of debt valued at $157,500.
On July 14, 2016 the Company issued 333,333 shares at a price of
$0.105 per share for the settlement of convertible notes payable with a total value of $35,000. See note 7(f).
On July 15, 2016 the Company issued 323,648 shares at a price of
$0.07 per share for the settlement of convertible notes payable with a total value of $22,655. See note 7(n).
On July 15, 2016 the Company issued 629,560 units at a price of
$0.05 per unit for services with a total value of $31,478. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On August 4, 2016 the Company issued 448,717 shares at a price of
$0.078 per share for the settlement of convertible notes payable with a total value of $35,000. See note 7(f).
On August 5, 2016 the Company issued 300,114 shares at a price of
$0.07 per share for the settlement of convertible notes payable with a total value of $21,008. See note 7(o).
On August 5, 2016 the Company issued 510,000 units at a price of
$0.05 per unit for services with a total value of $25,500. Each unit is comprised of one common share and one share purchase warrant
to acquire a second share at a strike price of $0.20 with a two-year term.
On August 5, 2016 the Company issued 318,750 shares at a price of
$0.08 per share for services with a total value of $25,500.
On August 11, 2016 the Company issued 750,000 shares at a price
of $0.073 per share with a total value of $54,750 for the settlement of a law suit filed April 22, 2016 (see note 14 – litigation).
The litigation and warrant agreement of issuing warrants to purchase 3,000,000 shares of common stock to which this lawsuit relates
will be settled in full upon delivery of the total 750,000 shares.
On August 15, 2016 the Company issued 388,667 shares at a price
of $0.066 per share for the settlement of convertible notes payable with a total value of $25,652. See note 7(q).
On August 19, 2016 the Company issued 450,000 shares at a price
of $0.07 per share in settlement of services valued at $31,500.
On August 26, 2016, the Company issued 500,000 shares at a price
of $0.05 per share for the settlement of convertible notes payable with a total value of $25,000. See note 7(b).
F-18
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 6 - Sales of Common Stock (continued)
On September 6, 2016, the Company issued 751,333 shares at a price
of $0.05 per share for the settlement of convertible notes payable with a total value of $37,567. See note 7(p).
On September 20, 2016, the Company issued 535,500
shares at a price of $0.08 per share in settlement of contingent liabilities valued at $42,840.
During the period between September 20, 2016
to September 23, 2016 the Company issued 12,441,668 shares at a price of $0.05 per share pursuant to the notices of exercise of
warrants for aggregate proceeds of $622,083.
On September 27, 2016, the company issued 83,333 units at a price
of $0.06 per unit for proceeds of $5,000. Each unit is comprised of one share and one-quarter share purchase warrant to acquire
a second share at a price of $0.20 per share acquired, with a two-year term on the attached warrant.
On September 27, 2016 the Company issued 347,808 shares at a price
of $0.05 per share on conversion of a convertible note payable with a total value of $17,390. See note 7(p).
Note 7 – Notes Payable
Promissory Notes
5BARz International, Inc.
Issue Date
|
|
Unpaid
Note Principal
|
|
Note
Terms
|
|
Unpaid
Interest
|
|
Balance
September 30, 2016
|
|
Balance
December 31, 2015
|
December 17, 2012
|
|
$
|
80,000
|
|
|
(a)
|
|
$
|
27,739
|
|
|
$
|
107,739
|
|
|
$
|
99,445
|
|
January 8, 2013
|
|
|
71,244
|
|
|
(b)
|
|
|
1,618
|
|
|
|
72,862
|
|
|
|
81,977
|
|
October 6, 2014
|
|
|
250,000
|
|
|
(c)
|
|
|
5,044
|
|
|
|
255,044
|
|
|
|
253,123
|
|
March 6, 2015
|
|
|
0
|
|
|
(d)
|
|
|
—
|
|
|
|
—
|
|
|
|
548,283
|
|
May 6, 2015
|
|
|
0
|
|
|
(e)
|
|
|
—
|
|
|
|
—
|
|
|
|
138,000
|
|
May 21, 2015
|
|
|
83,000
|
|
|
(f)
|
|
|
—
|
|
|
|
83,000
|
|
|
|
174,064
|
|
June 15, 2015
|
|
|
0
|
|
|
(g)
|
|
|
—
|
|
|
|
—
|
|
|
|
175,000
|
|
June 17, 2015
|
|
|
52,500
|
|
|
(h)
|
|
|
10,662
|
|
|
|
63,162
|
|
|
|
82,217
|
|
June 18, 2015
|
|
|
100,000
|
|
|
(i)
|
|
|
27,977
|
|
|
|
127,977
|
|
|
|
163,956
|
|
June 18, 2015
|
|
|
52,500
|
|
|
(j)
|
|
|
10,263
|
|
|
|
62,763
|
|
|
|
82,193
|
|
June 26, 2015
|
|
|
104,500
|
|
|
(k)
|
|
|
95,686
|
|
|
|
200,186
|
|
|
|
176,652
|
|
July 17, 2015
|
|
|
0
|
|
|
(l)
|
|
|
—
|
|
|
|
—
|
|
|
|
105,282
|
|
July 30, 2015
|
|
|
100,000
|
|
|
(m)
|
|
|
88,500
|
|
|
|
188,500
|
|
|
|
172,167
|
|
August 27, 2015
|
|
|
22,108
|
|
|
(n)
|
|
|
—
|
|
|
|
22,108
|
|
|
|
92,195
|
|
August 27, 2015
|
|
|
100,000
|
|
|
(o)
|
|
|
5,041
|
|
|
|
105,041
|
|
|
|
170,764
|
|
October 7-9, 2015
|
|
|
35,000
|
|
|
(p)
|
|
|
5,532
|
|
|
|
40,532
|
|
|
|
87,514
|
|
October 28, 2015
|
|
|
76,956
|
|
|
(q)
|
|
|
—
|
|
|
|
76,956
|
|
|
|
152,915
|
|
October 30, 2015
|
|
|
105,000
|
|
|
(r)
|
|
|
4,418
|
|
|
|
109,418
|
|
|
|
160,081
|
|
Notes payable – 5BARz International Inc.
|
|
$
|
1,232,808
|
|
|
|
|
$
|
282,480
|
|
|
$
|
1,515,288
|
|
|
$
|
2,915,828
|
|
F-19
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 7 – Notes Payable (continued)
CelLynx Group Inc.
Issue Date
|
|
Unpaid
Note Principal
|
|
Note
Terms
|
|
Unpaid
Interest
|
|
Balance
September 30, 2016
|
|
Balance
December 31, 2015
|
May 24, 2012
|
|
$
|
15,900
|
|
|
(s)
|
|
$
|
38,144
|
|
|
$
|
54,044
|
|
|
$
|
46,018
|
|
September 12, 2012
|
|
|
12,500
|
|
|
(t)
|
|
|
26,312
|
|
|
|
38,812
|
|
|
|
33,048
|
|
Notes Payable - CelLynx Group, Inc.
|
|
$
|
28,400
|
|
|
|
|
$
|
64,456
|
|
|
$
|
92,856
|
|
|
$
|
79,066
|
|
Sub-Total
|
|
$
|
1,261,208
|
|
|
|
|
$
|
346,936
|
|
|
$
|
1,608,144
|
|
|
$
|
2,994,894
|
|
Debt Discount
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
(27,863
|
)
|
|
|
(111,630
|
)
|
Total, net of debt discount
|
|
$
|
1,261,208
|
|
|
|
|
$
|
346,936
|
|
|
$
|
1,580,281
|
|
|
$
|
2,883,264
|
|
a)
In December 2012, a shareholder purchased 1,600,000 common shares for $80,000. On January
17, 2013, the security was amended to a convertible debenture with an 8% per annum yield and may be converted into common stock,
at the option of the holder, 90 days after the inception of the agreement, at a price which is a 20% discount to market, but not
less than $0.05 per share. During the period from issuance of the convertible debenture issuance to September 30, 2016,
interest of $27,739 was accrued on the convertible debenture, resulting in a total principal and interest due at September 30,
2016 of $107,739. A derivative liability at September 30, 2016 of $20,684 (2015 - $24,817) is recorded in these financial statements
in connection with this note.
b)
On January 8, 2013, the Company entered into a convertible debenture agreement with a consultant
in settlement of $147,428 payable to that consultant for services rendered. The convertible debenture yields interest at 8% per
annum and may be converted into common stock, at the option of the holder, 90 days after the inception of the agreement, at a price
which is a 20% discount to market, but not less than $0.05 per share. During the nine months ended September 30, 2016 interest
of $4,885 (2015 - $1,516) was accrued on the convertible debenture. During the nine months ended September 30, 2016, $36,000 in
past due consulting fees were added to the principal of the note. The total principal and interest due under the note at September
30, 2016 amount of $72,862 (2015 - $81,977). In addition, the Company reflected a derivative liability at September 30, 2016 of
$14,600 (2015 - $12,906) in connection with this note.
c)
On
October 6, 2014, the Company entered into a Note and Warrant purchase agreement with three parties who have agreed to loan up to
$1,500,000 pursuant to the terms of a convertible promissory note and warrant agreement. On the closing date, October 6, 2014 the
Company received $250,000 cash. The purchasers have agreed that at any time on or before the earlier of (i) the Purchasers’
election, or (ii) the execution of an engagement letter by and between the Company and an Investment Banking Firm acceptable to
the purchaser relating to the provision of financial advisory services by the Investment Banking Firm to the Company, that the
Company will sell Notes representing the balance of the authorized principal amount not sold at the Closing to the Purchasers.
The convertible note accrues interest at a rate of 1% per annum and provides for the conversion of the principal and accrued interest
on the note into common stock at any time, at the election of the holder at a price of $0.15 per share. Further, the number of
warrants to be issued will be equal to the proceeds loaned pursuant to the note and warrant purchase agreement divided by $0.15.
The warrant has a term of five (5) years and provides a strike price of $0.20 per share. The fair value of warrants at the date
of issue was $282,767 using the Black-Scholes pricing model. The convertible promissory note and accrued interest at December 31,
2015 was $253,123, net of an unamortized debt discount of $111,630, resulting in a carrying value of $141,493. By September 30,
2016, total interest of $5,044 was accrued to bring the total principal and interest balance to $255,044, net of an unamortized
debt discount of $27,863, resulting in a carrying value of $227,181.
F-20
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited
)
Note 7 – Notes Payable (continued)
d)
On March 6, 2015, the Company entered into a Note and Warrant adjustment purchase agreement
with two parties who have agreed to loan $400,000 pursuant to the terms of a convertible promissory note and warrant adjustment
agreement. On the closing date, March 6, 2015 the Company received $400,000 cash. On September 6, 2015, the loan maturity was extended
for an additional 6 months in return for the accrual of a 10%, extension fee. The convertible note accrues interest at a rate of
15% semiannually and provides for the conversion of the principal and accrued interest on the note into common stock at any time,
at the election of the holder at a price of $0.05 per share. Further, warrants to acquire up to 12,441,667 shares which had been
issued in conjunction with previous financings from the note holders at strike prices ranging from $0.20 to $0.30 per share were
re-priced to a strike price of $0.05 per share with the maturity dates changed to March 6, 2017. The Company has the right to repay
the loan by payment of the principal and accrued interest at the date of repayment. On March 6, 2016, the Company settled the aggregate
principal and interest amount of $575,000, by conversion into 11,500,000 shares of common stock, issued at a price of $0.05 per
share. The amount due pursuant to this note at September 30, 2016 is nil.
e)
On May 6, 2015, the Company entered into a convertible note arrangement with an investment
Company, in the principal amount of $250,000 of which $100,000 was advanced to the Company at the inception of the note. The Company
agreed to pay an “original issue discount” in an amount up to 10% of the loan amount, or $10,000. The interest rate
on the note is 12%, with 6% being charged on the Issuance Date to the Original Principal Amount in the amount of $6,600 and the
remaining 6% being charged to the Original Principal Amount on the 61th calendar day after the issuance date provided the note
has not been paid in full. The loan may be repaid at any time during the first 120 days of the note term. The note is convertible
into common stock of the issuer at the lesser of $0.09 or a discount to market of 50%, with the market defined as the lowest trade
price for a period of 25 days prior to the conversion, with a conversion floor price at no lower than $0.001. On November 3, 2015,
an amending agreement was entered into providing for the prepayment of the note at any time up to 9 months from the loan origination
date at a rate of 145% of the then unpaid principal and interest due under the note. On November 6, 2015, the Company issued 200,000
shares pursuant to a notice of conversion of a convertible note at a price of $0.041 per share, for the conversion of $8,200. On
November 22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering
a default of the note. Upon the Event of Default, the outstanding balance was increased to 120%. The note is payable on demand.
On January 20, 2016, the Company entered into a settlement agreement on the convertible debt in the principal and interest amount
of $138,000, by the issuance of 200,000 shares issued on January 20, 2016, and the commitment to make a series of payments over
8 months, ending September 15, 2016 in the aggregate amount of $120,000. The Company made payments under the settlement agreement
on February 8, 2016 of $7,500 and on March 15, 2016 of $15,000 as required by the agreement. The principal and interest due under
the note at March 31, 2016 was $109,500. This balance was settled by issuance of 187,500 common shares on May 2, 2016 at a price
of $0.08 per share, in lieu of $15,000 and a further issuance of 1,375,500 common shares at a price of $0.06 per share for the
remaining $82,500 due under the note settlement agreement. After a gain on settlement in the amount of $12,000 for the nine months
ended September 30, 2016, the amount pursuant to this note is nil.
F-21
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 7 – Notes Payable (continued)
f)
On May 21, 2015, the Company entered into a convertible note arrangement with an investment Company,
in the principal amount of $200,000 of which $100,000 was advanced to the Company at the inception of the note. The Company agreed
to pay an “original issue discount” in an amount up to 10% of the loan amount, or $10,000. The interest rate on the
note is 12%. The prepayment penalty of the note is as follows, 5% from day 1 to 90 days, 15% from day 91 to 150 days, 18% from
day 151 to 179 days and 25% there- after on buyout of loan. The note is convertible into common stock of the issuer at a discount
to market of 40%, with the market defined as the lowest trade price for a period of 25 days prior to the conversion, with a conversion
floor price at no lower than $0.00001. On November 22, 2015, the Company became delinquent on its filing requirements with the
Securities and Exchange Commission, triggering a default of the note. Upon the event of default, the outstanding balance was increased
to 118%, in addition to that a default penalty payment of $1,000 per business day was added to the outstanding balance. On
March 10, 2016, a complaint was filed in relation to the unpaid balance of this note payable (see litigation note 14). On June
28, 2016, the parties entered into a settlement agreement in the amount of $153,000 payable in equal payments of $35,000 made in
cash or shares issued at market every 21 days from the date of settlement. On July 14, 2016, 333,333 of common shares were issued
at a price of $0.105 per share in lieu of $35,000 cash. On August 4, 2016, an additional 448,717 common shares were issued at a
price of $0.78 instead of a $35,000 cash payment. The company recognized a gain from settlement of $65,177 for the nine months
ended September 30, 2016. At September 30, 2016, the balance due under this settlement is $83,000.
g)
On June 15, 2015, the Company entered into a convertible note arrangement with an investment
company, in the principal amount of $125,000 of which $102,500 was advanced to the Company at the inception of the note. The Company
recorded an interest of $22,500 at inception of the note, and issued 250,000 shares at $0.10. The note is convertible into common
stock of the issuer at 0.05 if converted within 180 days after the Issuance Date, or at a discount to market of 35%, with the market
defined as the lowest trade price for a period of 20 days prior to the conversion, with a conversion floor price at no lower than
$0.0001, if converted after 180 days. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities
and Exchange Commission, triggering a default of the note. Upon the event of default, the outstanding balance was increased to
140%. The note is payable upon demand. On March 17, 2016, the Company settled the convertible debt in the principal and interest
amount of $175,000. The settlement agreement provides for the Company to make eight monthly payments commencing on April 15, 2016,
each in the amount of $21,875, an aggregate amount of $175,000. On May 3, 2016, the Company entered into an amended settlement
agreement for full settlement of the note for $175,000. The Company issued 1,500,000 common shares at a price of $0.05 per share
in settlement of $75,000 due under the note and agreed to a series of 6 monthly payments each in the amount of $11,666, commencing
May 15, 2016. On May 20, 2016, the amended settlement agreement was revised and the Company recorded a gain from settlement
of $57,875 in the nine months ended September 30, 2016. The Company issued 1,000,000 common shares at a price of $0.05 per share
to fulfill the settlement agreement revision. At September 30, 2016, the balance due under this note was nil.
h)
On June 17, 2015, the Company entered into a convertible note arrangement with an investment
company, in the principal amount of $52,500 of which $50,000 was advanced to the Company at the inception of the note. The Company
recorded an interest of $2,500 at inception of the note. The interest rate on the note is 8%. The prepayment penalty of the note
is as follows, 15% from day 1 to 60 days, 21% from day 61 to 90 days, 27% from day 91 to 120 days, 33% from day 121 to 150 days
and 39% from day 151 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible into common
stock of the issuer at a discount to market of 40%, with the market defined as the lowest trade price for a period of 15 days prior
to the conversion, with a conversion floor price at no lower than $0.00001. On November 22, 2015, the Company became delinquent
on its filing requirements with the Securities and Exchange Commission, triggering an event of default of the note. Upon the event
of default, the interest rate was increased to 24% per annum. The note is payable upon demand. The principal and interest due under
the note at September 30, 2016 was $63,162. The Company and holder have negotiated a settlement agreement on this note, with issuance
of 184,775 common shares at $.08 due upon signing and an additional 3 payments by common shares or cash election valued at $27,911
each. See litigation note 14.
F-22
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 7 – Notes Payable (continued)
i)
On
June 18, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount of
$105,000 of which $100,000 was advanced to the Company at the inception of the note. The Company agreed to pay an
“original issue discount” in an amount up to 5% of the loan amount, or $5,000. The interest rate on the note is
10%. The prepayment penalty of the note is as follows, 15% from day 1 to 60 days, 21% from day 61 to 90 days, 27% from day 91
to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be prepaid after the
180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%, with the market
defined as the lowest trade price for a period of 25 days prior to the conversion, with a conversion floor price at no lower
than $0.0001. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange
Commission, triggering an event of default of the note. Upon the event of default, the interest rate was increased to 24% per
annum. The note is payable upon demand. The principal and interest due under the note at September 30, 2016 was
$127,977. Additional accrued liability of $240,998 generated by the settlement agreement discussed above has been made by
September 30, 2016. On October 5, 2016, the Company was ordered to issue 4,299,689 shares in full settlement of the note as a
result of an error made by the Company’s attorney in not responding to an application for preliminary injunctive relief
in proper format. On November 5, 2016, the parties entered into a settlement agreement providing mutual releases. The Company
is required to make a $25,000 payment in conjunction with the settlement agreement by November 22, 2016.
j)
On
June 18, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount of $52,500
of which $50,000 was advanced to the Company at the inception of the note. The Company recorded an interest of $2,500 at inception
of the note. The interest rate on the note is 8%. The prepayment penalty of the note is as follows, 15% from day 1 to 60 days,
21% from day 61 to 90 days, 27% from day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note
may not be prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market
of 40%, with the market defined as the lowest trade price for a period of 15 days prior to the conversion, with a conversion floor
price at no lower than $0.00001. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities
and Exchange Commission, triggering an event of default of the note. Upon the event of default, the interest rate was increased
to 24% per annum, or lesser amount should that amount be usurious in the State. The note is payable upon demand. On June 8, 2016,
the lender filed a complaint claiming 1,699,580 shares in settlement of the principal and interest under the note and injunctive
relief related to terms of the note. On June 24, 2016, the Company has filed an answer and defense in response to the complaint
filed. The principal and interest due under the note at September 30, 2016 was $62,763. See litigation note 14.
k)
On June 26, 2015, the Company entered into a convertible note arrangement with an investment
company, in the principal amount of $110,000 of which $104,500 was advanced to the Company at the inception of the note. The Company
agreed to pay an “original issue discount” in an amount of $5,500. The interest rate on the note is 12%. Upon an event
of default, the interest rate shall increase to 18%. The prepayment penalty of the note is as follows, 35% from day 1 to 90 days,
45% from day 91 to 120 days, and 50% there- after on buyout of loan. The note is convertible into common stock of the issuer at
a discount to market of 42%, with the market defined as the lowest trade price for a period of 20 days prior to the conversion,
with a conversion floor price at no lower than $0.0001. On November 22, 2015, the Company became delinquent on its filing requirements
with the Securities and Exchange Commission, triggering an Event of Default of the note. Upon the event of default, the outstanding
balance was increased to 150% and the interest rate was increased to 18% per annum. The note is payable upon demand. On March 7,
2016, the parties entered into a settlement agreement to settle the full amount due under the note for $177,424. The settlement
agreement provides for the Company to make eight monthly payments commencing on April 15, 2016, each in the amount of $22,178.
As of September 30, 2016, the unpaid interest of $95,686 has been accrued. The principal and interest due under the note at
September 30, 2016 was $200,186. The holder filed a lawsuit under the terms of the note, which the Company has answered see litigation
note 14.
F-23
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 7 – Notes Payable (continued)
l)
On July 17, 2015, the Company entered into a convertible note arrangement
with an investment company, in the principal amount of $66,250 of which $60,000 was advanced to the Company at the inception of
the note. The interest rate on the note is 10%. Upon an Event of Default, the interest rate shall increase to 24%. The prepayment
penalty of the note is as follows, 25% from day 1 to 30 days, 30% from day 31 to 60 days, 35% from day 61 to 90 days, 40% from
day 91 to 120 days, 45% from day 121 to 150 days, 50% from day 151 to 180 days. There is no right to prepayment after 180 days.
The note is convertible into common stock of the issuer at a discount to market of 45%, with the market defined as the lowest trade
price for a period of 25 days prior to the conversion, with a conversion floor price at no lower than $0.0001. On November 22,
2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the Event of Default, the outstanding balance was increased to 150% and the interest rate was increased
to 24% per annum. The note is payable on demand. On January 19, 2016, the Company settled convertible debt in the principal
and interest amount of $69,626 by the issuance of 1,578,463 shares, at a price of $0.041 per share. The settlement amount does
not require the payment of default penalties contemplated in the note agreement. The principal and interest due under the note at September 30, 2016 was
nil.
m)
On
July 30, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount of
$110,000 of which $100,000 was advanced to the Company at the inception of the note. The interest rate on the note is 10%.
Upon an event of default, the interest rate shall increase to 24%. The prepayment penalty of the note is as follows, 35% from
day 1 to 90 days, and 50% there- after on buyout of loan. The note is convertible into common stock of the issuer at a
discount to market of 42%, with the market defined as the lowest trade price for a period of 25 days prior to the conversion,
with a conversion floor price at no lower than $0.00001. On November 22, 2015, the Company became delinquent on its filing
requirements with the Securities and Exchange Commission, triggering an event of default of the note. Upon the event of
default, the outstanding balance was increased to 150%. The note is payable upon demand. The Company has completed a
settlement agreement, dated August 31, 2016 to repay $188,500 due under the note monthly in cash or shares valued at $30,000
in the first month and $31,700 over a five-month period. The Company recorded a gain from settlement of $3,486 during the
nine months ended September 30, 2016. The outstanding settlement balance at September 30, 2016 was $188,500.
n)
On
August 27, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount of
$59,000 of which $55,000 was advanced to the Company at the inception of the note. The interest rate on the note is 12%. Upon an
event of default, the interest rate shall increase to 24%. The prepayment penalty of the note is 40%. The note is convertible into
common stock of the issuer at a discount to market of 42%, with the market defined as the lowest trade price for a period of 20
days prior to the conversion, with a conversion floor price at no lower than $0.000058. On November 22, 2015, the Company became
delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event of default of the note.
Upon the event of default, the outstanding balance was increased to 150%. The note is payable upon demand. On February 26, 2016,
the Company settled the convertible debt for an aggregate amount of $83,900. The settlement agreement provides for the issuance
of 312,650 common shares at a price of $0.05 per share for aggregate proceeds of $15,632 issued on February 26, 2016 and the balance
to be repaid by a series of monthly payments in the aggregate amount of $68,268 over a five-month period commencing on April 15,
2016. The Company issued 391,740 common shares at a price of $0.06 per share on May 15, 2016 for a value of $23,504. On July 15,
2016, the Company issued $22,655 in 323,648 common shares at a price of $0.07 per share. The outstanding settlement balance at September 30, 2016 was $22,108.
F-24
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 7 – Notes Payable (continued)
o)
On August 27, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount
of $110,000 of which $100,000 was advanced to the Company at the inception of the note. The Company agreed to pay an “original
issue discount” in an amount up to 10% of the loan amount, or $10,000. The interest rate on the note is 10%. The prepayment
penalty of the note is as follows, 35% from day 1 to 90 days, 45% from day 91 to 180 days. This note may not be prepaid after the
180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%, with the market defined
as the lowest trade price for a period of 20 days prior to the conversion, with a conversion floor price at no lower than $0.0001.
On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering
an event of default of the note. Upon the event of default, the outstanding balance was increased to 150% and the interest rate
was increased to 24% per annum. The note is payable upon demand. On March 10, 2016, the Company settled the convertible debt in
the principal and interest amount of $168,065. The settlement agreement provides for the Company to make eight monthly payments
commencing on April 15, 2016, for a value of $21,008, an aggregate amount of $168,065. On May 31, 2016, 323,200 common shares were
issued at $0.065 per share. On June 3, 2016, payment of $21,008 was rendered. On August 5, 2016, the Company issued $21,008 by
the issue of 300,114 common shares at a price of $0.07 per share. At September 30, 2016, the balance under the settlement agreement was $105,041
.
p)
During
the period October 7, 2015 to October 10, 2015 the Company entered into four convertible note arrangements with certain investors,
in the principal amount of $85,000. Interest is accrued on the notes at a rate of 8% per annum, and the notes mature one year from
the date of issue. The notes are convertible after 183 days by the borrower at a conversion price of the lesser of $0.05 per share
or 70% of market, defined as the lowest trade price for a period 20 days prior to the notice of conversion, if VWAP
of the
shares drops below $0.05 with a 10 day look back
. In no case may the debt be converted at less than
$0.01 per share. The Company may prepay the note principal and interest at a rate of 125% of principal and interest within 90 days
of the issue date and at a rate of 135% after 90 days from the issue date. On November 22, 2015, the Company became delinquent
on its filing requirements with the Securities and Exchange Commission, triggering an event of default of the note. Upon the event
of default, the interest rate was increased to 20% per annum. The notes are payable upon demand. On September 6, 2016 one convertible
note principle and interest of $37,567 was settled for 751,333 common shares at a price of $0.05 per share. The Company recorded
a gain from this settlement of $3,132 during the nine months ended September 30, 2016. Further on September 27, 2016, a second
convertible note principle and interest of $17,390 was settled by the issuance of 347,808 common shares at a price of $0.05 per
share. The principal and interest due under the remaining two notes at September 30, 2016 was $40,532.
q)
On
October 28, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount of
$100,000. Interest is accrued on the note at a rate of 12% per annum, and the note matures on July 28, 2016. The note is convertible
at any time by the borrower at a conversion price which is the lesser of closing sale price on the close date of the note or 60%
of market, defined as the lowest trade price for a period 25 days prior to the notice of conversion. The Company may prepay the
note principal and interest at rates from 145% of principal and interest within 180 days from the issue date. After 180 days the
note may not be prepaid. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and
Exchange Commission, triggering an event of default of the note. Upon the event of default, the outstanding balance was increased
to 150%. The note is payable upon demand. On May 2, 2016, the Company entered into a settlement agreement, to pay $153,912 by way
of six monthly payments, each in the amount of $25,652, with the first payment due on May 15, 2016. Two of the six payments
were completed on May 31, 2016 and June 20, 2016. On August 15, 2016, the Company issued 388,667 common stock at a price of $0.066
per share in payment of $25,652 under the settlement agreement. The Company recorded a gain from settlement of $5,026 in the nine
months ended September 30, 2016. At September 30, 2016, the remaining settlement balance was $76,956.
F-25
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 7 – Notes Payable (continued)
r)
On
October 30, 2015, the Company entered into a convertible note arrangement with an investment company, in the principal amount
of $105,000 of which $100,000 was advanced to the Company at the inception of the note. Interest is accrued on the note at a
rate of 8% per annum, and the note matures on October 30, 2016. The note is convertible at any time by the borrower at a
conversion price which is the lesser of closing sale price on the close date of the note or 60% of market, defined as the
lowest trade price for a period 10 days prior to the notice of conversion. The Company may prepay the note principal and
interest as follows, 125% from day 1 to 90 days, 140% from day 91 to 180 days, 150% after 180 days. On November 22, 2015, the
Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event of
default of the note. Upon the event of default, the outstanding balance was increased to 150% and the interest rate was
increased to 18% per annum. The note is payable upon demand. On May 31, 2016, the Company entered into a settlement agreement
to make a series of six payments, each in the amount of $27,354, for an aggregate amount of $164,128, in full settlement of
the amounts due under this note agreement. On May 31, 2016, the Company issued 547,100 common stock at a price of $0.05 per
share valued at $27,355. On June 30, 2016, the Company issued another 547,100 common shares at a price of $0.05 valued at
$27,355. The Company recorded a gain from settlement of $3,056 in the nine months ended September 30, 2016. As of September
30, 2016, the remaining amount under the settlement agreement was $109,418.
s)
On May 24, 2012, CelLynx Group, Inc., completed a transaction pursuant to a Promissory Note
agreement, through which the Company borrowed $37,500. The Note bears interest at a rate of 8%, and was due on November 24, 2012,
(the “Due Date”). The Company could settle that note within the first 90 days following the issue date by
paying to the Lender 140% of the principal amount of the note plus accrued interest. The Company may settle the note during
the period which is 91 days from the issue date of the note to 180 days from the issue date of the note by payment of 150% of the
principal amount of the note plus accrued interest. In the event that the note is not repaid 180 days from the date of issue, the
note and accrued interest are convertible into common stock at a variable conversion price equal to 51% of the average of the three
lowest closing bid prices for CelLynx Group, Inc.’s common stock for a period of 10 days prior to the date of notice of conversion.
The Company redeemed $21,600 payable on that note, by the issuance of CelLynx Group, Inc. common shares. As of September 30, 2016,
the note is past due. The note principal and accrued interest outstanding at September 30, 2016 was $54,044.
t)
On September 12, 2012, CelLynx Group, Inc.
completed a transaction pursuant to a Promissory Note agreement, through which the Company borrowed $12,500. The Note bears interest
at a rate of 8%, and is due on March 12, 2013, (the “Due Date”). The Company may settle that note within
the first 90 days following the issue date by paying to the Lender 140% of the principal amount of the note plus accrued interest.
The Company may settle the note during the period which is 91 days from the issue date of the note to 180 days from the issue date
of the note by payment of 150% of the principal amount of the note plus accrued interest. In the event that the note is not repaid
180 days from the date of issue, the note and accrued interest are convertible into common stock at a variable conversion price
equal to 51% of the average of the three lowest closing bid prices for CelLynx Group, Inc.’s common stock for a period of
10 days prior to the date of notice of conversion. As of September 30, 2016, the note is past due. The note principal and accrued
interest outstanding at September 30, 2016 was $38,812.
At September 30, 2016, substantially all the
above debt is in default and is immediately due and payable. Fair market value of the conversion option at September 30, 2016 was
therefore de minimus.
F-26
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 8 – Commitments and Contingencies
Operating Lease Obligation
Since August 22, 2014 (the amending date) the
Company has expanded its leased facilities in San Diego, California for a period of 66 months.
Pursuant to this lease, aggregate minimum lease payments over the
next five years are as follows;
|
|
|
|
|
September 30,
|
|
|
|
|
2017
|
|
$
|
284,814
|
|
2018
|
|
|
298,388
|
|
2019
|
|
|
308,831
|
|
2020
|
|
|
132,280
|
|
Total
|
|
$
|
1,024,313
|
|
Effective January 1, 2015, the Company’s subsidiary 5BARz
India Private Limited entered into an facility lease agreement for five (5) years at a monthly lease rate of 60,000 Indian rupees
($900 USD) per month.
At September 30, 2016, the aggregate minimum lease payments over
the next five years are as follows;
|
|
|
|
|
September 30,
|
|
|
|
|
2017
|
|
$
|
10,800
|
|
2018
|
|
|
10,800
|
|
2019
|
|
|
10,800
|
|
2020
|
|
|
2,700
|
|
Total
|
|
$
|
35,100
|
|
F-27
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 9 – Options and Warrants
Warrants – 5BARz International Inc.
The following table summarizes the warrant
activity for the quarter ended September 30, 2016:
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Life
|
Outstanding at December 31, 2015
|
|
|
102,188,477
|
|
|
$
|
0.25
|
|
|
|
1.20
|
|
Granted *
|
|
|
95,305,382
|
|
|
|
0.20
|
|
|
|
2.17
|
|
Exercised
|
|
|
(12,441,667
|
)
|
|
|
0.05
|
|
|
|
.43
|
|
Cancelled/ expired
|
|
|
(24,305,296
|
)
|
|
|
0.30
|
|
|
|
—
|
|
Outstanding at September 30, 2016
|
|
|
160,746,896
|
|
|
$
|
0.21
|
|
|
|
1.35
|
|
Exercisable at September 30, 2016
|
|
|
152,746,896
|
|
|
$
|
0.22
|
|
|
|
.95
|
|
* During the nine months
ended September 30, 2016, the Company granted warrants to purchase 95,305,382 shares of common stock of which warrants to purchase
71,757,333 shares of common stock were issued as part of a private placement of units, warrants to purchase 16,000,000 shares of
common stock were paid as compensation to executive of the Company, warrants to purchase 3,812,500 shares of common stock
were issued for investor relations fees, warrants to purchase 3,047,349 shares of common stock were issued as part of a unit for
services, and warrants to purchase 688,200 shares of common stock were issued in payment of interest to consultants.
The Company had authorized capital of 600,000,000
shares at September 30, 2016, and accordingly should all options, warrants and potentially convertible securities be exercised,
the Company may not have enough authorized shares to honor its commitments.
Options – 5BARz International Inc.
|
|
Number of
Options
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Life
|
Outstanding at December 31, 2015
|
|
|
15,480,000
|
|
|
$
|
0.11
|
|
|
|
5.04
|
|
Granted
|
|
|
10,565,000
|
|
|
|
0.09
|
|
|
|
9.48
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(100,000)
|
|
|
|
0.17
|
|
|
|
—
|
|
Outstanding at September 30, 2016
|
|
|
25,945,000
|
|
|
$
|
0.10
|
|
|
|
6.13
|
|
Exercisable at September 30, 2016
|
|
|
14,617,041
|
|
|
$
|
0.12
|
|
|
|
2.11
|
|
During the nine
months ended September 30, 2016 the Company issued 10,565,000 stock options at a strike price ranging from $0.075 to $0.12 per
share. The Company reports stock-based compensation under ASC 718 “Compensation – Stock Compensation”. ASC 718
requires all share-based payments to employees, including grants of employee stock options, warrants to be recognized in the consolidated
financial statements based on their fair values. The Company amortizes the fair value of employee stock options on a straight-line
basis over the requisite service period of the awards.
The
Company accounts for equity instruments issued to non-employees as compensation in accordance with the provisions of ASC 718, which
require that each such equity instrument be recorded at its fair value on the measurement date, which is typically the date the
services are performed.
F-28
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 9 – Options and Warrants (continued)
As of September 30, 2016, total unamortized
compensation expenses related to unvested stock options were $192,162, This amount is expected to be recognized based upon the
vesting provisions provided which include both tangible and intangible factors. The Black-Scholes option valuation model is used
to estimate the fair value of the warrants or options granted. The Company measured the stock options issued at fair value using
the Black-Scholes pricing model and are classified within Level 3 of the valuation hierarchy. The significant assumptions and valuation
methods that the Company used to determine fair value and the change in fair value of the Company’s derivative financial
instruments are provided below:
|
|
|
|
|
|
|
September 8, 2016
|
|
June 14, 2016
|
|
February 29, 2016
|
|
January 22, 2016
|
Stock price
|
|
|
|
|
|
|
|
|
|
|
$
|
0.075
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
Volatility
|
|
|
|
|
|
|
|
|
|
|
|
106.01
|
%
|
|
|
106.02
|
%
|
|
|
93
|
%
|
|
|
91.62
|
%
|
Risk-free interest rate
|
|
|
|
|
|
|
|
|
|
|
1.14
|
%
|
|
|
1.01
|
%
|
|
|
1.74
|
%
|
|
|
1.21
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected life
|
|
|
|
|
|
|
|
|
|
|
|
5 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
5 years
|
|
|
|
|
|
December 4, 2015
|
|
July 1, 2015
|
|
June 19, 2015
|
|
April 22, 2015
|
|
April 7, 2015
|
|
January 27, 2015
|
Stock price
|
|
|
|
$
|
0.08
|
|
|
$
|
0.11
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.12
|
|
Volatility
|
|
|
|
|
91
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
96
|
%
|
Risk-free interest rate
|
|
|
|
.64
|
%
|
|
|
.64
|
%
|
|
|
.64
|
%
|
|
|
1.63
|
%
|
|
|
2.26
|
%
|
|
|
1.36
|
%
|
Dividend yield
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected life
|
|
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
5 years
|
|
The fair value of the options
was determined to be as follows based upon the assumptions provided above;
Date Issued
|
|
Number of options
|
|
Fair value
|
January 27, 2015
|
|
500,000
|
|
$34,540
|
April 7, 2015
|
|
2,000,000
|
|
$156,344
|
April 22, 2015
|
|
100,000
|
|
$8,810
|
June, 2015
|
|
800,000
|
|
$57,212
|
July 1, 2015
|
|
300,000
|
|
$18,632
|
December 4, 2015
|
|
3,590,000
|
|
$199,365
|
January 22, 2016
|
|
240,000
|
|
$19,922
|
February 29, 2016
|
|
100,000
|
|
$7,758
|
June 14, 2016
|
|
1,000,000
|
|
$81,492
|
September 8, 2016
|
|
225,000
|
|
$12,960
|
|
|
|
|
|
The
option valuations are being amortized over vesting terms ranging from immediate to 3 years. For the three and nine months ended
September 30, 2016, $45,772 (2015 - $144,088) and $208,736 (2015 –$323,508) was amortized to expense respectively.
F-29
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 9 – Options and Warrants (continued)
On September 8, 2016, at the annual general
meeting of the Company, the shareholders voted in favor of a resolution to ratify the adoption of the 5BARz International, Inc.
2016 stock incentive plan. The 2016 Stock Incentive Plan provides for the grant of options (“Options”) to purchase
common stock, and stock awards (“Awards”) consisting of common stock, to eligible participants, including our directors,
executive officers, employees and consultants. The terms and conditions of the Plan apply equally to all participants. We have
reserved a total of 30,000,000 shares of common stock for issuance under the Plan. As of September 30, 2016, there were outstanding
Options for a total of 25,945,000 shares of common stock, none of which have been exercised, and no Awards have been granted. The
Plan Administrator, which is currently the board of directors, may designate which of our directors, officers, employees and consultants
are to be granted Options and Awards. The Plan Administrator has the authority, in its sole discretion, to determine the type or
types of awards to be granted under the Plan. Awards may be granted singly or in combination.
Options – CelLynx Group, Inc.
The number and weighted average exercise prices
of all CelLynx Group, Inc. options exercisable as of September 30, 2016, are as follows:
|
|
Options
|
|
Weighted average
exercise price
|
|
Weighted average remaining contract life
|
Opening at December 31, 2015
|
|
|
69,000,000
|
|
|
$
|
0.0002
|
|
|
|
2.02
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(24,000,000)
|
|
|
|
0.0002
|
|
|
|
2.02
|
|
Outstanding at September 30, 2016
|
|
|
45,000,000
|
|
|
$
|
0.0002
|
|
|
|
1.43
|
|
Exercisable at September 30, 2016
|
|
|
45,000,000
|
|
|
$
|
0.0002
|
|
|
|
1.43
|
|
Note 10 - Related party transactions
During the nine months ended September 30,
2016, the Company engaged an engineering company in Bangalore, India to perform engineering services, product development and manufacturing
services for the Company in the aggregate amount of $979,702. The Engineering Company is owned by the Director and the CEO of 5BARz
India Private Limited, and the CEO of the engineering company is the spouse of the Director and the CEO of 5BARz India Private
Limited. The amount due to Aseema Softnet Technologies Inc. at December 31, 2015 was $605,302. During the nine months ended September
30, 2016 there were $979,702 in billings and $478,000 in payments to Aseema Softnet Technologies Inc. resulting in an amount due
of $1,107,005 at September 30, 2016. Subsequent to September 30, 2016 there have been further billings of $118,011 in the month
of October 2016 for an aggregate amount due of $1,225,016 at October 31, 2016.
Further, effective January 1, 2015 the Company
entered into an operating sub-lease agreement for five years for office facilities within the Aseema Softnet Technologies offices
at Suite #1741, 2
nd
floor, 9 Cross, J.P. Nagar 2 Phase, Bangalore 560-078. The lease provided for a monthly lease amount
of 60,000 Indian Rupees per month ($900 USD per month), and required a 10-month security deposit of 600,000 Rupees ($9,000 USD).
The aggregate future minimum lease payments
required to be made over the next five years is as follows;
|
|
|
|
|
September 30,
|
|
|
|
|
2017
|
|
$
|
10,800
|
|
2018
|
|
|
10,800
|
|
2019
|
|
|
10,800
|
|
2020
|
|
|
5,400
|
|
Total
|
|
$
|
37,800
|
|
F-30
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 10 - Related party transactions (continued)
On June 14, 2016,
the Board of Directors approved the issuance of warrants to acquire 8,000,000 shares to each of the CEO and Chairman of the Board,
at a price of $0.09 per share. The warrants have a term of five (5) years and vest as to 50% immediately and 50% on June 14, 2017.
In addition, the Directors approved the issuance of 10,000,000 stock options, issued to the
CEO
of 5BARz India Private Limited, to acquire common stock of the Company at a price of $0.09
per share. The options have a 5-year term, and vest as to 10% immediately, 40% upon the closing of a minimum of $13 million USD
financing of 5BARz India Private Limited at a $100 million valuation and 50% one year from the closing of said financing.
Note 11 – Investment in
CelLynx Group, Inc.
On January 7, 2011 the Company entered
into a stock purchase agreement with two founding shareholders of CelLynx Group, Inc. to acquire in aggregate 63,412,638 shares
of the capital stock of CelLynx Group, Inc. for total proceeds of $634,126. At that date the Company had paid $170,000 as a deposit
made under that agreement. On March 29, 2012 the Company entered into a securities exchange agreement and settlement agreement
with each of the two founding shareholders of CelLynx Group, Inc. whereby in addition to the $170,000 paid, the Company issued
1,250,000 shares of its common stock in exchange for the 63,412,638 shares of CelLynx Group, Inc. and mutual releases were signed
between the parties releasing each from any further obligation.
On March 29, 2012, the Company acquired
a further interest in CelLynx Group, Inc. by conversion of $73,500 of convertible debt in CelLynx Group, Inc. for the issuance
of 350,000,000 shares in the capital stock of CelLynx Group, Inc. As a result, in combination with the shares acquired from existing
shareholders referred to above, the registrant acquired a 60% controlling interest in CelLynx Group, Inc. and has accounted for
that acquisition as a consolidated subsidiary of the registrant effective March 29, 2012.
Subsequent to that acquisition, the Company has converted amounts
due, pursuant to the convertible line of credit agreement between the Company and CelLynx Group Inc. as follows;
Date
|
|
Amount converted
|
|
Shares issued
|
|
April 13, 2012
|
|
|
$
|
7,700
|
|
|
|
51,333,333
|
|
|
May 15, 2012
|
|
|
$
|
58,500
|
|
|
|
390,000,000
|
|
|
May 21, 2013
|
|
|
$
|
9,375
|
|
|
|
375,000,000
|
|
|
March 31, 2014
|
|
|
$
|
26,250
|
|
|
|
105,000,000
|
|
|
July 10, 2014
|
|
|
$
|
31,620
|
|
|
|
155,000,000
|
|
Each of the conversions reflected in the preceding schedule increased
the percentage ownership that the Company holds in CelLynx Group, Inc. to a 60% interest, subsequent to dilution arising from the
acquisition of stock by others. At September 30, 2016, the Company had a 60% equity ownership in CelLynx Group, Inc. with the holding
of 1,489,745,971
common shares.
F-31
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note
12 – Asset Acquisition Agreement
On
March 29, 2012, the Company and CelLynx Group Inc. entered into an agreement which provided several amendments to the agreement
referred to above. As a result of those amendments, the following arrangements between the Companies were established;
|
i.
5BARz International, Inc. acquired a 60% interest in the patents and trademarks held by CelLynx Group Inc., referred to as the “5BARz™” technology. That interest in the technology was acquired for proceeds comprised of 9,000,000 shares of the common stock of the Company, valued at the date of acquisition at $0.20 per share or $1,800,000 USD. The acquisition agreement also clarified that the ownership interest in the intellectual property does represent that proportionate interest in income earned from the intellectual property.
|
|
ii.
The Company had agreed to make available to CelLynx Group, Inc a revolving line of credit facility as amended in the amount of $2.2 million dollars on October 5, 2010. Pursuant to this revolving line of credit facility, which was scheduled to expire on October 5, 2013, the Company advanced $2,394,643 to the date of expiry. At September 30, 2013 the Company agreed to extend the term of the line of credit facility to CelLynx Group, Inc., for the lesser of one year, or the time that CelLynx Group, Inc. becomes self sustaining from royalty income. Under the amended terms of the line of credit facility, the Company has the right to convert amounts due under the facility into common stock of CelLynx, at a conversion rate which is calculated at 51% of the average lowest three closing bid prices of the CelLynx Group, Inc. common stock for a period which is ten (10) days prior to the date of conversion. This conversion rate was established previously by other parties that have funded CelLynx, and is being matched by 5BARz. At September 30, 2016, the Company holds 1,489,745,971 shares of the capital stock of CelLynx Group, Inc. and has a balance of $3,235,849 principle and interest due under the line of credit facility from Cellynx Group, Inc. On September 30, 2014 the Line of Credit agreement between the parties matured. CelLynx is a consolidated subsidiary of 5BARz International Inc., since March 29, 2012.
|
|
iii.
Pursuant to the Master Global Marketing and Distribution agreement between 5BARz International, Inc. and CelLynx Group, Inc., the registrant was obligated to pay to CelLynx Group, Inc. a royalty fee amounting to 50% of the Company’s Net Earnings, from products or license arrangements related to the 5BARz™ technology, in a ratio equal to the CelLynx proportionate interest in the underlying technology. Subsequent to the acquisition by 5BARz of a 60% interest in the intellectual property from Cellynx, that Royalty was reduced to an effective Royalty amount of 20% of net earnings from products or license arrangements related to the 5BARz technology. That fee would be paid on a quarterly basis, payable in cash or immediately available funds and shall be due and payable not later than 45 days following the end of each calendar quarter of the year. The asset acquisition agreement amendment referred to herein specified that the royalties would be paid in relation to the ownership of the intellectual property. In addition, as a result of the acquisition of a 60% interest in CelLynx Group, Inc. by the registrant, this royalty item is an intercompany transaction which in the future will be eliminated upon consolidation in financial reporting of the consolidated financial results of 5BARz International Inc. and subsidiaries.
|
F-32
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 13 – Accounts payable and accrued
liabilities
Accounts payable and accrued expenses are comprised of the following:
|
|
September 30,
2016
|
|
December 31, 2015
|
Product development costs
|
|
$
|
1,548,533
|
|
|
$
|
991,799
|
|
Consulting and wages
|
|
|
2,725,666
|
|
|
|
2,138,729
|
|
Legal and administrative
|
|
|
316,795
|
|
|
|
498,704
|
|
Acquired liabilities – CelLynx - 2012
|
|
|
940,111
|
|
|
|
1,118,495
|
|
Other
|
|
|
175,851
|
|
|
|
249,491
|
|
Total
|
|
$
|
5,706,956
|
|
|
$
|
4,997,218
|
|
Note 14 – Litigation
Prior
to the Company’s investment in CelLynx, on July 19, 2010 certain claims for unpaid wages were filed against CelLynx, Inc.
Judgments were obtained commencing in August 2011
for back wages by some of its former employees.
Some of
those claims have been partially
paid and others were expected
to be
paid
in the
normal course of
business
or
were to be otherwise
defended.
Those claims have now been incorporated
into California Labor Commission
awards in favor of
those former employees. Those
awards
total approximately $263,000 depending on
interest charges. It is the Company’s intention to pay these amounts. As of September 30, 2016, the Company
has accrued $263,000 in its financial statements.
On May 13, 2015 the Company received
a complaint filed in the Superior Court of the State of California, County of San Diego against 5BARz International Inc,
and Daniel Bland, by Assured Wireless International Corp. claiming breach of contract and claiming unpaid fees and interest
of $171,159, plus penalties.
Assured Wireless vs. 5BARz International Inc, and Daniel Bland
37-2015-00012766-CU-BC-CTL (County of San Diego).
The claims also alleges unjust enrichment of $20,000 as well as $50,000
for alleged negligent interference with prospective economic relations. As of March 31, 2016 the Company has accrued $171,159
for a potential liability. The Company and Mr. Bland have filed answers generally denying plaintiff’s claims and
asserting affirmative defenses. On June 29, 2016 the parties entered into a settlement agreement which provided for the
settlement of the claims for $170,000, payable as to $40,000 upon closing of the agreement, $60,000 on August 15, 2016 and
the balance of $70,000 payable on October 7, 2016. On July 14, 2016 the case was dismissed. On August 15, 2016 the payment
amount was not made and a judgment in the amount of $130,000 was entered against the Company. As of September 30, 2016 the
Company has accrued $130,000 for this judgment. Payment arrangements are being discussed.
F-33
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 14 – Litigation
(continued)
On August 14, 2015 the Company received a complaint
filed in the Superior Court of the State of California, County of San Diego on August 4, 2015, against 5BARz International Inc.
by, Pluto Technologies, Inc. claiming breach of contract and claiming unpaid fees, charges for equipment repairs and interest of
$70,750.
Pluto Technologies, Inc. vs 5BARz International, Inc. 37-2015-00025796-CU-BC-CTL (County of San Diego)
. It is the
Company’s intention to vigorously defend the lawsuit. It is too early in the process to determine the likelihood of outcome.
In addition, on July 24, 2015 the owner of Pluto Technologies, Inc., Mr. James Fraley, filed a lawsuit in the Superior Court of
the State of California, County of San Diego against 5BARz International Inc., claiming breach of contract and claiming unpaid
fees, expenses and salaries in the amount of $148,920. James Fraley vs. 5BARz International, Inc. 37-2015-00025016-CU-BC-CTL. As
of March 31, 2016 the Company has accrued $391,489 payable to the petitioners. On May 13, 2016, the Company entered into a settlement
agreement with Pluto Technologies and James Fraley for the settlement of all amounts due to the petitioners by payment of $65,000,
payable as to $15,000 on May 31, 2016, $20,000 on June 30, 2016 and $30,000 on July 31, 2016. All of the payments required to be
made under the agreement have been completed for the full release of the litigation.
On January 8, 2016 a complaint was filed in
the Superior Court of the State of California, County of San Diego against 5BARz International Inc., and certain offices of the
Company by Warren Cope, a former consulting engineer of the Company claiming breach of contract and fraud claiming unpaid fees
and interest of $121,616, plus 100,000 options exercisable at a price of $0.10 per share.
Warren Cope vs. 5BARz International
Inc., et all 37-2016-00000510-CU-BC-CTL (County of San Diego).
On February 29, 2016 the parties entered into a settlement agreement
which provided for payments of cash in the aggregate amount of $121,616 by May 15, 2016 and the issuance of the 100,000 options.
The settlement agreement provides a stipulation of entry of judgment in the event of a default in payments. On March 15, 2016 the
Company repaid $10,000 of this debt and issued 100,000 options to acquire common stock of the Company at an exercise price of $0.10
per share, pursuant to the terms of that settlement agreement. At March 31, 2016, the Company has accrued $111,616 payable to the
petitioner. On or about May 15, 2016 a further $10,000 was paid. On June 3, 2016 the Company entered into amending agreement whereby
the balance of $101,616 was settled by the issuance of 846,804 shares at a price of $0.06 per share for the settlement of $50,808,
plus an agreement to make four monthly payments of $12,702 each month commencing June 3, 2016. Each of the payments required under
the agreement have been made with the final payment made on September 12, 2016 for full release of the litigation.
On March 10, 2016 a complaint was filed in
the Eleventh Judicial Circuit Court in Miami-Dade County, Florida, against BARz International, Inc. and certain officers and employees
of the Company by Group 10 Holdings, LLC a lender by way of convertible debenture, claiming breach of contract, fraud, negligent
misrepresentation and unjust enrichment, claiming $110,000 plus interest at 12%.
Group 10 Holdings vs 5BARz International, Inc.
et all 2016-005597 CA 01
. The Company has reflected a balance at March 31, 2016 due to the lender of $218,177. The Company
and defendants have engaged counsel and on April 17, 2016 have filed a motion for dismissal. On July 12, 2016, the Company entered
into a settlement agreement with the plaintiff for the settlement of the claim for an aggregate of $153,000. The balance is to
be paid by way of a series of payments, commencing 7 days from the settlement date, each in the amount of $35,000. Each payment
date the Company has the option of paying the amount due in cash, or in common stock at the then market value of the stock. The
holder is restricted on a daily basis to a maximum sale of up to 15% of daily volume. On July 14, 2016, 333,333 of common shares
were issued at a price of $0.105 per share in lieu of $35,000 cash. On August 4, 2016, an additional 448,717 common shares were
issued at a price of $0.78 instead of a $35,000 cash payment. On September 18, 2016 the Company received a default notice from
Group 10, due to the fact that the Company was delinquent in filing its 10-Q. No further court action has been instituted
as a result of that default. On September 30, 2016 the Company reflects a remaining balance due to the lender of $83,000. On November
1, 2016 the Company made an additional payment of $35,000 comprised of 416,666 shares at a price of $0.084 per share.
F-34
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 14 – Litigation
(continued)
On April 11, 2016 a complaint was filed in
the Supreme Court of the State of New York, County of New York, against 5BARz International Inc. and Daniel Bland by R Squared
Partners LLC., a lender by way of convertible note. The complaint alleges breach of contract, requests injunctive relief and tortious
interference with Contract. The Company had borrowed $100,000 on June 2, 2015. The Company repaid interest on the note on July
1, 2015 of $933 and repaid the loan principal of $100,000 on August 13, 2015 by wire transfer. Further, on September 1, 2015 the
Company issued 29,340 shares as final payout of the note interest via conversion into shares pursuant to the note terms. R Squared
Partners LLC has made demand on the Company for an additional amount of $100,000 due under the note and exercise of warrants. The
Company disputes the claims for additional amounts due, the Company filed an answer to the complaint on May 31, 2016.
On April 22, 2016 a complaint was filed in
the Supreme Court of the State of New York, County of New York, against 5BARz International Inc. by Firstfire Global Opportunity
Fund, an alleged lender by way of convertible note. The complaint alleges breach of contract, requests injunctive relief and tortious
interference with Contract. The Company had borrowed $100,000 on June 2, 2015. The Company repaid interest on the note on July
1, 2015 of $1,166.67 and repaid the loan principal of $100,000 on August 5, 2015 by wire transfer. Further, on August 5, 2015 the
Company issued 24,000 shares as final payout of the note interest via conversion into shares pursuant to the note terms. First
Fire Global Opportunity Fund has made demand on the Company for an additional amount of $100,000 due under the note and exercise
of warrants. The Company disputes the claims for additional amounts due, the Company filed an answer to the complaint on May 31,
2016. On August 11, 2016 the Company entered into a settlement agreement with the plaintiff and issued 750,000 common shares in
settlement with restrictive legend on the shares to be released, 250,000 shares each of August, September and October, 2016. On
October 31, 2016 the Company released the first of three payments upon meeting SEC clearance requirements. Subsequent releases
are pending.
On May 31, 2016 a complaint was filed in the
United States District Court, Eastern District of New York, against 5BARz International, Inc. by LG Capital Funding, LLC, a lender
by way of convertible note. The complaint alleges that the Company failed to deliver 1,699,580 shares pursuant to a notice of conversion,
and seeks preliminary and permanent injunctive relief, damages and attorney fees. The Company has responded with an initial Memorandum
of Law on June 24, 2016 in opposition to the Plaintiffs motion for permanent injunctive relief. The Company has accrued an amount
of $125,000 due to the lender pursuant to the terms of the convertible note agreement at September 30, 2016.
On July 6, 2016 a complaint was filed in
the District Court of Dallas County Texas, (DC-16-08001), against 5BARz International, Inc., and certain officers of the
Company by JSJ Investments, Inc, a lender by way of convertible note. The Company and the lender had entered into a
settlement agreement for payments over a period of six months in the aggregate amount of $177,427 on March 2, 2016. The
complaint alleges breach of contract, promissory estoppel as to note, and tortious interference with Contract. The Company
has filed an answer to the complaint. The Company has accrued an amount of $200,186 due to the lender pursuant to the terms
of the convertible note agreement at September 30, 2016.
On August 4, 2016 a complaint was filed in the United States District Court, Southern District of New York,
against 5BARz International, Inc. by Union Capital LLC, a lender by way of convertible note. The complaint alleges that the Company
failed to deliver 4,299,689 shares pursuant to a notice of conversion, and seeks an order for specific performance, breach of contract,
damages and attorney fees. As of September 30, 2016 the Company had accrued $368,975 for this settlement. On October 5, 2016 the
Company issued 4,299,689 shares in full settlement of the note. On November 5, 2016 the parties entered into a settlement agreement
providing mutual releases. The settlement agreement provides for an additional $25,000 payment to be made by November 22, 2016.
F-35
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 14 – Litigation
(continued)
On August 5, 2016 a complaint was filed in the United States District
Court, Southern District of New York, against 5BARz International, Inc. by Adar Bays LLC, a lender by way of convertible note.
The complaint alleges that the Company failed to deliver 184,775 shares pursuant to a notice of conversion, and seeks an order
for injunctive relief, damages and attorney fees. The Company has provided an answer to the allegations. The Company has accrued
an amount of $98,518 due to Adar Bays LLC at September 30, 2016. On October 27, 2016 the Company and plaintiff negotiated a settlement
agreement for payment of $83,733 in cash or shares over four months as well as a payment of 184,775 shares issued upon signing
of the agreement.
On September 19, 2016 a complaint was filed in the Superior Court
of the State of California, for the County of San Diego against 5BARz International, Inc. by Richard Rajabi claiming $163,637 for
breach of contract. The Company has filed an answer and counter claim in this matter.
In addition to the above, the Company may become
involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes
are not predictable with assurance.
Note 15 – Product Orders and Shipments
a.
Product Orders and Shipments into
India
Cellular Network Extenders
Since August 19, 2015 the Company has received purchase
orders from Tier 1 cellular network operators in India. Those orders have progressed from smaller orders in late 2015 to the establishment
of a Network Hardware and Software Ordering document, completed June 1, 2016, setting the parameters for a series of orders over
the next two years.
5BARz Broadband Router
The Company has developed a state of the art wireless router, referred
to as ROVR Smart Hub, to participate in the rapid expansion of broadband to the home throughout India. In conjunction with this
initiative, on August 25, 2016 the Company entered into a Strategic Alliance Agreement with a Tier 1 cellular network operator
in the region, along with a major broadband operator to provide the 5BARz ROVR Smart Hubs.
F-36
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 16 – Subsequent Events
Sales of Common Stock
On October 5, 2016, the Company issued 1,666,667
units at a price of $0.06 per unit for proceeds of $100,000. Each unit is comprised of one share and one-quarter warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on the attached warrant.
On October 11, 2016, the Company issued 4,299,689 shares at a price
of $0.031 per share for the settlement of convertible notes payable with a total value of $134,150. After this settlement the balance
of principal and interest due under this convertible note at October 13, 2016 was nil.
On October 14, 2016, the Company issued 116,447 shares at a price
of $0.05 per share for the settlement of convertible notes payable with a total value of $5,822. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was nil.
On October 20, 2016, the Company returned to treasury 1,000,000
issued shares at a price of $0.12 per share for services paid in cash with a total value of $120,000.
On October 31, 2016, the Company issued 315,836 shares at a price
of $0.07 per share for the settlement of convertible notes payable with a total value of $22,108. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was nil.
On November 1, 2016, the Company issued 416,446 shares at a price
of $0.084 per share for the settlement of convertible notes payable with a total value of $35,000. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was $48,000.
On November 1, 2016, the Company issued 389,910 shares at a price
of $0.077 per share for the settlement of convertible notes payable with a total value of $30,023. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was $158,476.
On November 3, 2016, the Company issued 300,114 shares at a price
of $0.07 per share for the settlement of convertible notes payable with a total value of $21,008. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was $84,033.
On November 3, 2016, the Company issued 360,886 shares at a price
of $0.07 per share for the settlement of convertible notes payable with a total value of $25,262. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was $51,694.
On November 3, 2016, the Company issued 184,775 shares at a price
of $0.08 per share for the settlement of convertible notes payable with a total value of $14,782. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was $83,733.
On November 8, 2016, the Company issued 2,000,000 shares at a price
of $0.06872 per share for services with a total value of $137,440.
On November 8, 2016, the Company issued 405,259 shares at a price
of $0.068 per share for the settlement of convertible notes payable with a total value of $27,355. After this settlement, the balance
of principal and interest due under this convertible note at November 11, 2016 was $82,064.
F-37
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 16 – Subsequent Events (continued)
Settlement of Convertible Promissory Notes:
On October 11,
2016, the Company issued, by court order, 4,299,689 shares at a price of $0.08 per share for the outstanding convertible
note payable with a total value of $343,975. The Company also agreed to pay $25,000 in conjunction with the settlement
agreement. The Company will record a loss from settlement of $240,998 after the completion of the settlement. After
this settlement the balance of principal and interest due under this convertible note was nil. See notes payable note
7(i).
On October 14, 2016, the Company received a notice of conversion
and issued 116,447 shares at a price of $0.05 per share for the settlement of convertible notes payable with a total value of $5,822.
The company recorded interest of $671 at November 11, 2016. After this settlement, the balance of principal and interest due under
this convertible note at November 11, 2016 will be nil. See note 7(p).
On October 27, 2016, the company entered into settlement agreement
for the issuance of 184,775 shares due upon agreement completion and three subsequent payments of $27,911. On November 3, 2016
the Company issued 184,775 shares at a price of $0.08 per share for the settlement of convertible notes payable with a total value
of $14,782. The company recorded interest of $7,451 at November 11, 2016. After this settlement, the balance of principal and interest
due under this convertible note at November 11, 2016 was $83,733. See note 7(h).
On October 31, 2016, the Company issued 315,836 shares at a price
of $0.07 per share for the settlement of convertible notes payable with a total value of $22,108. After this settlement, the balance
of principal and interest due under the February 26, 2016 convertible note settlement at November 11, 2016 was nil. See note
7(n).
On November 1, 2016, the Company issued 416,446 shares at a price
of $0.084 per share for the settlement of convertible notes payable with a total value of $35,000. After this settlement, the balance
of principal and interest due under the June 30, 2016 convertible note settlement at November 11, 2016 was $48,000. See note
7(f).
On November 1, 2016, the Company issued 389,910 shares at a price
of $0.077 per share for the settlement of convertible notes payable with a total value of $30,023. After this settlement, the balance
of principal and interest due under the August 31, 2016 convertible note settlement at November 11, 2016 was $158,476. See
note 7(m).
On November 3, 2016, the Company issued 300,114 shares at a price
of $0.07 per share for the settlement of convertible notes payable with a total value of $21,008. After this settlement, the balance
of principal and interest due under the August 5, 2016 convertible note settlement at November 11, 2016 was $84,033. See note
7(o).
On November 3, 2016, the Company issued 360,886 shares at a price
of $0.07 per share for the settlement of convertible notes payable with a total value of $25,262. After this settlement, the balance
of principal and interest due under the August 11, 2016 convertible note settlement at November 11, 2016 was $51,694. See
note 7(q).
On November 8, 2016, the Company issued 405,259 shares at a price
of $0.068 per share for the settlement of convertible notes payable with a total value of $27,355. After this settlement, the balance
of principal and interest due under the May 31, 2016 convertible note settlement at November 11, 2016 was $82,064. See note
7(r).
F-38
5BARz International, Inc.
Notes To Condensed Consolidated Financial
Statements
(Unaudited)
Note 16 – Subsequent Events (continued)
Financing Agreement
On September 22, 2016, 5BARz International,
Inc., 5BARz Pte Ltd. in Singapore and Daniel Bland, collectively referred to as the 5BARz Group, entered into a memorandum of understanding
agreement with RRM Resources Pte. Ltd. in Singapore, whereby RRM Resources agreed to lend to the 5BARz Group, $3.5 million USD
for working capital requirements in Singapore and India. The 5BARz Group have paid margin monies to be returned in full along with interest at Libor + 4%
in the amount of $250,000 USD on September 21, 2016 with a commitment to pay a further amount of $110,000 USD, 5 days from release
of the initial $1.5 million loan from RRM Resources. The loan is to be funded in two parts, the initial traunche of $1.5 million
is to be funded within 12 days of the payment of the first tranche of the margin money, and the second tranche of $2.0 million
to be funded, with 25 days of payment of the initial margin monies. The loan term is 11 months from receipt of the first $1.5 million,
with an interest rate the greater of 4% on the outstanding principal, or 6 month LIBOR +2%. The loan was not yet funded by
November 21, 2016.
On November 29, 2016 the Company and
RRM Resources agreed to an extension of the $3.5 million to be funded in December, 2016, as one installment or on a ballet
basis. Per the extension agreement, the financing agreement will be cancelled if not funded in 15-30 days as
extension agreement suggested.
F-39