Notes
to Unaudited Condensed Financial Statements
June
30, 2016
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization,
Nature of Business and Trade Name
Intelligent
Highway Solutions, Inc. (the “Company” or “IHS”) was formed on April 22, 2011. IHS is a technology based
intelligent highway solutions contractor. Through June 30, 2013, the Company’s primary focus was in the California transportation
market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance
services for the State’s transportation infrastructure. Since that time, the Company has devoted its time to electrical
service contracts. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads,
traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors
and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication
will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler
safety and convenience.
NOTE
2 – UNADUITED CONDENSED INTERIM FINANCIAL STATEMENTS
The
accompanying unaudited condensed interim financial statements have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows for the period ended June 30, 2016 and for all periods presented herein, have been made.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31,
2015 audited financial statements. The results of operations for the period ended June 30, 2016 are not necessarily indicative
of the operating results for the full year.
NOTE
3 – GOING CONCERN
The
Company’s unaudited condensed interim financial statements are prepared using generally accepted accounting principles in
the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating
costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the
Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate
capital, it could be forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient
to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
unaudited condensed interim financial statements do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
NOTE
4 - SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial
condition and results of operations during the period in which such changes occurred.
Actual
results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes
are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
Cash
The
Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The company does not have cash equivalents as of June 30, 2016.
Property,
Plant and Equipment
Property
and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments
that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the
period.
Depreciation
is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
|
|
Estimated
Useful Life
|
|
Furniture
and fixtures
|
|
|
3
- 5 years
|
|
Machinery
and equipment
|
|
|
5
years
|
|
Vehicles
|
|
|
5
years
|
|
For
federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements
purposes, depreciation is computed under the straight-line method. Balances of each asset class as of June 30, 2016 and December
31, 2015 were:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Machinery
and equipment
|
|
$
|
2,149
|
|
|
$
|
2,149
|
|
Furniture
and fixtures
|
|
|
6,273
|
|
|
|
6,273
|
|
Vehicles
|
|
|
2,571
|
|
|
|
15,249
|
|
Sub
Total
|
|
$
|
10,993
|
|
|
$
|
23,671
|
|
Accumulated
depreciation
|
|
|
(9,756
|
)
|
|
|
(18,713
|
)
|
Total
|
|
$
|
1,237
|
|
|
$
|
4,958
|
|
Depreciation
expense for the six months ended June 30, 2016 and 2015 was $3,271 and $4,990, respectively.
Accrued
Expenses and Other Liabilities
Accrued
expenses and other liabilities consisted of the following at June 30, 2016 and December 31, 2015:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Payroll
tax liabilities
|
|
|
761,396
|
|
|
$
|
758,773
|
|
Other
payroll accruals
|
|
|
100,654
|
|
|
|
45,851
|
|
Federal
and state income taxes payable
|
|
|
128,741
|
|
|
|
128,741
|
|
Other
|
|
|
509,971
|
|
|
|
433,745
|
|
Total
|
|
$
|
1,500,852
|
|
|
$
|
1,367,110
|
|
Other
accrued expenses mainly consist of accrued consulting fees due to management and other consulting firms.
Revenues
and Cost of Revenues
Revenues
from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term
contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the
ratio of the actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to
be the best available measure of progress on these contracts. Revenues from cost-plus-fee contracts are recognized on the basis
of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.
Cost
of revenues include all direct material, sub-contract, labor, and certain other direct costs, as well as those indirect costs
related to contract performance, such as indirect labor and fringe benefits. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changed in job performance, job conditions and estimated profitability may result in revisions to cost and income,
which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes
in estimates in the current period. Claims for additional contract revenue are recognized when realization of the claim in probable
and the amount can be reasonably determined.
Cost
of sales totaled $0 and $10,033 and $0 and $149,004 during the three and six months ended June 30, 2016 and 2015, respectively.
Fair
Value Measurements
The
fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial
liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used
to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is
defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable market-based inputs or inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market data.
Derivative
Liabilities
The
Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates.
The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase
in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value
of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the
change in fair market values of derivative liabilities over the life of the convertible notes
Net
Loss Per Share
Net
loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified
period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and
potential common shares during the specified period. For the three and six months ended June 30, 2016 and 2015 potential common
shares are not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially
dilutive shares are excluded when the effect would be to reduce net loss per share. There were 12,930,676,025 such potentially
dilutive shares excluded for the three and six months ended June 30, 2016.
Reclassification
of Prior Period Presentation
Certain
amounts have been reclassified on the December 31, 2015 balance sheet to conform to current period presentation. Specifically,
long term prepaid expenses of $34,965 have been reclassified as current prepaid expenses and a $3,000 contra-liability for related
party payables has been removed from current notes payable and is included in related party payables. These reclassifications
have no impact on net loss.
Recent
Accounting Pronouncements
In
February 2015, the FASB issued ASC 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidation Analysis.”
This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they
should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and requires
either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company adopted has
this standard and determined it does not have a significant impact on its consolidated financial statements.
In
September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period
Adjustments.” This update eliminates the requirement to restate prior period financial statements for measurement period
adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on
prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied
prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim
and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company has adopted this guidance and
the adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash
flows for the three or six months ended March 31, 2017 or 2016.
In
March 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting
.
”
The amendments in this update simplify several aspects of the accounting for employee share-based
payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well
as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017. The primary impact
of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital. However,
as the Company has a full valuation allowance against its deferred tax asset, a corresponding adjustment was recorded to increase
the valuation allowance.
In
January 2017, the FASB issued ASU 2017-04, “
Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment”.
The amendments in this update simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests
in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will
implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update
will have a material impact on the consolidated financial statements.
Management
believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
NOTE 5 – DERIVATIVE LIABILITIES
As
discussed in Note 3, o
n a recurring basis, we measure certain
financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s
liabilities measured at fair value as of June 30, 2016 and December 31, 2015:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
June 30, 2016
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
$
|
-
|
|
|
$
|
868,635
|
|
|
$
|
-
|
|
|
$
|
868,635
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
December 31, 2015
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
$
|
-
|
|
|
$
|
1,005,791
|
|
|
$
|
-
|
|
|
$
|
1,005,791
|
|
As
of June 30, 2016 the Company had a $868,635 derivative liability balance on the balance sheet and recorded a gain from derivative
liability fair value adjustment of $218,275 during the six months ended June 30, 2016 and a loss from derivative liability fair
value adjustment of $51,977 during the three months ended June 30, 2016. The Company assessed its outstanding convertible notes
payable as summarized in
Note 8 – Convertible Notes Payable
and determined certain convertible notes payable with
variable conversion features contain embedded derivatives and are therefore accounted for at fair value under
ASC 920, Fair
Value Measurements and Disclosures
and
ASC 825, Financial Instruments.
Utilizing
Level 2 Inputs, the Company recorded fair market value adjustments related to convertible notes payable for the six months
ended June 30, 2016 and 2015 of $218,275 and $488,110, respectively. The fair market value adjustments were calculated utilizing
the Black-Sholes method using the following assumptions: risk free rates ranging between 0.20% - 0.45%, dividend yield of 0%,
expected lives ranging between .02 and 1 year, and volatility between 105% and 243%.
A
summary of the activity of the derivative liability is shown below:
Balance
at December 31, 2015
|
|
$
|
1,005,791
|
|
Derivative
liabilities recorded
|
|
|
100,097
|
|
Change
due to note conversion
|
|
|
(18,978
|
)
|
Fair
value adjustment
|
|
|
(218,275
|
)
|
Balance
at June 30, 2016
|
|
$
|
868,635
|
|
NOTE
6 – CONCENTRATIONS OF RISK
Our
revenues during the three and six months ended June 30, 2015 were generated completely from two clients. The loss of either of
these clients will have a material adverse impact on our business. There were no revenues earned during the three or six months
ended June 30, 2016.
NOTE
7 – NOTES PAYABLE
The
Company has entered into various debt agreements to fund operations. A summary of outstanding non-convertible notes payable is
as follows:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Note
payable to non-related party, unsecured, due on September 1, 2014, interest rate of 0%. Currently in default. Principal due
on demand.
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Note
payable to non-related party, unsecured, due on December 31, 2014, interest rate of 0%. Currently in default. Principal due
on demand.
|
|
|
5,000
|
|
|
|
5,000
|
|
Note
payable to non-related party, secured by vehicles owned by the Company, due on October 22, 2016, interest rate of 15%. Principal
and accrued interest due on demand.
|
|
|
100,000
|
|
|
|
100,000
|
|
Note
payable to non-related party, unsecured, due on April 29, 2016, interest rate of 8%. Currently in default. Principal and accrued
interest due on demand.
|
|
|
33,000
|
|
|
|
33,000
|
|
Note
payable to non-related party, unsecured, due on June 22, 2016, interest rate of 8%. Currently in default. Principal and accrued
interest due on demand.
|
|
|
35,215
|
|
|
|
-
|
|
Sale
of future receivable to non-related party, secured by future accounts receivable, due on December 31, 2016. Principal due
as future accounts receivable are collected.
|
|
|
29,104
|
|
|
|
-
|
|
Total
principal outstanding
|
|
|
222,319
|
|
|
|
158,000
|
|
Less:
debt discounts
|
|
|
(6,837
|
)
|
|
|
(3,934
|
)
|
Total
balance
|
|
$
|
215,482
|
|
|
$
|
154,066
|
|
Required
principal payments from June 30, 2016 forward are as follows:
2016
|
|
$
|
222,319
|
|
2017
|
|
|
-
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
Total
|
|
$
|
222,319
|
|
There
was $17,065 and $7,083 of accrued interest payable on non-convertible notes payable as of June 30, 2016 and December 31, 2015.
NOTE
8 – CONVERTIBLE NOTES PAYABLE
The
Company has entered into various convertible debt agreements to fund operations. A summary of outstanding convertible notes payable
is as follows:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on February 13, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on April 8, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
15,000
|
|
|
|
15,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on March 21, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on May 9, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on November 4, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on July 15, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on September 3, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on October 31, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on October 21, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
20,000
|
|
|
|
20,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on December 30, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
45,000
|
|
|
|
45,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on March 26, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on April 26, 2013. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Convertible
note payable to non-related party, interest of 10%, unsecured, due on June 11, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the
five days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
59,800
|
|
|
|
59,800
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on December 12, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 40% discount from the lowest closing bid price
during the fifteen days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
55,000
|
|
|
|
55,000
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on July 7, 2016. May be converted at the option of
the holder into common stock at a price equal to a 40% discount from the lowest closing bid price during the fifteen days
prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
27,466
|
|
|
|
27,466
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
20,904
|
|
|
|
21,564
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on June 25, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
5,500
|
|
|
|
5,500
|
|
Convertible
note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. May be converted at the option of
the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
77,947
|
|
|
|
77,947
|
|
Convertible
note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. May be converted at the option of
the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
80,236
|
|
|
|
80,236
|
|
Convertible
note payable to non-related party, interest rate of 10, unsecured, due on June 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
11,500
|
|
|
|
11,500
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 19, 2016. May be converted at the option of
the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading prices during
days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
60,000
|
|
|
|
60,000
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on September 30, 2016. May be converted at the option
of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading prices during
days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
47,000
|
|
|
|
47,000
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 19, 2015. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading
prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
16,018
|
|
|
|
21,183
|
|
Convertible
note payable to non-related party, interest rate of 22%, unsecured, due on October 12, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during
the twenty days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
58,941
|
|
|
|
58,941
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 30, 2016. May be converted at the option
of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the twenty days prior
to conversion. The Company may not repay the convertible note in cash.
|
|
|
36,000
|
|
|
|
36,000
|
|
Convertible
note payable to non-related party, interest rate of 15%, default interest rate of 22%, unsecured, due on September 11, 2015.
Currently in default. May be converted at the option of the holder into common stock at a price equal to a 60% discount from
the average of the three lowest trading prices during the twenty five days prior to conversion. The Company may not repay
the convertible note in cash.
|
|
|
16,651
|
|
|
|
16,651
|
|
Convertible
note payable to non-related party, interest rate of 22%, unsecured, due on October 28, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 60% discount from the average of the three lowest
trading prices during the twenty five trading days prior to conversion. The Company may not repay the convertible note in
cash.
|
|
|
9,050
|
|
|
|
9,050
|
|
Total
principal outstanding
|
|
|
972,014
|
|
|
|
977,839
|
|
Less:
debt discounts
|
|
|
(31,930
|
)
|
|
|
(177,863
|
)
|
Total
balance
|
|
$
|
940,084
|
|
|
$
|
799,976
|
|
Required
principal payments from June 30, 2016 forward are as follows:
2016
|
|
$
|
972,014
|
|
2017
|
|
|
-
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
Total
|
|
$
|
972,014
|
|
There
was $195,896 and $141,572 of accrued interest payable on convertible notes payable as of June 30, 2016 and December 31, 2015.
The
Company has recorded a derivative liability for each convertible note payable with a variable conversion rate. See Note 5 for
further discussion.
NOTE
9 – RELATED PARTY TRANSACTIONS
We
have engaged an entity controlled by the director of the Company to perform consulting services related to the development of
new technologies. Payments to this party totaled $0 and $5,409 during the six months ended June 30, 2016 and 2015, respectively.
During the year ended December 31, 2014, the
Company received an interest free $8,000 loan from a related party to fund operations. The loan is unsecured, due on demand and
as such is included in current liabilities. There was $5,000 due as of June 30, 2016 and December 31, 2015, respectively.
During
the year ended December 31, 2014, the Company received an interest free $2,000 loan from a related party to fund operations. The
related party made additional advances of $396 during the six months ended June 30, 2016. The loan is unsecured, due on demand
and as such is included in current liabilities. There was $2,396 and $2,000 due as of June 30, 2016 and December 31, 2015, respectively.
NOTE
10 – STOCKHOLDERS’ DEFICIT
The
Company is authorized to issue up to 10,000,000,000 shares of $0.00001 par value common stock and 50,000,000 shares of $0.0001
par value blank check preferred stock of which 10,000,000 has been designated as Series A Convertible Preferred Stock. Each share
of Series A Convertible Preferred Stock may be converted to common stock at the option of the holder at the greater of one share
of common for each share of Series A Convertible Preferred Stock or the par value of the stock divided by a 10% discount from
the volume weighted average price of the common stock of the preceding ten trading days. During the six month ended June 30, 2016,
the Company issued a total of 223,292,475 shares of common stock for the conversion of $5,825 of outstanding principal on convertible
notes payable. All conversions were performed under the contractual terms of the respective notes payable.
There
were 2,775,701,670 and 2,552,409,195 common shares issued and 2,775,651,671 and 2,552,359,195 outstanding at June 30, 2016 and
December 31, 2015, respectively.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
The
Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of
unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information
known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating
and settling similar matters.
As
of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is
a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental
authorities.
Payroll
Tax Liabilities
As
of June 30, 2016 and December 31, 2015 the Company had accrued $761,396 and 758,773, in payroll tax liabilities. The payment of
these liabilities has not been made due to our limited profitability. Due to the uncertainty regarding our future profitability,
it is difficult to predict our ability to pay these liabilities. As a result, a federal tax lien has been levied that will have
to be satisfied.
Federal
Income Tax Liability
On
January 29, 2015, we received a notification from the Internal Revenue Service (the “IRS”) regarding deficiencies
in our tax return for the year ended December 31, 2011. The notice was the result of not filing our tax return for the year then
ended and included the results of an IRS examination which yielded an income tax amount due of $92,804 plus penalties and interest
totaling $34,337 for a total amount due of $127,141. While we believe we will be able to successfully reduce the tax liability
and assessed penalties to zero or near zero due to our net loss sustained during the year ended December 31, 2011, the possibility
exists we will be unsuccessful and could face an assessment for the full amount of $127,141. There is no accrued liability for
this potential payout as of December 31, 2015 or June 30, 2016 given the inestimable nature of the outcome at this point.
NOTE
12 – STOCK OPTIONS
The
following table summarizes all stock option activity for the six month period ending June 30, 2016:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding,
December 31, 2015
|
|
|
631,905
|
|
|
$
|
0.30
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(266,667
|
)
|
|
|
0.30
|
|
Outstanding,
June 30, 2016
|
|
|
365,238
|
|
|
$
|
0.30
|
|
The
following table discloses information regarding outstanding and exercisable options at June 30, 2016:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
(Years)
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.30
|
|
|
|
365,238
|
|
|
$
|
0.30
|
|
|
|
1.89
|
|
|
|
365,238
|
|
|
$
|
0.30
|
|
|
|
|
|
|
365,238
|
|
|
$
|
0.30
|
|
|
|
1.89
|
|
|
|
365,238
|
|
|
$
|
0.30
|
|
In
determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
June
30, 2016
|
|
Expected
term of options granted
|
|
|
2
- 5 years
|
|
Expected
volatility range
|
|
|
394
- 408
|
%
|
Range
of risk-free interest rates
|
|
|
1.70
– 1.73
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
NOTE
13 – EQUITY LINE OF CREDIT
On
August 6, 2015, the Company entered into line of credit whereby it has the right to sell to the investor up to $5,000,000 of common
stock over a period of 24 months. The Company may sell up to $100,000 of common stock, but not less than $5,000, at any time at
is sole discretion by issuing a put notice to the investor. The sales price of the stock will be equal to a 30% discount from
the average of the lowest two closing bid prices in the preceding five trading days. There is a minimum of ten trading days between
put notices. The agreement requires the Company to issue 3% of the total credit line, or $150,000, in common stock with an issue
price equal to the average of the daily volume weighted average prices of the Company’s common stock during the five business
days immediately preceding the due date of the issuance. The Company did not exercise its rights under the agreement during the
period ended June 30, 2016.
NOTE
14 – SUBSEQUENT EVENTS
Common
Stock Issuances
On
various dates through June 30, 2017, the Company issued a total of 1,791,282,420 common shares for the conversion
of a total of $87,289 of outstanding principal on convertible notes payable. All conversions were done under contractual
terms within each respective convertible note payable.
On
various dates through June 30, 2017, the Company issued a total of 316,611,256 common shares for the conversion
of a total of $17,160 of outstanding accrued interest on convertible notes payable. All conversions were done under contractual
terms within each respective convertible note payable.
On
various dates through June 30, 2017, the Company issued a total of 260,000,000 common shares for services provided by consultants.
The shares were valued using the closing price on the dates of issuance which was from $0.0001 to $0.0002 per share resulting
in a total value of $42,000.
Convertible
Notes Payable
On
April 25, 2017, the Company executed a securities purchase agreement with an existing convertible noteholder to enter into an
additional $21,230 of convertible notes payable with each carrying a 10% original issue discount resulting in net cash borrowings
of $19,300 being available to the Company. The note is carries interest at 12% and each tranche of cash received is due nine months
after receipt. The note is convertible into shares of the Company’s common stock at a rate equal to a 42% discount from
the lowest intra-day trading price for the Company’s common stock during the twenty days prior to conversion. The Company
has received all of the available cash borrowings under the convertible note payable resulting in $21,230 being outstanding as
of June 30, 2017.
On
May 10, 2017, the Company executed a securities purchase agreement with an existing convertible noteholder to enter into an additional
$11,250 of convertible notes payable with and original issue discount totaling $1,500 resulting in net cash borrowings of $9,750
being available to the Company. The note is carries interest at 12% and each tranche of cash received is due nine months after
receipt. The note is convertible into shares of the Company’s common stock at a rate equal to a 42% discount from the lowest
intra-day trading price for the Company’s common stock during the twenty days prior to conversion. The Company has received
all of the available cash borrowings under the convertible note payable resulting in $11,250 being outstanding as of June 30,
2017.
Acquisition
and Financing
On
March 9, 2017, the Company, through a newly created special purpose entity, executed a share purchase agreement to acquire all
outstanding ownership interests in Crescent Construction Company, Inc. a full service general contracting firm for total consideration
of $1,800,000. The agreement requires a cash payment of $500,000 at closing plus a note payable for $1,300,000. The note carries
interest of 6%, matures on March 31, 2022 and requires equal quarterly payments of $152,693.
As
part of the transaction, the Company entered into a revolving credit facility to borrow up to $5,000,000 of which $1,500,000 as
advanced to the Company upon closing. Of the $1,500,000 advanced to the Company, $631,855 was paid for the seller and financier’s
closing costs resulting in net cash to the Company of $868,145. The credit line carries an interest rate of 12% per annum and
requires repayment based on cash collected from clients which are required to be sent to a lockbox maintained by the financier
of which the net receipts after required payments to the financier under the credit facility agreement will be provided to the
Company. The Company also issued a total of 7,500,000 shares of series A convertible preferred stock to the financier as part
of the transaction.