NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2017 AND 2016
NOTE 1 ORGANIZATION AND GOING CONCERN
Organization
Force Protection Video Equipment Corp., (the Company), was incorporated on March 11, 2011, under the laws of the State of Florida as M Street Gallery, Inc. On September 25, 2013, we changed our name to Enhance-Your-Reputation.com, Inc. and changed our business to providing reputation management and enhancement services. On February 2, 2015 the Company changed its name to Force Protection Video Equipment Corp. to focus on the sale of mini body video cameras and accessories to consumers and law enforcement.
Going Concern
The Companys financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the year ended April 30, 2017, the Company recognized revenue of $86,075 and a net operating loss of $770,764. As of April 30, 2017, the Company had working capital of $112,646 and an accumulated deficit of $2,992,396.
In view of these conditions, the ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. Historically, the Company has relied upon funds from the sale of shares of stock, issuance of promissory notes and loans from its shareholders and private investors to finance its operations and growth. Management is planning to raise necessary additional funds for working capital through loans and/or additional sales of its common stock. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all. Should the Company be unable to raise this amount of capital its operating plans will be limited to the amount of capital that it can access. These financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of the Companys financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by managements application of accounting policies. On an on-going basis, the Company evaluates its estimates. Actual results and outcomes may differ materially from these estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.
27
Inventory
Our inventory is comprised of finished goods and primarily includes cameras and recording equipment. The Companys inventory is stated at the lower of cost or market and expensed to cost of goods sold upon sale using the average-cost method. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. During the Year ended April 30, 2017, the Company recognized $32,207 of lower of costor-market value adjustments to inventory and a $24,000 reduction in prepaid software license fees related to an annual resalable software license agreement with a term from April 2016 through April 2017 for minimum software license fees for salable software that is reduced from prepaid inventory as licenses are sold. However, during the year, since only a few software licenses were sold and the agreement terminated without recourse in April 2017, the balance became the property of the software vendor and the Company recorded a $24,000 reduction to prepaid inventory and corresponding increase in COGS.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances. The Company does not have a history of significant bad debt and has not recorded any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.
Property and Equipment
Fixed assets are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. Depreciation for financial statement purposes is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
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Estimated
|
|
|
Useful Lives
|
Vehicles
|
|
5 years
|
Office Equipment
|
|
3 - 5 years
|
Furniture & equipment
|
|
5 - 7 years
|
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized. The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions, if any, taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.
Revenue Recognition
The Company recognizes revenue when (a) pervasive evidence of an arrangement exists (b) products are delivered or services have been rendered (c) the sales price is fixed or determinable, and (d) collection is reasonably assured.
28
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred. The Company recognized $108,603 and $38,176 in marketing and advertising costs during the years ended April 30, 2017 and 2016, respectively.
Stock Based Compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
As of April 30, 2017 and 2016, the Company did not have any assets or liabilities that were required to be measured at fair value on a recurring basis or on a non-recurring basis.
Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents and accounts payable and accrued expenses. The carrying amounts of the Companys financial instruments approximate fair value because of the short term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect those estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments.
Net Income (Loss) Per Share
The computation of basic earnings per share (EPS) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS, if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
29
Following is the computation of basic and diluted net loss per share for the years ended April 30, 2017 and 2016:
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Years Ended
April 30,
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2017
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2016
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Basic and Diluted EPS Computation
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Numerator:
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|
|
Loss available to common stockholders'
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$
(1,517,271)
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$
(1,262,001)
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|
|
|
|
Denominator:
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|
Weighted average number of common shares outstanding
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729,997
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|
82,524
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Basic and diluted EPS
|
$
(2.08)
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|
$
(15.29)
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|
Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
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Convertible promissory notes
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6,332,156
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|
71,042
|
Concentrations of risk
During the year ended April 30, 2017, two customers accounted for 34.1% (26.7% and 7.4%) of sales. During the year ended April 30, 2016, no customer accounted for more than 5% of sales.
The Company relies on third parties for
the supply and manufacture of its capture devices, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. During the year ended April 30 2017, two suppliers accounted for 82.1% (72.5% and 9.6%) of our inventory purchases. During the year ended April 30 2016, two suppliers accounted for 97% (84% and 13%) of our inventory purchases.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation-Stock Compensation : Improvements to Employee Share-Based Payment Accounting (Topic 718), which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company does not expect adoption of ASU 2016-09 to have a material impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC Topic 840, Leases, and creates a new topic, ASC Topic 842, Leases. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. ASU 2016-02 also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company has determined that the adoption of ASU 2016-02 will currently have no impact on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(ASU 2015-17). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company has determined that the adoption of ASU 2015-17 will currently have no impact on its consolidated financial statements.
30
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330):
Simplifying the Measurement of Inventory". The amendments in this update require an entity to measure inventory within the scope of ASU 2015-11 (the amendments in ASU 2015-11 do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost) 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 costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards ("IFRS"). ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not expect the adoption of ASU No. 2015-11 to have a material impact on our consolidated financial statements.
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our financial statements.
NOTE 3 - FIXED ASSETS
Fixed assets consisted of the following:
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April 30,
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2017
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2016
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Vehicles
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$
15,376
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$
-
|
Furniture and fixtures
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6,212
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6,212
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Computers and office equipment
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2,480
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1,376
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Total fixed assets
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24,068
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7,588
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Accumulated depreciation
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(5,272)
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(476)
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Total fixed assets
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$
18,796
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$
7,112
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During the years ended April 30, 2017 and 2016, the Company recognized $4,796 and $476, respectively, in depreciation expense.
NOTE 4 CONVERTIBLE PROMISSORY NOTES
Following is a summary of our outstanding convertible promissory notes as of April 30, 2017:
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Current Balances
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Lender
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Issue Date
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Maturity
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Principle
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Interest
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Total
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RDW Capital, LLC Note 3
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3/10/2016
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9/10/16
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792
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-
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792
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RDW Capital, LLC Note 4
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5/13/2016
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11/13/16
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-
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4,540
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4,540
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RDW Capital, LLC Note 5
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5/20/2016
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11/20/16
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-
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2,742
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2,742
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RDW Capital, LLC Note 6
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|
8/22/2016
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|
2/22/17
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31,674
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8,291
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39,965
|
RDW Capital, LLC Note 7
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|
9/1/2016
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|
3/1/17
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157,500
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8,664
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166,164
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RDW Capital, LLC Note 8
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2/6/2017
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|
8/5/17
|
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48,412
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1,477
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49,889
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RDW Capital, LLC Note 9
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3/30/2017
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|
9/29/17
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|
78,750
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|
544
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79,294
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RDW Capital, LLC Note 10
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4/26/2017
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10/26/17
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110,000
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98
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110,098
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Totals
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$
427,128
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$
26,356
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$
453,484
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Debt discount balance
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(286,159)
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Balance sheet balances
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$
140,969
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31
Following is a summary of our outstanding convertible promissory notes as of April 30, 2016:
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Current Balances
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Lender
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Issue Date
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Maturity
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Principle
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Interest
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Total
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LG Capital Funding, LLC
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4/20/2016
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9/11/2016
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$
13,000
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$
34
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$
13,034
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Black Forest Capital, LLC
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|
10/8/2015
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|
10/8/2016
|
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19,500
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3,001
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22,501
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RDW Capital, LLC Note 1
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11/10/2015
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5/10/16
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|
157,500
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6,136
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163,636
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RDW Capital, LLC Note 2
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1/0/1900
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6/30/16
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105,000
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2,861
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107,861
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RDW Capital, LLC Note 3
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3/10/2016
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9/10/16
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792
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614
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|
1,406
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Totals
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$
295,792
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$
12,646
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$
308,438
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Debt discount balance
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|
(204,718)
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Balance sheet balances
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$
91,074
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The company determined that each convertible promissory notes conversion feature is indexed to the Companys stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the notes meets the scope exception under FASB Accounting Standards Codification ("ASC") 815-40-15-7 and treatment under ASC 470-20
Debt with Conversion and Other Options
is appropriate.
LG Capital Funding, LLC
On September 11, 2015 the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC ("LG") for the sale of an 8% convertible note in the principal amount of $81,000 and proceeds of $75,000 net of legal expenses (the LG Note).
The LG Note was convertible into common stock at a price equal to 60% of the lowest trading price during the 20 trading days immediately preceding the applicable conversion.
The LG Note principle was discounted for the value of the legal fees of $6,000 and the intrinsic value of the beneficial conversion feature of $68,000. The resulting $74,000 discount was fully accreted through July 31, 2016 due to full repayment of the LG Note on May 2, 2016.
During the year ended April 30, 2017, the Company recognized no interest expense and debt discount accretion of $7,741. On May 2, 2016, LG converted the remaining $13,034 of principal and interest into 3,104 shares of common stock.
Black Forest Capital, LLC
On October 8, 2015 the Company sold and Black Forest Capital, LLC (Black Forest) purchased a 10% convertible note in the principal amount of $53,000 (the Black Forest Note) of which the Company received $50,000 after payment of legal fees. The Black Forest Note matured in 12 months on October 8, 2016.
The Black Forest Note was convertible into common stock, at Black Forests option anytime following the issuance date, at a price for each share of common stock equal to 40% of the lowest trading price during the 20 trading days immediately preceding the applicable conversion.
The Black Forrest Note principle was discounted for the value of legal fees of $3,000 and the intrinsic value of the beneficial conversion feature of $50,000. The calculated intrinsic value was $127,199. As this amount resulted in a total debt discount that exceeded the Black Forest Note principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of the Black Forest Note. The resulting $53,000 discount was accreted through July 31, 2016 due to repayment of the Black Forest Note.
During the year ended April 30, 2017, the Company recognized no interest expense and debt discount accretion of $9,992. During the year ended April 30, 2017, Black Forrest converted the remaining $22,499 of principal and interest into 44,307 shares of common stock.
32
RDW Capital, LLC
On November 12, 2015, the Company entered into a Securities Purchase Agreement (RDW SPA 1) with RDW Capital, LLC (RDW), a Florida limited liability company. On November 12, 2015, the Company and RDW entered into the First Amended Securities Purchase Agreement. On November 12, 2015, the Company and RDW entered into the Second Amended Securities Purchase Agreement. On February 17, 2016, the Company and RDW entered into the Third Amended Securities Purchase Agreement. On February 17, 2016, the Company and RDW entered into the Fourth Amended Securities Purchase Agreement. On May 9, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 2). On August 22, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 3). On September 1, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 4). On March 31, 2017, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 5). RDW SPA 1, amendments thereto, RDW SPA 2, RDW SPA 3, RDW SPA 4 and RDW SPA 5 may hereinafter be referred to collectively as, the
RDW SPAs
.
RDW Note 1
- In connection with RDW SPA 1 and amendments thereto, on November 12, 2016, the Company issued to RDW a convertible note (RWD Note 1) due on April 10, 2016 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 original issue discount (
OID
) and legal and due diligence fees totaling $20,000.
RDW Note 1 principle was discounted for the value of the OID, due diligence fees and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $121,406. As this amount resulted in a total debt discount that was less than RDW Note 1 principal, the full $121,406 discount was recognized. The resulting $148,906 discount was accreted over the 5 month term of RDW Note 1 through April 10, 2016.
RDW Note 2
- In connection with RDW SPA 1 and amendments thereto, on December 31, 2015, the Company issued to RDW a convertible note (RDW Note 2) due on June 30, 2016 in the principal amount of $105,000 of which the Company received proceeds of $90,000 after payment of a $5,000 OID and due diligence fees totaling $10,000.
RDW Note 2 principle was discounted for the value of the OID, due diligence fees and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $98,000. As this amount resulted in a total debt discount that exceeds RDW Note 2 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 2. The resulting $105,000 discount was accreted over the 5 month term of RDW Note 2 through June 30, 2016.
Related to RDW Note1 and RDW Note 2, d
uring the year ended April 30, 2017, the Company recognized $3,458 of interest expense, $35,192 of accretion related to the debt discount and issued 478,853 shares of common stock in exchange the entire principle and accrued interest balance of RDW Note 1 and RDW Note 2 which totaled $274,954.
Related to RDW Note1 and RDW Note 2, d
uring the year ended April 30, 2016, the Company recognized $8,996 of interest expense and $218,714 of accretion related to the debt discount.
RDW Note 3
- In connection with RDW SPA 1 and amendments thereto, on March 10, 2016, the Company issued to RDW a convertible note (RDW Note 3) due on September 10, 2016 in the principal amount of $210,000 of which the Company received proceeds of $180,000 after payment of a $10,000 OID and due diligence fees totaling $20,000.
RDW Note 3 principal was discounted for the OID, due diligence fees, stock issued to an advisor in connection with RDW Note 3 totaling $18,000, and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $227,000. As this amount resulted in a total debt discount that exceeded RDW Note 3 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 3. The resulting $210,000 discount was accreted through April 30, 2016, the date RDW Note 3 was paid down to a principal and interest balance of $1,405.
During the year ended April 30, 2017, the Company recognized ($613) of interest expense and $151,793 of debt discount accretion related to RDW Note 3. As of April 30, 2017, RDW Note 3 carries a principal balance of $792.
RDW Note 4
- In connection with RDW SPA 2, on May 13, 2016, the Company issued to RDW a convertible note (RDW Note 4) due on November 13, 2016 in the principal amount of $105,000 of which the Company received proceeds of $82,500 after payment of a $5,000 OID, $7,500 of legal fees and $10,000 of due diligence fees.
33
RDW Note 4 principle was discounted for the value of the OID, legal fees due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $70,000. As this amount resulted in a total debt discount that was less than RDW Note 4 principal, the full $70,000 discount was recognized. The resulting $92,500 discount was accreted over the 6 month term of RDW Note 4 through November 13, 2016.
During the year ended April 30, 2017, the Company recognized $4,540 of interest expense, $92,500 of accretion related to the debt discount and issued 166,689 shares of common stock upon the conversion of $105,000 of RDW Note 4 principal. As of April 30, 2017, RDW Note 4 carries an interest payable balance of $4,540.
RDW Note 5
- In connection with RDW SPA 2, on May 20, 2016, the Company issued to RDW a convertible note (RDW Note 5) due on November 20, 2016 in the principal amount of $52,500 of which the Company received proceeds of $45,000 after payment of a $2,500 OID and $5,000 of due diligence fees.
RDW Note 5 principle was discounted for the value of the OID, due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $35,000. As this amount resulted in a total debt discount that was less than RDW Note 5 principal, the full $35,000 discount was recognized. The resulting $42,500 discount was accreted over the 6 month term of RDW Note 5 through November 20, 2016.
During the year ended April 30, 2017, the Company recognized $2,742 of interest expense, $42,500 of accretion related to the debt discount and issued 80,769 of common stock upon the conversion of $52,500,000 of RDW Note 5 principal. As of April 30, 2017, RDW Note 5 carries an interest payable balance of $2,742.
RDW Note 6
- In connection with RDW SPA 3, on August 22, 2016, the Company issued to RDW a convertible note (RDW Note 6) due on February 22, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000.
RDW Note 6 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $105,000. As this amount resulted in a total debt discount that was less than RDW Note 6 principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6 month term of RDW Note 6 through February 22, 2017.
During the year ended April 30, 2017, the Company recognized $8,291 of interest expense, $132,500 of accretion related to the debt discount and issued 80,700 of common stock upon the conversion of $125,826 of RDW Note 6 principal. As of April 30, 2017, RDW Note 6 carries a principal balance of $31,674 and interest payable balance of $8,291.
RDW Note 7
In connection with RDW SPA 4 under which RDW agreed to purchase an aggregate of up to $367,500 in principal amount of notes, on September 1, 2016, the Company issued to RDW a convertible note (RDW Note 7) due on March 1, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000. The second tranche for $210,000 will occur on the date that is two trading days from the date a registration statement is declared effective by the SEC.
RDW Note 7 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $105,000. As this amount resulted in a total debt discount that was less than RDW Note 7 principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6 month term of RDW Note 7 through March 1, 2017.
During the year ended April 30, 2017, the Company recognized $8,664 of interest expense and $132,500 of accretion related to the debt discount. As of April 30, 2017, RDW Note 7 carries a principal balance of $157,500 and interest payable balance of $8,664.
RDW Note 8
In connection with RDW SPA 4, on February 6, 2017, the Company issued to RDW a convertible note (RDW Note 8) due on August 5, 2017 in the principal amount of $210,000 of which the Company received proceeds of $180,000 after payment of a $10,000 OID and legal and due diligence fees totaling $20,000.
34
RDW Note 8 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $217,000. As this amount resulted in a total debt discount that exceeded RDW Note 8 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 8. The resulting $210,000 discount is being accreted over the 6 month term of RDW Note 8 through August 5, 2017.
During the year ended April 30, 2017, the Company recognized $1,477 of interest expense, $96,833 of accretion related to the debt discount and issued 279,999 of common stock upon the conversion of $161,588 of RDW Note 8 principal. As of April 30, 2017, RDW Note 8 carries a principal balance of $48,412 and interest payable balance of $3,909.
RDW Note 9
In connection with RDW SPA 5, on March 30, 2017, the Company issued to RDW a convertible note (RDW Note 9) due on September 29, 2017 in the principal amount of $78,750 of which the Company received proceeds of $62,500 after payment of a $3,750 OID and legal and due diligence fees totaling $12,500.
RDW Note 9 principle was discounted for the value of the OID, fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $72,000. As this amount resulted in a total debt discount that exceeded RDW Note 9 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 9. The resulting $78,750 discount is being accreted over the 6 month term of RDW Note 9 through September 29, 2017.
During the year ended April 30, 2017, the Company recognized $544 of interest expense and $13,340 of accretion related to the debt discount. As of April 30, 2017, RDW Note 9 carries a principal balance of $78,750 and interest payable balance of $544.
RDW Note 10
In connection with RDW SPA 5, on April 26, 2017, the Company issued to RDW a convertible note (RDW Note 10) due on October 26, 2017 in the principal amount of $110,000 of which the Company received proceeds of $90,000 after payment of a $10,000 OID and legal fees totaling $10,000.
RDW Note 10 principle was discounted for the value of the OID, fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $134,000. As this amount resulted in a total debt discount that exceeded RDW Note 10 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 10. The resulting $110,000 discount is being accreted over the 6 month term of RDW Note 10 through October 26, 2017.
During the year ended April 30, 2017, the Company recognized $98 of interest expense and $2,418 of accretion related to the debt discount. As of April 30, 2017, RDW Note 10 carries a principal balance of $110,000 and interest payable balance of $98.
RDW Note 1, RDW Note 2, RDW Note 3, RDW Note 4, RDW Note 5, RDW Note 6 and RDW Note 7 may hereinafter be referred to collectively as, the
RDW Notes
.
The RDW Notes have the following terms and conditions:
·
The principal amount outstanding accrues interest at a rate of eight percent (8%) per annum.
·
Interest is due and payable on each conversion date and on the Maturity Date.
·
At any time, at the option of the holder, the RDW notes are convertible, into shares of our common stock at a conversion price equal to sixty percent (60%) of the lowest traded price of our common stock in the twenty (20) days prior to the conversion date, at any time, at the option of the holder (the
“
Conversion Price
”
).
· T
he
RDW Notes are unsecured obligations.
·
We may prepay the RDW Notes in whole or in part at any time with ten (10) days written notice to the holder for the sum of the outstanding principal and interest multiplied by one hundred and thirty percent (130%). RDW may continue to convert the notes from the date of the notice of prepayment until the date of prepayment.
·
Default interest of twenty-four percent (24%) per annum.
·
Interest on overdue accrued and unpaid interest will incur a late fee of the lower of eighteen percent (18%) per annum or the maximum rate permitted by law.
35
·
Upon an event of default, RDW may accelerate the outstanding principal, plus accrued and unpaid interest, and other amounts owing through the date of acceleration (
“
Acceleration
”
).
·
Upon Acceleration, the amount due will be one hundred thirty percent (130%) of the outstanding principal amount of the Note and accrued and unpaid interest, together with payment of all other amounts, costs, expenses and liquidated damages.
·
In the event of our default, at the request of the holder, we must pay one hundred fifty percent (150%) of the outstanding balance plus accrued interest and default interest.
·
We must reserve three (3) times the amount of shares necessary for the issuance of common stock upon conversion.
·
Conversions of the RDW Notes shall not be permitted if such conversion will result in the holder owning more than four point ninety-nine percent (4.99%) of our common shares outstanding after giving effect to such conversion.
In total, during the year ended April 30, 2017 and 2016, the Company recognized $29,198 and $8,997, respectively, of interest expense and $699,576 and $276,921, respectively, of accretion related to the debt discount of the RDW Notes.
In total, during the year ended April 30, 2017, RDW converted $719,869 of RDW Note(s) principal and interest payable into 1,480,521 shares of common stock. In total, during the year ended April 30, 2016, RDW converted $209,208 of RDW Note(s) principal and interest payable into 9,660 shares of common stock.
NOTE 5 COMMITMENTS AND CONTINGENCIES
Product Warranties
Our products are sold with a one (1) year manufacturers warranty. The Company has no obligation to provide warranty service or replacement. The Company does offer an extended warranty for a fee. The extended warranty expires one year from the day the manufacturer warranty expires. Warranty costs during the second year of an extended warranty are born by the manufacturer. As a result, the Company has no, or limited warranty liability exposure.
Operating Lease
On March 21, 2015, the Company entered into a lease of office space at 130 Iowa Lane, Suite 102, Carry, North Carolina 27511. The lease expires on March 31, 2018. The Company has no other noncancelable operating leases. Future minimum lease payments under this operating lease with an initial term in excess of one year as of April 30, 2017 are as follows:
Fiscal Year
2018
$14,920
2019
$10,144
Thereafter
$0
During the year ended April 30, 2017 and 2016, rent expense for office space totaled $14,776 and $10,295, respectively.
NOTE 6 STOCKHOLDER'S EQUITY
As of April 30, 2017 and 2016, there were 1,698,494 and 106,102 shares of common stock outstanding, respectively. As of April 30, 2017 and 2016 there were 1,000,000 shares of Series A Preferred Stock outstanding.
On January 19, 2016, we amended our Articles of Incorporation to increase our authorized common stock from 50,000,000 shares to 250,000,000 shares and authorized the creation of 1,000,000 shares of Series A preferred stock with each share being entitled to 200,000 (i.e., 200:1) votes per share and with no right of conversion into shares of common stock.
On September 8, 2016, we amended our Articles of Incorporation to increase our authorized common stock from 250,000,000 shares to 750,000,000 shares and to increase our authorized Series A Preferred Stock from 1,000,000 shares to 5,000,000 shares.
36
On March 31, 2017, we amended our Articles of Incorporation to effect a 1:250 reverse stock split which became effective on April 24, 2017. These financial statements retroactively reflect this reverse split.
During the year ended
April 30, 2017
, we issued 1,527,931 shares of common stock in exchange for convertible notes totaling $755,401, and issued 8,423 shares of common stock as fees related to the issuance of RDW Notes.
During the year ended
April 30, 2016
, the Company issued preferred stock and common stock as follows:
·
10,095 shares of common stock were issued in exchange for services valued at the close price of our stock resulting in stock compensation expense of $14,500.
·
31,912 shares of common stock were issued in connection with RDW Note 3 and valued at $18,000 as stated in the related agreements.
·
450,000 shares of common stock were issued for cash of $0.10 per share resulting in the Company receiving $45,000.
·
1,000,000 shares of non-convertible Series A Preferred Stock to Paul Feldman, CEO, which entitle him to 200,000 votes per share or an aggregate of 200,000,000 votes on all matters submitted to our common stockholders. We valued the 1,000 Series A shares at $.0001 per share or an aggregate of $1,000.
·
21,738,588 shares of common stock were issued upon the conversion of $618,708 of convertible note principal and interest.
NOTE 7 INCOME TAXES
No provision for income taxes was recorded in the periods presented due to tax losses incurred in each period. As of April 30, 2017 and 2016, the Company had net operating loss carry forwards of approximately $1,467,711 and $668,383, respectively, for income tax reporting purposes.
|
|
|
|
|
|
|
April 30,
|
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
$
1,467,711
|
|
$
668,383
|
|
Statutory tax rate
|
34%
|
|
34%
|
Gross deferred tax assets
|
499,022
|
|
227,250
|
Valuation allowance
|
(499,022)
|
|
(227,250)
|
Net deferred tax asset
|
$
-
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
1,125,659
|
|
1,318,629
|
|
Stock comp
|
9,075
|
|
635,000
|
|
Accretion
|
273,403
|
|
24,759
|
|
meals and ent
|
6,358
|
|
3,157
|
A reconciliation between the amount of income tax benefit determined by applying the applicable U.S. statutory income tax rate to pre-tax loss for the years ended April 30, 2017 and 2016 is as follows:
|
|
|
|
|
April 30,
|
|
2017
|
|
2016
|
Federal Statutory Rate
|
$
(515,872)
|
|
$
(429,080)
|
Nondeductible expenses
|
244,101
|
|
241,567
|
Change in allowance on deferred tax assets
|
(271,771)
|
|
(187,513)
|
|
$
-
|
|
$
-
|
37
The valuation allowance for deferred tax assets as of April 30, 2017 and 2016 was $499,022 and $227,250, respectively. The net change in the total valuation allowance for the year ended April 30, 2017 was an increase of $271,771. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Due to the uncertainty of realizing the deferred tax asset, management has recorded a valuation allowance against the entire deferred tax asset.
The Company's U.S. federal net operating loss carry forward ("NOL") will expire in years 2033 through 2036; $15,616 of which will expire April 30, 2032, $38,259 on April 30, 2033, $62,999 on April 30, 2034, $551,509 on April 30, 2035 and $799,328 on April 30, 2036. Utilization of the NOL is subject to annual limitations under Internal Revenue Code Sections 382 and 383, respectively, as a result of significant changes in ownership, private placements and debt conversions. Subsequent significant equity changes, could further limit the utilization of the NOL. The annual limitations have not yet been determined; however, when the annual limitations are determined, the gross deferred tax assets for the NOL will be reduced with a reduction in the valuation allowance of a like amount.
The Company has adopted the accounting guidance related to uncertain tax positions, and has evaluated 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 returns are subject to examination by federal and state taxing authorities generally for three years after they are filed.
As of April 30, 2015 and 2016, there were no unrecognized tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits.
The Company does not anticipate that the total amount of unrecognized tax benefits will change significantly in the next twelve months.
In September 2013, the Companys sole shareholder and former President sold all of his common stock, which represented 94.5% of the Companys issued and outstanding stock, to the Companys new president. Pursuant to Internal Revenue Service (IRS) Code Section 382, an ownership change of greater than 50% triggers certain limits to the corporations right to use its net operating loss (NOL) carryovers each year thereafter to an annual percentage of the fair market value of the corporation at the time of the ownership change. The Company determined that the ownership change will limit the Company to utilize $15,616 of the $41,828 of NOLs it incurred prior to the ownership change.
The Companys tax returns are subject to examination by the federal and state tax authorities for years ended April 30, 2014 through 2017.
NOTE 8 SUBSEQUENT EVENTS
Management has reviewed material events subsequent of the annual period ended April 30, 2017 and prior to the filing of financial statements in accordance with FASB ASC 855 Subsequent Events.
In connection with RDW SPA 5, on May 30, 2017, the Company issued to RDW a convertible note (RDW Note 11) due on November 30, 2017 in the principal amount of $81,375 of which the Company received proceeds of $65,000 after reduction of a $3,875 OID and legal and due diligence fees totaling $12,500.
Subsequent to April 30, 2017 and through June 16, 2017, RDW converted $59,157 of convertible note principal into 1,828,933 shares of common stock.
38
ITEM 9:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
None.