Notes
To Condensed Financial Statements (Unaudited)
Note
1 – BASIS OF PRESENTATION AND ORGANIZATION
2050
Motors, Inc., (the “Company”) was incorporated on October 9, 2012, in the state of Nevada to import, market, and sell
electric cars manufactured in China. On October 25, 2012, 2050 Motors, Inc., entered into an agreement with Jiangsu Aoxin New
Energy Automobile Co., Ltd., (“Aoxin”), located in Jiangsu, China, for the distribution in the United States of a
new electric automobile, known as the e-Go EV.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Information
The
accompanying unaudited condensed financial statements have been prepared in accordance with the SEC’s requirements for Form
10-Q and, in the opinion of management, contain all adjustments, of a normal and recurring nature, which are necessary for a fair
statement of (i) the condensed balance sheets at March 31, 2017 and December 31, 2016; (ii) the condensed statements of operations
for the three month periods ended March 31, 2017 and 2016; and (iii) the condensed statements of cash flows for the three month
periods ended March 31, 2017 and 2016. However, the accompanying unaudited condensed financial statements do not include all information
and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The
Condensed balance sheet, included in this report, as of December 31, 2016 was derived from the 2016 audited financial statements,
but does not include all disclosures required by U.S. GAAP.
These
unaudited interim condensed financial statements should be read in conjunction with the consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April
17, 2017.
Basis
of Presentation
The
accompanying financial statements were prepared in conformity with generally accepted accounting principles in the United States
of America ("US GAAP").
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability
of long-term assets.
Cash
and Cash Equivalents
Cash
consists of deposits in one large national bank. At March 31, 2017 and December 31, 2016, the Company had $17,904 and $11,766
in cash in the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any
risks on its cash in bank accounts.
Property,
Plant & Equipment
Property,
plant and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful
life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: tools
and equipment, five years; vehicles and parts, three years; leasehold improvements, lesser of lease term or life of related asset;
and furniture and fixtures, seven years.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
As
of March 31, 2017 and December 31, 2016, Property, plant and equipment consisted of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Furniture
& furnishings
|
|
$
|
14,303
|
|
|
$
|
14,303
|
|
Leasehold
improvements
|
|
|
18,184
|
|
|
|
18,184
|
|
Vehicle
and parts
|
|
|
76,045
|
|
|
|
76,045
|
|
Tools
and equipment
|
|
|
22,494
|
|
|
|
22,494
|
|
Total
|
|
|
131,027
|
|
|
|
131,026
|
|
Less:
Accumulated depreciation
|
|
|
(75,539
|
)
|
|
|
(66,076
|
)
|
Property,
plant and equipment, net
|
|
$
|
55,488
|
|
|
$
|
64,950
|
|
Depreciation
expense was $9,463 and $9,900 for the three months ended March 31, 2017 and 2016, respectively.
Impairment
of Long-Lived Assets and Assets
The
Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows is less than
the carrying amount of the asset, an impairment loss is recorded. No impairment losses were recognized for the three months ended
March 31, 2017 and 2016.
Fair
Value of Financial Instruments
For
certain of the Company's financial instruments, including cash accounts payable, accrued liabilities, short-term debt and derivative
liability, the carrying amounts approximate their fair values due to their short maturities. We adopted ASC Topic 820, "Fair
Value Measurements and Disclosures", which requires disclosure of the fair value of financial instruments held by the Company.
ASC Topic 825, "Financial Instruments," defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the
balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of
their fair values because of the short period of time between the origination of such instruments and their expected realization
and their current market rate of interest. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
The three levels of valuation hierarchy are defined as follows:
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3 inputs to the valuation methodology are unobservable in which little or no market data exists, therefore requiring an entity
to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, "Distinguishing Liabilities
from Equity," and ASC 815.
We
have recorded the conversion option on few notes as a derivative liability as a result of the variable conversion price, which
in accordance with U.S. GAAP, prevents them from being considered as indexed to our stock and qualified for an exception to derivative
accounting.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
We
recognize derivative instruments as either assets or liabilities on the accompanying balance sheets at fair value. We record changes
in the fair value of the derivatives in the accompanying statement of operations.
Assets
and liabilities measured at fair value are as follows as of March 31, 2017:
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$
|
257,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
257,100
|
|
Total
liabilities measured at fair value
|
|
$
|
257,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
257,100
|
|
The
following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair
value:
Balance
as of December 31, 2016
|
|
$
|
270,075
|
|
Fair
value of derivative liabilities issued
|
|
|
137,118
|
|
Change
in derivative liability
|
|
|
(150,093
|
)
|
Balance
as of March 31, 2017
|
|
$
|
257,100
|
|
Earnings
Per Share (EPS)
Basic
EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock
options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for
the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock
method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted
method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at
the time of issuance, if later). During the three months ended March 31, 2017 and 2016, the Company incurred losses. Therefore,
the effect of any common stock equivalents is anti- dilutive during those periods.
The
following table sets for the computation of basic and diluted earnings per share for three months ended March 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Basic
and diluted
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(48,588
|
)
|
|
$
|
(159,856
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares in computing basic and diluted net loss
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
37,318,395
|
|
|
|
33,750,797
|
|
Diluted
|
|
|
37,318,395
|
|
|
|
33,750,797
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share basic and diluted
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
Advertising
and Marketing Costs
Costs
incurred for producing and communicating advertising and marketing are expensed when incurred and
included in selling general and administrative expenses. Advertising and marketing expense amounted
to $0 and $11,841 for the three months ended March 31, 2017 and 2016, respectively.
Income
Taxes
The
Company utilizes FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The
Company follows FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When
tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax
benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties
are classified in selling, general and administrative expenses in the statements of income.
At
December 31, 2016 and 2015, the Company had not taken any significant uncertain tax positions on its tax returns for period ended
December 31, 2016 and prior years or in computing its tax provision for 2016. Management has considered its tax positions and
believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained
upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from inception to present, generally
for three years after they are filed.
Concentration of Credit Risk
Cash
is mainly maintained by one highly qualified institution in the United States. At various times, such amounts are in excess of
federally insured limits. Management does not believe that the Company is subject to any unusual financial
risk beyond the normal risk associated with commercial banking relationships. The Company has not experienced
any losses on our deposits of cash.
Foreign
Currency Risk
Any
significant changes in foreign currency exchange rates may have significant impact on Company’s future financial statements
upon fulfilling certain purchase commitments in accordance to the license agreement disclosed in Note 5.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
Recently
Issued Accounting Pronouncements
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses
a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows
under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted,
including adoption in an interim period. We adopted this ASU in 2016 and the implementation did not have a material impact on
our financial position or statement of operations.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15, “
Presentation of Financial Statements –
Going Concern”
, Subtopic 205-40, “
Disclosure of Uncertainties about an Entity’s Ability to Continue as
a Going Concern.”
The amendments in this ASU apply to all entities and require management to assess an entity’s
ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing
standards. Specifically, the amendments (1) provide a definition of the term
substantial doubt,
(2) require an
evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s
plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s
plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment
for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in
this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
Early application is permitted. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial
position or results of operations.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flow.
Note
3 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America, which contemplate the continuation of the Company as a going concern. The Company reported accumulated deficit
of $2,857,503 as of March 31, 2017. The Company also incurred net losses of $48,588 and $159,856 for the three months ended March
31, 2017 and 2016, respectively and had negative working capital for the three months ended March 31, 2017 and 2016. To date,
these losses and deficiencies have been financed principally through the issuance of common stock, loans from related parties
and from third parties.
In
view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a
significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next
12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations,
we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other
offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any
future financing will involve substantial dilution to existing investors.
Note
4 – VEHICLE DEPOSITS
Vehicle
deposit of $24,405, as of March 31, 2017 and December 31, 2016, represents one prototype test model for delivery into the United
States in late 2017. This vehicle will undergo an advanced crash test known in the Automobile Safety Industry as the “overlap
crash test”.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
Note 5
– LICENSE AGREEMENT
In
2012 and 2013, the Company made a total payment of $50,000 and signed an exclusive license agreement with Aoxin to import, assemble
and manufacture the advanced carbon fiber electric vehicle, the e-Go EV model. The cost of this license agreement has been recognized
as a long-term asset and is evaluated, by management, for impairment losses at each reporting period. As of March 31, 2017, no
such impairment losses have been identified by the management.
Note 6
– ACCOUNTS PAYABLE DUE TO RELATED PARTIES
During
the first quarter ended March 31, 2017, the Company issued 140,808 shares of common stock to a related party for payment of a
$7,750 payable and $839 interest.
Note 7
– LOANS PAYABLE DUE TO RELATED PARTIES
During
the year ended December 31, 2014, the Company raised two loans for a total amount of $100,000 due to a shareholder. The loans
bear 12% interest and matured on February 28, 2015 and March 30, 2015, respectively. In March 2015, the maturity dates of the
notes were extended by twelve months. An additional extension to a June 30, 2017, maturity has been granted for each of the loans,
with the terms remaining the same. The outstanding balance as of March 31, 2017 and December 31, 2016 was $17,050 and $36,050,
respectively. During the three months ended March 31 2017 and 2016, the Company recorded an interest of $638 and $1,989, respectively,
on the note
The
Company received a $10,000 loan during the third quarter of 2016 from a related party. The loan bears 12% interest and matures
on March 16, 2017. The loan has been extended to a June 30, 2017, maturity with the same terms. The outstanding balance on the
loan as of March 31, 2017 was $10,000. The Company accrued an interest of $297 on the loan during the three months ended March
31, 2017.
During the three months ended March 31 2017 and 2016, the Company recorded an interest of $935 and $1,989, respectively, on
the notes.
Note 8
– CONVERTIBLE NOTE PAYABLES
On
November 1, 2016, the Company entered into four convertible promissory notes with three unrelated parties. The principle amount
is $10,000 for each note and carries interest of 12% annum. All four notes mature on April 30, 2017. The notes may be converted
into common stock of the Company at any time by the election of the lender at a conversion price of $0.075 per share. The Company
recorded a debt discount of $16,000 for the difference in the conversion price and the fair market value on the date of agreement.
The debt discount is being amortized over the term of the notes. During the three months ended March 31, 2017, the Company amortized
$8,000 of the debt discount. During the three-month ended March 31, 2017, the Company accrued an interest of $1,200 on the four
notes. The Company has obtained a three-month maturity extension on the notes, with similar terms.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
On
October 26, 2016, the Company entered into a convertible note agreement, with an accredited investor, for $65,000. The note bears
interest at 12% per annum and is due and payable on July 26, 2017. The note has financing cost of $9,500 associated with it. This
deferred financing fee has been deducted directly from the carrying value of the note, pursuant to ASU 2015-03. The deferred financing
fee is being amortized over the term of the convertible note payable. The Company may prepay the note in full together with any
accrued and unpaid interest plus any applicable pre-payment premium set forth in the note. Until the Ninetieth (90th) day after
the Issuance Date the Company may pay the principal at a cash redemption premium of 135%, in addition to outstanding interest,
which can be paid without the Holder’s consent; from the 90th day to the One Hundred and Twentieth (120th) day after
the Issuance Date, the Company may pay the principal at a cash redemption premium of 140%, in addition to outstanding interest,
which can be paid without the Holder’s consent; from the 12th day to the One Hundred and Eightieth (180th) day after
the Issuance Date, the Company may pay the principal at a cash redemption premium of 145%, in addition to outstanding interest,
which can be paid without the Holder’s consent. After the 180
th
day
up to the Maturity Date this Note shall have a cash redemption premium of 150% of the then outstanding principal amount of the
Note, plus accrued interest and Default Interest if any, which may only be paid by the Company upon Holder’s prior written
consent The note is convertible into fully paid and non-assessable shares of common stock, after 180 days from the date of the
note, at a conversion price which is lower of: (i) a 50% discount to the lowest trading price during the previous twenty trading
days prior to the date of a conversion notice; or (ii) a 50% discount to the lowest trading price during the previous twenty trading
days before the date that this note was executed. Since the conversion price of the note is variable, the conversion option has
been treated as a derivative liability. The derivative liability on the note was calculated, using the Binomial model, to be $242,500,
of which $55,500 was recorded as a debt discount and the balance $186,500 was recorded as an interest expense, at inception. As
of December 31, 2016, the derivative liability amounted to $270,025. The derivative liability was recalculated on March 31, 2017
as $138,450 and the difference in the value was recorded as a change in derivative liability in the income statement. The Company
amortized a debt discount of $18,500, during the three months ended March 31, 2017. The Company amortized the finance fee of $3,167
during the three months ended March 31, 2017. Interest expense of $1,950 was accrued on the convertible note during the three
months ended March 31, 2017.
The
variables used for the Binomial model are as listed below:
|
●
|
Volatility:
225%
|
|
|
|
|
●
|
Risk
free rate of return: 0.91%
|
|
|
|
|
●
|
Expected
term: 117 days
|
On
January 6, 2017, the Company entered into a convertible note agreement with a third party for $78,750. The Company received $70,000,
net of the financing fee of $8,750. The note is due on October 6, 2017 and carries interest at the rate of 12% per annum. The
note is convertible at the lower of ; (i) a 50% discount to the lowest trading price during the previous twenty five trading days
prior to the date of a conversion notice; or (ii) a 50% discount to the lowest trading price during the previous twenty five trading
days before the date that this note was executed. Since the conversion price of the note is variable, the conversion option has
been treated as a derivative liability. The derivative liability on the note was calculated, using the Binomial model, to be $137,118,
of which $70,000 was recorded as a debt discount and the balance $67,118 was recorded as an interest expense, at inception. The
derivative liability was recalculated on March 31, 2017 as $118,650 and the difference in the value was recorded as a change in
derivative liability in the income statement. The Company amortized a debt discount of $21,538, during the three months ended
March 31, 2017. The Company amortized the finance fee of $2,692 during the three months ended March 31, 2017. Interest expense
of $2,175 was accrued on the convertible note during the three months ended March 31, 2017.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
The
variables used for the Binomial model are as listed below:
|
●
|
Volatility:
225%
|
|
|
|
|
●
|
Risk
free rate of return: 0.91%
|
|
|
|
|
●
|
Expected
term: 189 days
|
Note 9
– COMMITMENTS AND CONTINGENCIES
Effective
March 1, 2014, the Company signed a lease for four thousand square feet of industrial space in North Las Vegas. The term of the
lease is for three years and cost $2,200 per month. The lease expires on April 30, 2017.
Rent
expense amounted to $6,417 and $19,617 for the three months ended March 31, 2017 and 2016, respectively.
According
to the license agreement signed between the Company and Aoxin, in order to maintain exclusive rights for the United States (US),
the Company is required to purchase and sell certain amount of e-Go EV model vehicles per year for a certain period of time starting
from the completion of the requirements established by the United States Department of Transportation’s protocols for the
e-Go EV model. The table below demonstrates the required amount of vehicles that the company needs to sell per year.
First
year
|
|
|
2,000
|
|
Second
year
|
|
|
6,000
|
|
Third
year
|
|
|
12,000
|
|
Fourth
year
|
|
|
24,000
|
|
Fifth
year
|
|
|
48,000
|
|
|
|
|
92,000
|
|
As
part of the license agreement, the Company is committed to pay expenses related to any required airbag testing procedures. The
cost of these airbags could be as little as $500,000 or as much as $2 million.
The
Company may from time to time, become a party to various legal proceedings, arising in the ordinary coure of business. The Company
investigates these claims as they arise. Management does not believe, based on current knowledge, that there were any such claims
outstanding as of March 31, 2017.
Note 10
– REVOLVING LINE OF CREDIT- RELATED PARTY
On
February 12, 2016, the Company signed a twelve months revolving line of credit agreement with a consulting firm which is also
utilized for consulting services. The line amount is $100,000 and carries interest at 12% per annum. As of March 31, 2017, the
outstanding balance was $101,400. The loan balance is due on demand.
Note 11
– INCOME TAXES
The
Company did not file its tax returns for fiscal years from 2012 through 2016. Management believes that it should not have any
material impact on the Company’s financials because the Company did not have any tax liabilities due to net loss incurred
during these years.
2050
Motors, Inc.
Notes
To Condensed Financial Statements (Unaudited)
Based
on the available information and other factors, management believes it is more likely than not that the net deferred tax assets
at March 31, 2017 and December 31, 2016 will not be fully realizable. Accordingly, management has recorded a full valuation allowance
against its net deferred tax assets at March 31, 2017 and December 31, 2016. At March 31, 2017 and December 31, 2016, the Company
had federal net operating loss carry-forwards of approximately $2,835,000 and $2,800,000, respectively, expiring beginning in
2032.
Deferred
tax assets consist of the following components:
|
|
2016
|
|
|
2015
|
|
Net
loss carryforward
|
|
$
|
790,000
|
|
|
$
|
780,000
|
|
Valuation
allowance
|
|
|
(790,000
|
)
|
|
|
(780,000
|
)
|
Total
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
12 – PROMISSORY NOTE AND EQUITY PURCHASE AGREEMENT
On
June 24, 2016, the Company issued a $75,000 non-refundable Promissory Note to an investor as a pre- condition to an Equity
Purchase Agreement. The promissory note bears 10% interest per annum with a one year maturity date. The note is recognized as
a deferred finance charge and is being amortized over the contract period.
The
Equity Purchase Agreement allows the Company to issue Put Notices and the right to sell up to $10,000,000 of its no par value
common stock at 88% of its market value. The market value is based on a ten day valuation period immediately preceding the Put
Notice. The right to sell the shares becomes an obligation to sell as of the closing date after the Put Notice has been issued
to the investor. The investor at no time can own more than 9.99% of the Company’s common stock outstanding as of the closing
date.
As
of March 31, 2017, the outstanding balance of the note was $75,000.
Note
13 – EQUITY
During
the three months ended March 31, 2016, the Company issued 200,000 shares of company’s common stock, valued at $0.1574 per
share, to a third party in exchange for consulting and advisory services for a period of six months.
During
the three months ended March 31, 2017, the Company issued 355,387 shares of common stock valued at $0.061 per share to a related
party in exchange for $2,250 cash, $8,589 payment of a payable and $10,839 of consulting services.
Note
14 – SUBSEQUENT EVENTS
Subsequent
to the three months ended March 31, 2017, on April 25, 2017, the Company amended the terms of the convertible $65,000 note payable.
Pursuant to the amended terms, the maturity date of the note was extended to January 26, 2018. The principal amount of the note
was increased by $7,800 to $72,800. The Company made a payment of $33,118, the cost of the extension, pursuant to the amended
terms.