The accompanying notes are an integral part of these unaudited
condensed interim financial statements.
The accompanying notes are an integral part of these unaudited
condensed interim financial statements.
The accompanying notes are an integral part of these unaudited
condensed interim financial statements
NOTES TO UNAUDITED CONDENSED INTERIM
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2017
AND 2016
NOTE 1 – NATURE OF BUSINESS, BASIS
OF PRESENTATION AND GOING CONCERN
Nature of Operations and Going
Concern
HPIL Holding (referred
to in this report as “HPIL” or the “Company”) (formerly Trim Holding Group) was incorporated on February
17, 2004 in the state of Delaware under the name TNT Designs, Inc. A substantial part of the Company’s activities was involved
in developing a business plan to market and distribute fashion products. On June 16, 2009, the majority interest in the Company
was purchased in a private agreement by Mr. Louis Bertoli, an individual, with the objective to acquire and/or merge with other
businesses. On October 7, 2009, the Company merged with and into Trim Nevada, Inc., which became the surviving corporation. The
merger did not result in any change in the Company’s management, assets, liabilities, net worth or location of principal
executive offices. However, this merger changed the legal domicile of the Company from Delaware to Nevada where Trim Nevada, Inc.
was incorporated. Each outstanding share of TNT Designs, Inc. was automatically converted into one share of the common stock of
Trim Nevada, Inc. Pursuant to the merger, the Company changed its name from TNT Designs, Inc. to Trim Holding Group. On May 21,
2012, the Company changed its name to HPIL Holding. HPIL Holding intends that its main activity will be in the business of providing
consulting services and of investing in differing business sectors.
The concentration of
the Company has become the consulting services and the development of products related to the Brand License Agreement (see Note
5 for further discussion of the Brand License Agreement). As of June 30, 2017, the Company has yet to commence substantial operations. Expenses
incurred from February 17, 2004 (date of inception) through June 30, 2017, relate to the Company’s formation and general
administrative activities. In the course of its start-up activities, the Company has sustained operating losses and expects to
incur operating losses in 2017. The Company has generated a limited amount of revenue and has not achieved profitable operations
or positive cash flows from operations. These factors and uncertainties raise substantial doubt about the Company's ability to
continue as a going concern. The unaudited condensed interim financial statements do not include any adjustments related to the
recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. All adjustments consisting only of normal recurring items,
considered necessary for fair presentation have been included in these unaudited condensed interim financial statements.
The Company will continue
targeting sources of additional financing and opportunities to produce profitable revenue streams, whether through sole or joint
ventures, to provide for the continuation of its operations. The Company is also prepared to re-evaluate its expense load, if necessary,
to determine whether any efficiency can be achieved prior to the commencement of substantial operations related to the Brand License
Agreement (Note 5) or other potential operations identified by the Company. Additionally, the Company’s Chief Financial Officer,
who is also the Company’s Corporate Secretary and Treasurer and Director and stockholder, has indicated his ability to provide
financial support to the Company for the continuation of its operations, should it be necessary.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited condensed
interim financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”),
and are expressed in United States dollars.
Unaudited Condensed Interim Financial
Statements
These unaudited condensed
interim financial statements have been prepared on the same basis as the annual financial statement and should be read in conjunction
with those annual financial statements filed on Form 10-K for the year ended December 31, 2016. In the opinion of management, these
unaudited condensed interim financial statements reflect adjustments, necessary to present fairly the Company’s financial
position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily
indicative of the results for a full year or for any future period.
Derivative Financial Instruments
The Company reviews
the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative
instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative
financial instrument.
Derivative financial
instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or
bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized in
order to initially record the derivative instrument liabilities at their fair value.
The discount from
the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative
instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through
periodic charges to income, using the effective interest method.
The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at
the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination
date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are
not reversed. Derivative instrument liabilities are classified in the balance sheets as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Impairment of Long-Lived Assets
The Company follows
the ASC 360, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate
that the assets’ carrying amount may not be recoverable. In performing the review for recoverability, if future discounted
cash flows (excluding interest charges) from the use of ultimate disposition of the assets are less than their carrying values,
an impairment loss represented by the difference between its fair value and carrying value, is recognized.
Research and Development
The Company is engaged
in research and development in respect to the Company’s Brand License Agreement with World Traditional Fudokan Shotokan Karate-Do
Federation, a worldwide karate federation based in Switzerland (“WTFSKF”). Research and development costs are charged
as an operating expense as incurred.
Intangible Assets
The Company entered
into a brand license agreement (the “Brand License Agreement”) with WTFSKF. Pursuant to the Brand License Agreement,
WTFSKF has granted to the Company an exclusive, worldwide, transferrable license (the “License”) to use certain logos,
names, and marks of WTFSKF (the “Marks”) and manufacture and sell certain products (clothing, accessories and sporting
goods) bearing the Marks (see Note 5 for further discussion of the Brand License Agreement). The Company will amortize the License
over the contractual life of the asset of 25 years. No amortization has been recognized as of June 30, 2017, and 2016, as the Brand
License Agreement does not become effective until 2018.
Net Loss Per Share
Basic loss per share
is computed by dividing net loss and comprehensive loss available to common shareholders by the weighted average number of shares
of common stock outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding for the year and the number of shares of common stock issuable upon assumed conversion of
the convertible debt provided the result is not anti-dilutive.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB
issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. This new standard provides
guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede
virtually all of the current revenue recognition guidance under GAAP. The standard is effective for the first interim period within
annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December
15, 2016. The Company’s adoption of this standard did not have a significant impact on the unaudited interim financial statements.
In August 2014, the
FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern. This new standard provided guidance for the presentation of the disclosure of uncertainties
about an Entity’s Ability to Continue as a Going Concern. This standard is effective for annual periods beginning after December
15, 2016. The Company’s adoption of this standard did not have a significant impact on the unaudited interim financial statements.
In March 2016, the
FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation
– Stock Compensation. The ASU simplifies several aspects of the accounting for employee share-based payment transaction.
This standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that that
reporting period. The Company’s adoption of this standard did not have a significant impact on the unaudited interim financial
statements.
Recently Issued Accounting Pronouncements
In November 2015, the
FASB released ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”).
ASU 2015-17 simplifies the presentation of deferred income taxes by deferred tax assets and liabilities be classified as noncurrent
on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2017,
and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption
is permitted. Adoption of this guidance is not expected to have any effect on the Company’s unaudited condensed interim financial
statements. The Company is currently evaluating the impact of the new standard on its financial statements.
In March 2016, the
FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross
vs. Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued
ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. ASU 2016-10 clarified
the implementation guidance on identifying performance obligations. These ASUs apple to all companies that enter into contracts
with customers to transfer goods or services. There ASUs are effective for public entities for interim and annual reporting periods
beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual periods beginning after December
16, 2016. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing
the cumulative effect or applying these standards at the date of initial application and not adjusting comparative information.
The Company is currently evaluating the impact of the new standard on its unaudited condensed interim financial statements.
In April 2016, the
FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligation and Licensing, to clarify
the identification of performance obligation as well as the licensing implementation guidance.
In May 2016, the FASB
issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients, which clarifies
certain core recognition principles including collectability, sales tax presentation, and contract modification, as well as identifies
disclosures no longer required if the full retrospective transition method is adopted.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”.
This ASU provides eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of
cash flows. ASU 2016-15 is effective for the fiscal year commencing after December 15, 2017. The Company is still assessing the
impact that the adoption of ASU 2016-15 will have on the unaudited condensed interim statement of cash flows.
None of the other recently
issued accounting pronouncements are expected to significantly affect the Company.
NOTE 3 – CAPITAL STOCK
The Company filed an
amendment with the Secretary of State of Nevada on April 19, 2016, amending its Articles of Incorporation, Article IV - Capital
Stock. The effect of the amendment was to cancel all 100,000,000 shares of the Company’s authorized preferred stock (“Preferred
Stock”), consisting of 25,000,000 shares of Preferred Stock, par value $8.75 per share; and 75,000,000 shares of Preferred
Stock, par value $7 per share. The amendment was effective as of April 18, 2016, at which time there were no shares of Preferred
Stock issued and outstanding. Following the amendment, the Company has 400,000,000 shares of stock authorized for issuance (reduced
from 500,000,000 shares authorized prior to the effect of the amendment), consisting solely of shares of the Company’s common
stock, par value $0.0001 per share.
The Company entered
into an Equity Purchase Agreement (the “Original Equity Purchase Agreement”) with Kodiak Capital Group, LLC (“KCG”)
on August 12, 2016. The Company and KCG executed an Amended and Restated Equity Purchase Agreement dated December 27, 2016 (the
“Amended Equity Purchase Agreement”; together with the Original Equity Purchase Agreement, the “Equity Purchase
Agreement”), which completely restates and makes minor revisions to the Original Equity Purchase Agreement, such as correcting
the stated capitalization of the Company and extending the period of the Original Equity Purchase Agreement. The Company and KCG
also entered into a Registration Rights Agreement dated August 12, 2016 (the “Registration Agreement”, and together
with the Equity Purchase Agreement, the “Agreements”). Pursuant to the Equity Purchase Agreement, the Company, at its
sole and exclusive option, may issue and sell to KCG, from time to time as provided therein, and KCG would purchase from the Company
shares of the Company’s common stock (“Shares”) equal to a value of up to $5,000,000. Pursuant to the Registration
Agreement, the Company has agreed to provide certain registration rights under the Equity Act of 1933, as amended, and applicable
state laws with respect to all Shares issued in connection with the Equity Purchase Agreement. Subject to the terms and conditions
of the Equity Purchase Agreement, the Company, at its sole and exclusive option, may issue and sell to KCG, and KCG shall purchase
from the Company, the Shares upon the Company’s delivery of written notices to KCG. In exchange of KCG signing the Securities
Purchase Agreements, the Company issued to KCG a Convertible Promissory Note (Note 6) in the principal amount of $215,000 as payment
of a commitment fee to induce KCG to enter into the Agreements.
The aggregate maximum
amount of all purchases that KCG shall be obligated to make under the Equity Purchase Agreement shall not exceed $5,000,000. Once
a written notice is received by KCG, it shall not be terminated, withdrawn or otherwise revoked by the Company. The purchase price
per share for each purchase of Shares to be paid by KCG shall be 70% of the lowest trading price (or if there are no recorded trades,
the lowest closing price) during the Valuation Period (as defined and calculated pursuant to the Equity Purchase Agreement). KCG
is not obligated to purchase any Shares unless and until the Company has registered the Shares pursuant to a registration statement
on Form S-1 (or on such other form as is available to the Company).
On November 9, 2016,
the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with GPL Ventures, LLC
(“GPL”). The Company and GPL also entered into a Registration Rights Agreement dated November 9, 2016 (the “Registration
Agreement”, and together with the Securities Purchase Agreement, the “Agreements”). Pursuant to the Securities
Purchase Agreement, the Company, at its sole and exclusive option, may issue and sell to GPL, from time to time as provided therein,
and GPL would purchase from the Company shares of the Company’s common stock (“Shares”) equal to a value of up
to $5,600,000. Pursuant to the Registration Agreement, the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and applicable state laws with respect to all Shares issued in connection with the Securities
Purchase Agreement. Subject to the terms and conditions of the Securities Purchase Agreement, the Company, at its sole and exclusive
option, may issue and sell to GPL, and GPL shall purchase from the Company, the Shares upon the Company’s delivery of written
notices to GPL. The aggregate maximum amount of all purchases that GPL shall be obligated to make under the Securities Purchase
Agreement shall not exceed $5,600,000. Once a written notice is received by GPL, it shall not be terminated, withdrawn or otherwise
revoked by the Company. GPL is not obligated to purchase any Shares unless and until the Company has registered the Shares pursuant
to a registration statement on Form S-1 (or on such other form as is available to the Company), which is required to be effective
within 11 months of the execution of the Agreements. Pursuant to the Securities Purchase Agreement, each purchase of Shares must
be in an amount equal to at least $100,000 and is capped at the lesser of (i) $175,000 or (ii) 200% of the average daily trading
volume as calculated pursuant to the Securities Purchase Agreement. The purchase price per share for each purchase of Shares to
be paid by GPL shall be 80% of the lowest trading price (or if there are no recorded trades, the lowest closing price) during the
Valuation Period (as defined and calculated pursuant to the Securities Purchase Agreement). In exchange of GPL signing the Securities
Purchase Agreements, the Company issued to GPL a Convertible Promissory Note (Note 6) in the principal amount of $250,000 as payment
of a commitment fee to induce GPL to enter into the Agreements.
On March 27, 2017,
Kodiak Capital Group, LLC, (“KCG”) has claimed an event of default under a convertible promissory note in the principal
amount of $215,000 issued by the company pursuant to the Company’s failure to deliver shares of the Company’s common
stock pursuant to a conversion notice served on the company. KCG has also alleged various defaults with reference to a convertible
promissory note in the principal amount of $60,000. As a result of these various alleged defaults KCG has sent the Company a claim
in the sum of $2,608,572 as of March 27, 2017. KCG claims that the claim amount continues to increase in accordance to the terms
of the notes. The Company is disputing the payment of the $215,000 note with Kodiak and is considering initiating an action against
KCG for obtaining the note by fraudulent means and may claim damages as well. Management believes that this claim has no merit.
There is no litigation currently pending. The Company issued 3,661,150 shares of treasury common stock of the Company (the “Shares”)
related to the conversion of $40,800 convertible notes held by KCG during the period ended March 31, 2017.
On August 14,
2017, the Company filed a Certificate of Amendment with the Nevada Secretary of State increasing the Company’s authorized
stock to ten billion, seven hundred three million (10,703,000,000) which consist of: (a) Three Million Ten (3,000,010) shares of
preferred stock, par value $0.0001 per share (the “Preferred Stock”); and (b) Ten billion, six hundred ninety-nine
million, nine hundred ninety-nine thousand, nine hundred ninety (10,699,999,990) shares of common stock, par value $0.0001 per
share (the “Common Stock”). In addition, Certificates of Designation for Series A preferred stock and Series B preferred
stock were filed with the Nevada Secretary of State on August 14, 2017 (the “Designations”). Pursuant to the Designations,
a total of 10 shares of the Corporation’s Preferred Stock was authorized as a series known as Series A Preferred Stock, par
value $0.0001 per share (the “Series A Stock”) and a total of 3,000,000 shares of the Corporation’s Preferred
Stock was authorized as a series known as Series B Preferred Stock, par value $0.0001 per share (the “Series B Stock”).
The designations set forth the voting rights, dividend rights, conversion rights, dividend entitlements and other rights and obligations
of the Common, Preferred A and Preferred B Classes of Stock, each in accordance with the Company’s Form
14C filing
made on April 20, 2017
.
NOTE 4 – RELATED PARTY TRANSACTIONS AND BALANCES
The Company has advances
payable to its current majority shareholder totaling $25,150 as of June 30, 2017, and $34,932 as of December 31, 2016. During the
six months ended June 30, 2017, $9,782 were reimbursed to the Company’s current majority shareholder. During the three months
ended June 30, 2017, $150 were advanced to the Company’s current majority shareholder. These advances were made to be used
for working capital. These advances are unsecured, non-interest bearing and due on demand.
The Company had advances
payable to its current Chief Financial Officer, who is also the Company’s Corporate Secretary, Treasurer, Director and stockholder,
totaling $Nil as of June 30, 2017, and $3,500 as of December 31, 2016. These advances were made to be used for working capital.
During the six months ended June 30, 2017, $Nil were reimbursed to the Company’s current Chief Financial Officer. During
the three months ended March 31, 2017, $3,500 were reimbursed to the Company’s current Chief Financial Officer. These advances
are unsecured, non-interest bearing and due on demand. During the six months ended June 30, 2017, the Company advanced funds to
the Chief Financial Officer, totaling $38,064, and $Nil as of December 31, 2016, which are included in accounts receivable in the
unaudited condensed interim balance sheets. During the three months ended June 30, 2017, the Company advanced funds to its current
Chief Financial Officer totaling $7,000, which are included in accounts receivable in the unaudited condensed interim balance sheets.
These receivables are non-interest bearing and due on demand.
The Company used Bay
City Transfer Agency & Registrar Inc. (“BCTAR”) to facilitate its stock transfers, corporate services and Edgar
filings until November 9, 2016. Mr. Amersey is listed with the Securities and Exchange Commission as a control person of BCTAR.
For the six months ended June 30, 2017, and 2016, the Company incurred expenses of $Nil and $2,710, respectively, in relation to
these services. For the three months ended June 30, 2017, and 2016, the Company incurred expenses of $Nil and $1,479, respectively,
in relation to these services. The Company has receivables from BCTAR, totaling $27,000 as of June 30, 2017, and $Nil as of December
31, 2016, which are included in accounts receivable in the unaudited condensed interim balance sheets. During the three months
ended June 30, 2017, the Company advanced funds to BCTAR totaling $13,000, which are included in accounts receivable in the unaudited
condensed interim balance sheets. These receivables are non-interest bearing and due on demand.
NOTE 5 – BRAND LICENSE
The Company, entered
into a Brand License Agreement (the “Brand License Agreement”), dated December 29, 2014, with the World Traditional
Fudokan Karate Do Federation (the “WTFSKF”). Under the Agreement: The “Licensed Brand and Trademarks” shall
mean the brand, marks, logos, names, service marks, trademarks, trade names, unexpired patents, utility models, and applications
identified below in this note, and any other United States and foreign patents, utility models, and applications hereafter developed
by the Licensor. The “Licensed Product(s)” shall mean the Licensor’s clothing, accessories and sporting goods,
including basic sporting equipment and additional sporting merchandise, which are products covered, in whole or in part, by the
Licensed Brand and Trademarks identified below in this note, and all modified, improved and derivative versions thereof manufactured
by the Licensee after the Effective Date, and which are added to Exhibit B by agreement of the Parties. Pursuant to the Brand License
Agreement, WTFSKF has granted to the Company the License to use the Marks of WTFSKF and manufacture and sell the Products bearing
the Marks. Pursuant to the Brand License Agreement, in consideration for the License, beginning in 2018, the Company will pay to
WTFSKF an ongoing License Fee. Additionally, the Company issued to WTFSKF 752,000 shares of treasury common stock (the “Shares”)
of the Company in accordance with the Brand License Agreement. WTFSKF has agreed to provide to the Company annual projected sales
forecasts based on its membership and their expected needs for Products (the “Projected Sales”). The Brand License
Agreement requires the License Consideration to be subject to renegotiation by the parties in the event that Projected Sales exceed
actual sales of the Products by more than an agreed upon deviation percentage. Additionally, pursuant to the Brand License Agreement,
the Company may require WTFSKF to either return the Shares or pay to the Company the market value of the Shares at the time of
the execution of the Brand License Agreement (approximately $6,805,600), if the Company terminates the Brand License Agreement
as a result of such deviations within the first 52 months after the execution of the Brand License Agreement. The initial term
of the Brand License Agreement lasts until December 31, 2042, at which time the Brand License Agreement will automatically renew
for successive 25 year terms unless and until either party provides notice of non-renewal or terminates the Brand License Agreement.
Impairment of Brand License Agreement
The Brand License of
$6,805,600 was measured based on the fair value of the stock issued (on December 29, 2014, 752,000 common shares of HPIL Holding
issued at $9.05 per share). Currently, based on the market value of the common shares, 752,000 shares would be equal to the value
of $7,520 (752,000 common shares of HPIL Holding at $0.01 per share). In terms of measuring the Brand License on the value of the
stock issued, the Company would have to write the value down to $7,520. Based on a qualitative assessment, the Company is uncertain
of how its relationship with the WTFSKF will proceed in the future and thus based on this uncertainty, the Company deems it prudent
to value the asset at the current market value of the stock held by the WTFSKF. The Company has simply recognized the potential
of it losing the Brand License due to factors beyond its control and based on this risk has reassessed the value of the Brand License
to be the recoverable amount of the potential return of shares during the year ended December 31, 2016. Based on the Company assessment
of the value of the Brand License, the Company has determined the fair value of the Brand License to be $7,520 (752,000 common
shares of HPIL Holding at $0.01 per share). No amortization has been recognized during the period ended June 30, 2017 and the year
ended December 31, 2016, as the Brand License Agreement is not effective until 2018. As a result, an impairment loss of $NIL (December
31, 2016- $6,798,080) is included in the unaudited condensed interim statements of loss and comprehensive loss. In the event of
the Company losing the Brand License, the Company would seek to reacquire this stock and is thereby assessing the value of the
Brand License at the value of the stock as determined by the market. The impairment loss does not necessarily impact on the future
expected cash flow associated with the Brand License or with the Company’s intent or ability to renew or extend the Brand
License Agreement. It simply recognizes the risk that the Company believes is extant.
Addendum to Brand License Agreement
to Acquire Broadcast Rights
On May 19, 2017, the
Company entered into an addendum to the Brand License Agreement (the “Addendum”) with the WTFSKF whereby the Company
acquired the television, radio and internet rights to the WTFSKF World Karate Championship and the International Karate Gasshuku.
The term of the agreement is for the life of the Brand License Agreement. The Addendum further enhances the ability of the Company
to develop the market under the Brand License Agreement and the Addendum. However, the Company has chosen to follow a prudent and
vigilant course of action in writing down the value of the Brand License. The Company has considered and taken note of Section
350-30-35, the Subsequent Measurement Section that provides guidance on an entity’s subsequent measurement and subsequent
recognition of an item. Situations that may result in subsequent changes to the carrying amount include impairment, credit losses,
fair value adjustments, depreciation and amortization, and so forth. The Company has also taken note of Section 350-30-50, the
Disclosure Section that provides guidance regarding the disclosure in the notes to the financial statements. In some cases, disclosure
may relate to disclosure on the face of the financial statements.
The Licensed Products
The Basic Licensed
Products for Licensor’s affiliates (i.e. athletes, masters and leaders) shall mean: Kimono Karate, Complete Suit, Protection
Woman/Man, Official Complete Suit, Hakama Complete Judge Suit, Embroidered Badge, Karate Belts Kyu Dan, Official Complete Suit
(all together “Basic Equipment”).
The Additional Licensed
Products for Licensor’s affiliates (i.e. athletes, masters and leaders) and available for fans and amateurs, and for general
costumers shall mean: Sport Suit, Running Top, Running Shorts, T-Shirts, Sport Shoes, Sport bag, Sport Cap, Cap, Gloves, Scarf,
Socks, Karate Slippers, other products need to be approved by the Parties (all together “Additional Sporting Merchandise”).
NOTE 6 – CONVERTIBLE PROMISSORY
NOTES
On November 9, 2016,
the Company issued to GPL a Convertible Promissory Note (the “Note”) in the principal amount of $250,000 as payment
of a commitment fee to induce GPL to enter into the Agreements. The Note accrues interest at the rate of 5% per annum and is due
in full on or before July 30, 2017. The Note also prohibits prepayment of the principal. GPL has the right to convert all or any
portion of the note balance at any time at a conversion price per share of 75% of the lowest Trading Price during the Valuation
Period (as defined and calculated pursuant to the Note), which is adjustable in accordance with the Note terms in the event certain
capital reorganization, merger, or liquidity events of the Company as further described in the Note.
On December 9, 2016,
the Company issued to GPL a Convertible Promissory Note in the principal amount of $5,000 in exchange for $5,000 in cash (the “5K
Note”). The 5K Note accrues interest at the rate of 5% per annum and is due in full on or before June 9, 2017. The 5K Note
also prohibits prepayment of the principal. GPL has the right to convert all or any portion of the note balance at any time at
a conversion price per share of 75% of the lowest Trading Price during the Valuation Period (as defined and calculated pursuant
to the 5K Note), which is adjustable in accordance with the 5K Note terms in the event certain capital reorganization, merger,
or liquidity events of the Company as further described in the 5K Note.
On June 28, 2016, upon
the signing of the Term Sheet (“Term Sheet”) related to the Equity Purchase Agreement, the Company issued to KCG a
Convertible Promissory Note (the “June Note”) in the principal amount of $215,000 as payment of a commitment fee to
induce KCG to enter into the Agreements. The June Note is due in full on or before January 28, 2017. The Company may prepay this
June Note in whole or in part at any time following at least 15 and no more than 60 days’ advance written notice to the Holder,
provided that the Holder shall retain all rights of conversion until the date of repayment, notwithstanding the pendency of any
prepayment notice. KCG has the right to convert all or any portion of the June Note balance at any time at a conversion price per
share of 50% of the Current Market Price (as defined and calculated pursuant to the June Note), which is adjustable in accordance
with the June Note terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described
in the June Note. Upon an Event of Default (as defined in the June Note), the principal amount increases to $250,000 and the conversion
price shall decrease to 25% of the Current Market Price (as defined and calculated pursuant to the June Note). During the period
ended June 30, 2017, the June Note is in default and the principal of the June Note was increased to $250,000 and the conversion
price was 25% of the Current Market Price.
On December 27, 2016,
the Company and KCG entered an Amendment and Waiver (the “Amendment and Waiver”), pursuant to which KCG waived certain
defaults of the Company under the Note and amended the Note to delete a default provision requiring the Company to file a registration
statement by a certain date, amend a default provision to reflect the Company’s listing on the OTCPink market, and extend
the maturity date to July 28, 2017. The Original Equity Purchase Agreement, Amended Equity Purchase Agreement, Registration Agreement,
Term Sheet, Note, and Amendment and Waiver contain other provisions customary to transactions of this nature.
On December 27, 2016,
the Company and KCG entered into a Securities Purchase Agreement to which the Company sold to KCG a convertible promissory note
in the amount of $60,000 for a purchase price of $50,000. The Company issued to KCG a 15% Convertible Note (the “December
Note”) in the principal amount of $60,000. The December Note accrues interest at the rate of 15% per year and is due in full
on or before December 27, 2017. The Company may prepay this Note in whole at any time prior to 6 months from the issue date on
at least 5 Trading Days (as defined in the December Note) but not more than 10 Trading Days notice, provided that the Holder shall
retain all rights of conversion until the date of repayment, notwithstanding the pendency of any prepayment notice. KCG has the
right to convert all or any portion of the note balance at any time at a conversion price per share of forty percent (40%) lowest
sale price for the Company’s Common Stock during the thirty (30) consecutive Trading Days immediately preceding the Conversion
Date (as defined and calculated pursuant to the December Note), which is adjustable in accordance with the December Note terms
in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the December Note.
On February 17, 2017,
the Company and Power Up Lending Group, Ltd. (“Power Up”) entered into a Securities Purchase Agreement (the “Power
Up Securities Purchase Agreement”), pursuant to which the Company sold to Power Up a convertible promissory note in the amount
of $33,000. Pursuant to the Power Up Securities Purchase Agreement, the Company issued to Power Up a 12% Convertible Note (the
“Power Up Note”) in the principal amount of $33,000. The Power Up Note accrues interest at the rate of 12% per year
and is due in full on or before September 12, 2017. The Company may prepay this Power Up Note in whole at any time prior to 6 months
from the issue date on at least 3 Trading Days’ notice, subject to a variable prepayment penalty. Power Up has the right
to convert all or any portion of the note balance at any time at a conversion price per share of sixty-one percent (61%) of the
average of the three (3) lowest sale price for the Company’s Common Stock during the fifteen (15) consecutive Trading Days
immediately preceding the Conversion Date (as defined and calculated pursuant to the Power Up Note), which is adjustable in accordance
with the Power Up Note terms in the event certain capital reorganization, merger, or liquidity events of the Company as further
described in the Power Up Note.
On April 11, 2017,
the Company and GPL Ventures, LLC (“GPL”) entered into a Securities Purchase Agreement (the “GPL Securities Purchase
Agreement”), pursuant to which the Company sold to GPL a convertible promissory note in the amount of $10,000 for a purchase
price of $10,000. Pursuant to the GPL Securities Purchase Agreement, the Company issued to GPL a 12% Convertible Note (the “GPL
Note”) in the principal amount of $10,000. The GPL Note accrues interest at the rate of 12% per year and is due in full on
or before October 11, 2017. The Company may prepay this GPL Note in whole at any time prior to 30 days from the issue date on at
least 3 Trading Days’ notice, upon payment of 125% of the outstanding balance of the GPL Note. GPL has the right to convert
all or any portion of the note balance at any time at a conversion price per share of fifty percent (50%) lowest sale price for
the Company’s Common Stock during the twenty (20) consecutive Trading Days immediately following the clearing of the converted
shares (as defined and calculated in the GPL Note), which is adjustable in accordance with the GPL Note terms in the event certain
capital reorganization, merger, or liquidity events of the Company as further described in the GPL Note. On May 24, 2017, the Company
amended the GPL Note to be issued on May 24, 2017 and mature on November 24, 2017.
On May 10, 2017, the
Company and Auctus Funds, LLC (“Auctus”) entered into a Securities Purchase Agreement (the “Auctus Securities
Purchase Agreement”), pursuant to which the Company sold to Auctus a convertible promissory note in the amount of $72,000
for a purchase price of $72,000. Pursuant to the Auctus Securities Purchase Agreement, the Company issued to Auctus a 12% Convertible
Note (the “Auctus Note”) in the principal amount of $72,000. The Auctus Note accrues interest at the rate of 12% per
year and is due in full on or before February 10, 2018. The Company may prepay this Note in whole at any time prior to 60 days
from the issue date on at least 5 Trading Days’ notice, upon payment of (i) 125% of the outstanding balance of the Auctus
Note within 30 days of the issue date, or (ii) 130% of the outstanding balance of the Auctus Note if between 30 and 60 days after
the issue date. The Company shall have no prepayment right after 60 days. Auctus has the right to convert all or any portion of
the note balance at any time at a conversion price per share of thirty percent (30%) lowest sale price for the Company’s
Common Stock during the twenty-five (25) consecutive Trading Days immediately preceding the Conversion Date (as defined and calculated
pursuant to the Auctus Note), which is adjustable in accordance with the Auctus Note terms in the event certain capital reorganization,
merger, or liquidity events of the Company as further described in the Auctus Note.
On March 27, 2017,
Kodiak Capital Group, LLC, (“KCG”) has claimed an event of default under a convertible promissory note in the principal
amount of $215,000 issued by the company pursuant to the Company’s failure to deliver shares of the Company’s common
stock pursuant to a conversion notice served on the company. KCG has also alleged various defaults with reference to a convertible
promissory note in the principal amount of $60,000. The claimed defaults are the result of KCG’s inability to sell the Company’s
common stock under Rule 144 due to the Company’s then delinquent filings. As a result of these various alleged defaults KCG
has sent the Company a claim in the sum of $2,608,572 as of March 27, 2017. KCG claims that the claim amount continues to increase
in accordance to the terms of the notes. The Company is disputing the payment of the $215,000 note with Kodiak and is considering
initiating an action against KCG for obtaining the note by fraudulent means and may claim damages as well. There is no litigation
currently pending. The Company issued 3,661,150 shares of treasury common stock of the Company (the “Shares”) related
to the conversion of convertible notes held by KCG amounting to $40,800 in the first quarter of 2017.
The Company is late
in filing it’s 10Q for the second quarter of 2017. Its Convertible Promissory Notes are in Default as a result of the late
filing.
On June 28, 2016, November
9, 2016, December 9, 2016, December 27, 2016, February 17, 2017, April 11, 2017, and May 10, 2017, the Company recorded a discount
on the various convertible promissory notes. This discount is amortized using the effective interest rate method at an interest
rate of 58.70%, 100.04%, 132.66%, 48.38%, 96.16%, 105.71%, and 46.38% for the June 28, 2016, November 9, 2016, December 9, 2016,
December 27, 2016, February 17, 2017, April 11, 2017, and May 10, 2017, Notes, respectively, over the term of the Notes.
|
|
Period ended
|
|
|
|
June 30,
2017
|
|
Face value of June 28, 2016, promissory note payable
|
|
$
|
215,000
|
|
Face value of November 9, 2016, promissory note payable
|
|
|
250,000
|
|
Face value of December 9, 2016, promissory note payable
|
|
|
5,000
|
|
Face value of December 27, 2016, promissory note payable
|
|
|
60,000
|
|
Total face value of promissory notes payable
|
|
|
530,000
|
|
Discount on promissory notes payable
|
|
|
(436,938
|
)
|
Accretion of discount on promissory notes payable
|
|
|
109,234
|
|
Balance December 31, 2016
|
|
$
|
202,296
|
|
Face value of February 17, 2017, promissory note payable
|
|
|
33,000
|
|
Face value of June 28, 2016, promissory note payable converted into common stock
|
|
|
(40,800
|
)
|
Face value of April 11, 2017, promissory note payable
|
|
|
10,000
|
|
Face value of May 10, 2017, promissory note payable
|
|
|
72,000
|
|
Discount on promissory notes payable
|
|
|
(110,486
|
)
|
Accretion of discount on promissory notes payable
|
|
|
376,547
|
|
Accrued interest
|
|
|
13,872
|
|
Balance June 30, 2017
|
|
$
|
556,429
|
|
During the six months ended June 30, 2017,
accretion of discount of the various convertible promissory notes amounted to $376,547 (June 30, 2016 - $Nil).
During the three months ended June 30,
2017, accretion of discount of the various convertible promissory notes amounted to $244,099 (June 30, 2016 - $Nil).
During the six months ended June 30, 2017,
interest expense on the various convertible promissory notes amounted to $13,872 (June 30, 2016 - $Nil).
During the three months ended June 30,
2017, interest expense on the various convertible promissory notes amounted to $7,967 (June 30, 2016 - $Nil).
NOTE 7 – CONVERSION OPTION DERIVATIVE
LIABILITY
The Company accounted
for the conversion option of the Notes in accordance with ASC Topic 815 (“Derivatives and Hedging”), under which the
conversion option meets the definition of a derivative instrument.
This conversion option
derivative liability was measured at fair value on the dates of issue and at June 30, 2017, and December 31, 2016, using a binomial
lattice model, with changes in the fair value charged or credited, as applicable, to the unaudited condensed interim statements
of operations and comprehensive loss.
The inputs into the
binomial lattice model for each issuance and at June 30, 2017, March 31, 2017 and December 31, 2016, are as follows:
|
|
Closing share price
|
|
|
Conversion
price
|
|
|
|
Risk free rate
|
|
|
Expected volatility
|
|
|
Dividend
yield
|
|
|
Expected
life
|
June 28, 2016
|
|
$
|
2.50
|
|
|
$
|
1.25
|
|
|
|
0.45
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.59 year
|
November 9, 2016
|
|
$
|
1.60
|
|
|
$
|
1.20
|
|
|
|
0.72
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.72 year
|
December 9, 2016
|
|
$
|
1.60
|
|
|
$
|
0.80
|
|
|
|
0.85
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.50 year
|
December 27, 2016
|
|
$
|
1.60
|
|
|
$
|
0.64
|
|
|
|
0.89
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
1 year
|
December 31, 2016
|
|
$
|
1.60
|
|
|
$
|
0.64 - $1.20
|
|
|
|
0.85
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.08 - 0.99 year
|
February 17, 2017
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
1.27
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.75 year
|
March 31, 2017
|
|
$
|
0.02
|
|
|
$
|
0.00 - $0.01
|
|
|
|
1.27
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.19 – 0.74 year
|
April 11, 2017
|
|
$
|
0.0121
|
|
|
$
|
0.005
|
|
|
|
1.20
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.51 year
|
May 10, 2017
|
|
$
|
0.01
|
|
|
$
|
0.003
|
|
|
|
1.20
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.75 year
|
June 30, 2017
|
|
$
|
0.0009
|
|
|
$
|
0.0018 - $0.0048
|
|
|
|
1.20
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.08 – 0.61 year
|
The fair value of the
conversion option derivative liability, as determined using the binomial lattice model, was $757,934 at June 30, 2017, $2,271,221
at March 31, 2017 ($507,668 – December 31, 2016). The change in the fair value of the conversion option derivative liability
of $190,867 was primarily due to a decrease in the price of the Company’s common stock, and was recorded as a loss in the
unaudited condensed interim statement of operations and comprehensive loss for the period ended June 30, 2017.
Conversion option derivative liability, beginning balance
|
|
$
|
-
|
|
Origination of conversion option derivative liability on June 28, 2016
|
|
|
215,000
|
|
Origination of conversion option derivative liability on November 9, 2016
|
|
|
158,854
|
|
Origination of conversion option derivative liability on December 9, 2016
|
|
|
5,000
|
|
Origination of conversion option derivative liability on December 27, 2016
|
|
|
60,000
|
|
Loss on change in fair value of conversion option derivative liability, December 31, 2016
|
|
|
68,814
|
|
Balance, December 31, 2016
|
|
$
|
507,668
|
|
Origination of conversion option derivative liability on February 17, 2017
|
|
|
28,486
|
|
Value of conversion option derivative liability on June 28, 2016 convertible promissory note converted into common stock
|
|
|
(51,088
|
)
|
Loss on change in fair value of conversion option derivative liability, March 31, 2017
|
|
|
1,786,155
|
|
Balance, March 31, 2017
|
|
$
|
2,271,221
|
|
Origination of conversion option derivative liability on April 11, 2017
|
|
|
10,000
|
|
Origination of conversion option derivative liability on May 10, 2017
|
|
|
72,000
|
|
Gain on change in fair value of conversion option derivative liability, June 30, 2017
|
|
|
(1,595,287
|
)
|
Balance, June 30, 2017
|
|
$
|
757,934
|
|
NOTE 8 – SUBSEQUENT EVENTS
On July 28, 2017,
the Company and GPL Ventures, LLC (“GPL”) entered into a Securities Purchase Agreement (the “GPL Securities
Purchase Agreement”), pursuant to which the Company sold to GPL a convertible promissory note in the amount of $15,000 for
a purchase price of $15,000. Pursuant to the GPL Securities Purchase Agreement, the Company issued to GPL a 5% Convertible Note
(the “GPL Note”) in the principal amount of $15,000. The GPL Note accrues interest at the rate of 5% per year and
is due in full on or before February 28, 2018. GPL has the right to convert all or any portion of the note balance at any time
at a conversion price per share of fifty percent (50%) lowest sale price for the Company’s Common Stock during the twenty
(20) consecutive Trading Days immediately following the clearing of the converted shares (as defined and calculated in the GPL
Note), which is adjustable in accordance with the Note terms in the event certain capital reorganization, merger, or liquidity
events of the Company as further described in the Note.
On July 31, 2017,
GPL elected to convert part $500 of the principal amount of the promissory note issued by the Company to GPL dated December 9,
2016 in the amount of $5,000 into 5,000,000 shares of the Company’s common stock.
On August 4, 2017,
the Company and Jabro Funding (“Jabro”) entered into a Securities Purchase Agreement (the “Jabro Securities
Purchase Agreement”), pursuant to which the Company sold to Jabro a convertible promissory note in the amount of $10,000
for a purchase price of $10,000. Pursuant to the Jabro Securities Purchase Agreement, the Company issued to Jabro a 12% Convertible
Note (the “Jabro Note”) in the principal amount of $10,000. The Jabro Note accrues interest at the rate of 12% per
year and is due in full on or before May 15, 2018. The Company may prepay this Note in whole at any time prior to 30 days from
the issue date on at least 3 Trading Days’ notice, upon payment of 120% of the outstanding balance of the Jabro Note. Jabro
has the right to convert all or any portion of the note balance at any time at a conversion price per share of fifty percent (50%)
lowest sale price for the Company’s Common Stock during the twenty (20) consecutive Trading Days immediately following the
clearing of the converted shares (as defined and calculated in the Jabro Note), which is adjustable in accordance with the Note
terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the Note.
On August 9, 2017,
the Company and GPL Ventures, LLC (“GPL”) entered into a Securities Purchase Agreement (the “GPL Securities
Purchase Agreement”), pursuant to which the Company sold to GPL a convertible promissory note in the amount of $10,000 for
a purchase price of $10,000. Pursuant to the GPL Securities Purchase Agreement, the Company issued to GPL a 10% Convertible Note
(the “GPL Note”) in the principal amount of $10,000. The GPL Note accrues interest at the rate of 10% per year and
is due in full on or before March 9, 2018. GPL has the right to convert all or any portion of the note balance at any time at
a conversion price per share of fifty percent (50%) lowest sale price for the Company’s Common Stock during the twenty (20)
consecutive Trading Days immediately following the clearing of the converted shares (as defined and calculated in the GPL Note),
which is adjustable in accordance with the Note terms in the event certain capital reorganization, merger, or liquidity events
of the Company as further described in the Note.
On August 11, 2017,
the Company and Power Up Lending Group, Ltd. (“Power Up”) entered into a Securities Purchase Agreement (the “Power
Up Securities Purchase Agreement”), pursuant to which the Company sold to Power Up a convertible promissory note in the
amount of $45,000. Pursuant to the Power Up Securities Purchase Agreement, the Company issued to Power Up a 12% Convertible Note
(the “Power Up Note”) in the principal amount of $45,000. The Power Up Note accrues interest at the rate of 12% per
year and is due in full on or before May 28, 2018. The Company may prepay this Note in whole at any time prior to 6 months from
the issue date on at least 3 Trading Days’ notice, subject to a variable prepayment penalty. Power Up has the right to convert
all or any portion of the note balance at any time at a conversion price per share of fifty-one percent (51%) of the average of
the lowest sale price for the Company’s Common Stock during the fifteen (15) consecutive Trading Days immediately preceding
the Conversion Date (as defined and calculated pursuant to the Power Up Note), which is adjustable in accordance with the Note
terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the Note.
On August 11, 2017,
the Company and Auctus Funds, LLC (“Auctus”) amended their Securities Purchase Agreement dated May 10, 2017 (the “Auctus
Securities Purchase Agreement”), to increase by $10,000 the total amount of the Promissory Note from $72,000 to $82,000 in
exchange for an additional $10,000 in cash.
The Company appointed Olde Monmouthe Stock
Transfer Co. Inc. as its new Transfer Agent on August 10
th
, 2017
On August 14,
2017, the Company filed a Certificate of Amendment with the Nevada Secretary of State increasing the Company’s authorized
stock to ten billion, seven hundred three million (10,703,000,000) which consist of: (a) Three Million Ten (3,000,010) shares of
preferred stock, par value $0.0001 per share (the “Preferred Stock”); and (b) Ten billion, six hundred ninety-nine
million, nine hundred ninety-nine thousand, nine hundred ninety (10,699,999,990) shares of common stock, par value $0.0001 per
share (the “Common Stock”). In addition, Certificates of Designation for Series A preferred stock and Series B preferred
stock were filed with the Nevada Secretary of State on August 14, 2017 (the “Designations”). Pursuant to the Designations,
a total of 10 shares of the Corporation’s Preferred Stock was authorized as a series known as Series A Preferred Stock, par
value $0.0001 per share (the “Series A Stock”) and a total of 3,000,000 shares of the Corporation’s Preferred
Stock was authorized as a series known as Series B Preferred Stock, par value $0.0001 per share (the “Series B Stock”).
The designations set forth the voting rights, dividend rights, conversion rights, dividend entitlements and other rights and obligations
of the Common, Preferred A and Preferred B Classes of Stock, each in accordance with the Company’s Form
14C filing
on April 20, 2017
.
On August 17, 2017 under a convertible
promissory note for $45,000, the Company issued 10,000,000 restricted shares to the Power Up Lending Group Ltd.