NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
(1) Organization and description of business
Summary of Significant Accounting Policies
Going Concern:
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has net losses of $189,118 for the three months ended March 31, 2019. The Company also has an accumulated deficit of $23,009,066 and a negative working capital of $3,428,294 as of
March 31, 2019, as well as outstanding convertible notes payable of $372,902, before debt discount of $27,887. Management believes that it will need additional equity or debt financing to be able to implement its business plan. Given the lack of
revenue, capital deficiency and negative working capital, there is substantial doubt about the Company’s ability to continue as a going concern.
Management is attempting to raise additional equity and debt to sustain operations until it can market its services and
achieves profitability. The successful outcome of future activities cannot be determined at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive
operating results.
The accompanying financial statements do not include any adjustments related to the recoverability and classification of
assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Basis of Financial Statement Presentation:
The accompanying unaudited interim financial statements of Las Vegas Xpress, Inc. (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete
financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim
periods presented. However, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other future period. These interim financial
statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019.
Risks and Uncertainties:
The Company operates in a rail industry that is subject to intense competition and potential government
regulations. Significant changes in regulations and the inability of the Company to establish contracts with rail services providers could have a materially adverse impact on the Company’s operations.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of
issuance to be cash equivalents. As of March 31, 2019 and December 31, 2018, the Company had $365 and $3,088 in cash and cash equivalents, respectively.
Property and Equipment:
Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated
useful lives of approximately five years once the individual assets are placed in service. The Company expenses all purchases of equipment with individual costs of under $500, and these amounts are not material to the financial statements. As of
December 31, 2018, we wrote off the rail cars on the balance sheet at $125,000 with no accumulated depreciation. The rail cars require substantial investment to retrofit and are not going to be in service in the nearest future.
Long-Lived Assets:
In accordance with FASB ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their
estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is
recorded in the period in which the determination is made. The Company’s management believes there has been no impairment of its long-lived assets during the three months ended March 31, 2019, or 2018. There can be no assurance, however, that
market conditions will not change or demand for the Company’s business model will continue. Either of these could result in future impairment of long-lived assets.
No impairment loss was recognized for the three months ended March 31, 2019 and 2018.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and
disclosure of related party transactions (see Note 4).
Income Taxes:
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes. A full valuation allowance for deferred tax assets has
been provided because the Company believes it is not more likely than not that the deferred tax asset will be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods.
The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions
would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of March 31, 2019, and December 31, 2018, the Company has not established a liability for
uncertain tax positions.
Basic and Diluted Loss per Share:
In accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB
ASC”) 260, “Earnings per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per
share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Common stock equivalents have not been included in the earnings per share computation for the three months ended March
31, 2019, and December 31, 2018 as the amounts are anti-dilutive. As of March 31, 2019, the Company had 3,426 outstanding warrants and convertible debt of $372,902, before debt discount of $27,887, which were all excluded from the computation as
they were anti-dilutive and are convertible into 6,941,782,026 shares of common stock. As of March 21, 2018, the Company had 3,426 outstanding warrants and convertible debt of $401,900, before debt discount of $245,463, which were all excluded from
the computation as they were anti-dilutive.
Revenue Recognition
The Company recognizes revenue from the sale of services in accordance with ASC 606, “Revenue
Recognition”, only when all of the following criteria have been met:
|
|
i)
|
Persuasive evidence for an agreement exists;
|
|
|
ii)
|
Service has been provided;
|
|
|
iii)
|
The fee is fixed or determinable; and,
|
|
|
iv)
|
Collection is reasonably assured.
|
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, prepaid expense, deferred financing cost,
accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate
market interest rates of these instruments.
The Company adopted ASC Topic 820,
Fair Value Measurements
(“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent
definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes,
within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or
liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets; liabilities in active markets;
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in
markets that are not considered to be active;
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value
measurement
The following table summarizes fair value measurements by level at March 31, 2019, and December 31, 2018,
measured at fair value on a recurring basis:
|
March 31, 2019
|
|
Level 1
|
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
252,607
|
|
|
$
|
252,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Level 1
|
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
336,825
|
|
|
$
|
336,825
|
|
Share Based Payments:
The Company issues stock, options, and warrants as share-based compensation to employees and non-employees.
The Company accounts for its share-based compensation to employees in accordance FASB ASC 718. Stock-based compensation
cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.
During the three months ended March 31, 2019 and 2018, the Company incurred $77,500 and $2,185,000 in
stock- based compensation to employees.
The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the
provisions of FASB ASC 505-50 “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (
a
) the goods or services received; or (
b
) the equity instruments
issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated and the percentage of completion is applied to that estimate to determine the
cumulative expense recorded.
The Company values stock compensation based on the market price on the measurement date. As described above, for employees
this is the date of grant, and for non-employees, this is the date of performance completion.
The Company values warrants using the Black-Scholes option pricing model. Assumptions used in the Black-Scholes model to
value options and warrants issued during the three months ended March 31, 2019 were as follows:
|
Variables
|
|
Values
|
|
|
Stock price
|
|
$
|
0.0001
|
|
|
Exercise Price
|
|
$
|
697.00
|
|
|
Term
|
|
0.13-2.08 years
|
|
|
Risk Free Rate
|
|
|
0.25
|
%
|
|
Volatility
|
|
|
451.6% - 596.1
|
%
|
During the three months ended March 31, 2019 and 2018, the Company has not issued any shares of common
stock for outside services.
(3) Property and Equipment
The Company wrote off rail cars as of December, 31, 2018, as there was not plans of putting the cars into
operation in the foreseeable future. No indicators of impairment exist for the recorded assets.
(4) Related Party Notes Payable
A summary of outstanding notes payable is as follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated December 15, 2015, bearing interest
at 10% annually, payable on demand
.
|
|
|
41,810
|
|
|
|
41,810
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated December 15, 2015, bearing interest
at 10% annually, payable on demand
.
|
|
|
24,101
|
|
|
|
24,101
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated December 15, 2015, bearing interest
at 10% annually, payable on demand
.
|
|
|
53,994
|
|
|
|
53,994
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated September 30, 2015,
bearing no interest
,
payable on demand
.
|
|
|
329,484
|
|
|
|
308,814
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated
September 30, 2017, bearing
10%
interest
, payable on demand
.
|
|
|
59,044
|
|
|
|
59,044
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated
September 30, 2017, bearing
10%
interest
, payable on demand
.
|
|
|
3,200
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
511,633
|
|
|
|
490,963
|
|
(5) Convertible Notes Payable
The following summarizes the book value of the convertible notes payable outstanding as of March 31, 2019 and December 31,
2018:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated June 2, 2017, bearing interest
of 4% annually, payable within a year, convertible to
common stock at a discount of 40% of the lowest
traded price of the common stock during 45 trading days
prior to the conversion date.
|
|
|
18,260
|
|
|
|
19,100
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated September 30, 2017, bearing 10% interest,
payable on demand, convertible to common stock at the discount
of 35% of the lowest traded price of the common stock during 20
trading
days prior to the conversion
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated November 27, 2017, with principal amount
of $85,000 and aggregate purchase price of $79,900, bearing interest
of 12% annually, payable within a year, convertible to common stock
at the conversion price equal to the lower of (i) the closing sale price
of the common
stock on the principal market on the trading day
immediately preceding the closing date, and (ii) 50% of either
the
lowest sale price for the common stock during the 20 consecutive
trading days including and immediately preceding the conversion date
|
|
|
24,255
|
|
|
|
68,396
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated December 20, 2017, bearing
interest of 12% annually, payable on September 20, 2018, convertible to common stock at a discount of 50% of the lowest two traded prices of the common stock during the 25 trading days prior to the conversion date.
|
|
|
72,855
|
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated April 20, 2018, bearing interest
of 12% annually, payable on April 20, 2019, convertible to
common stock at a discount of 50% of the average
closing bid of the common
stock during the 10 trading
days prior to the conversion date. This note is currently in default.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated April 30, 2018, bearing
interest of 12% annually, payable on April 30, 2019, convertible to common stock at a discount of 50% of the average closing bid of the common stock during the 10 trading days prior to the conversion date.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated January 5, 2018, bearing
interest of 10% annually, payable on July 5, 2018, convertible to common stock at a discount of 25% of the average of 5 lowest traded prices of the common stock during the 10 trading days prior to the conversion date.
|
|
|
37,616
|
|
|
|
37,616
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory note, dated November 14, 2018, bearing
interest of 14% annually, payable on August 30, 2019, convertible to common stock at a discount of 45% of the one lowest traded price of the common stock during the 25 trading days prior to the conversion date.
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes before debt discount
|
|
|
372,902
|
|
|
|
464,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Less debt discount
|
|
|
(27,887
|
)
|
|
|
(65,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding convertible notes payable
|
|
$
|
345,015
|
|
|
|
399,111
|
|
(6) Derivative Instruments
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “
Derivatives and Hedging,”
and determined that the convertible notes should be classified as a liability since the conversion option becomes
effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the
Black-Scholes pricing model to calculate the fair value as of March 31, 2019 and December 31, 2018. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current
stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is
estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in March 31, 2019 and December 31, 2018:
|
|
|
Three Months
Ended
|
|
|
Year
Ended
|
|
|
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
Expected term
|
|
0.17- 0.72 years
|
|
|
0.4 – 0.96 years-
|
|
|
Expected average volatility
|
|
|
284.3
|
%
|
|
|
313.6
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Risk-free interest rate
|
|
|
1.65 – 2.97
|
%
|
|
|
1.28 – 1.76
|
%
|
The Company valued the conversion feature using the Black-Scholes valuation model. The fair value of the derivative
liability for all the notes that became convertible as of March 31, 2019 amounted to $252,607.
(7) Equity
Common and Preferred Stock
The Company is authorized to issue 10,000,000,000 shares of common stock and 1,000,000 shares of preferred A (each share
convertible on one for one base for common stock, no voting rights), 10,000 shares of preferred A-2 convertible into four times the sum of all shares of common stock issued and outstanding with the same voting rights), 1,000,000 shares of preferred
B (each share converted into 10 shares of common stock and has 10 votes for any election) and 1,000 shares of preferred C class (each share is not convertible and has voting rights equal to four time the sum of total common stock shares issued and
outstanding plus the total number of series B, A and A-2 that are issued and outstanding. The increase in authorized shares of common stock from 500,000,000 to 1,000,000,000 was approved by the shareholders and Board of Directors on September 27,
2017. The increase from 1,000,000,000 to 3,000,000,000 shares was effective December 12, 2017, the increase from 3,000,000,000 to 5,000,000,000 shares was effective March 21, 2018 and the increase from 5,000,000,000 to 10,000,000,000 was effective
May 17, 2018.
As of September 17, 2018, a reverse stock split in the ratio 5,000 for 1 share and the name change from X Rail
Entertainment, Inc. to Las Vegas Xpress, Inc. was effective.
During the three months ended March 31, 2019, the Company issued an aggregate of 775,000,000 shares of common stock for
compensation of $77,500. During the three months ended March 31, 2018, the Company issued an aggregate of 605,000,000 shares of common stock for compensation of $2,185,000.
During the three months ended March 31, 2019, the Company issued an aggregate of 1,025,758,503 shares of common stock
for note or interest conversion of $120,526. During the three months ended March 31, 2018 the Company has not issued any shares of common stock for note or interest conversion.
There were no warrants exercised during the three months ended March 31, 2019 and 2018.
During the three months ended March 31, 2019 and 2018, the Company did not issue any shares of common
stock for cash.
W
arrants
The Company accounted for the issuance of Warrants in conjunction from the issuance of convertible notes
as an equity instrument and recognized the warrants under the Black-Scholes valuation model based on the company’s market share price on the grant date.
The below table summarizes warrant activity during the three months ended March 31, 2019:
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Balances as of December 31, 2018
|
|
|
3,426
|
|
|
$
|
697
|
|
|
Granted
|
|
|
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Balances as of March 31, 2019
|
|
|
3,426
|
|
|
$
|
697
|
|
The fair value of each warrant on the date of grant is estimated using the Black-Scholes option valuation
model. The following weighted-average assumptions were used for options granted during the three months ended March 31, 2019 and 2018:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
2018
|
|
|
Exercise price
|
|
$
|
697
|
|
|
$
|
750
|
|
|
Expected term
|
0.13 – 2.08 years
|
|
|
1.91 – 2.48 years
|
|
|
Expected average volatility
|
|
|
560.55
|
%
|
|
|
297.55
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The following table summarizes information relating to outstanding and exercisable warrants as of March
31, 2019:
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Number
|
|
Remaining Contractual
|
|
Weighted Average
|
|
Number
|
|
Weighted Average
|
|
|
of Shares
|
|
life (in years)
|
|
Exercise Price
|
|
of Shares
|
|
Exercise Price
|
|
|
|
3,426
|
|
|
|
1.13
|
|
|
$
|
697
|
|
|
|
3,426
|
|
|
$
|
697
|
|
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s
stock exceeded the exercise price of the warrants at March 31, 2019, for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of March 31, 2019, the aggregate intrinsic value of warrants
outstanding was $0.03 based on the closing market price of $0.0001 on March 31, 2019.
(8) Related Party Transactions
During the three months ended March 31, 2019, the Company added an additional $20,670 to the promissory note dated
September 30, 2017 to United Rail, Inc., leaving the balance outstanding of $329,484 as of March 31, 2019 and $308,814 at December 31, 2018, respectively.
(9) Subsequent Events
On April 2, 2019, the Company issued
122,708,600 shares of common stock for note conversion of $4,908.
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements about the Company's business, financial condition and prospects
that reflect management's assumptions and beliefs based on information currently available. There can be no assurance that the expectations indicated by such forward-looking statements will be realized. If any of management's assumptions should
prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, Las Vegas Xpress, Inc., actual results may differ materially from those indicated by the forward- looking statements.
The key factors that are not within the Company's control and that may have a direct bearing on operating results include,
but are not limited to, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry, as well as the risk factors identified in the Company’s filings.
When used in this Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar
expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. However, the forward-looking statements contained herein are not covered by
the safe harbors created by Section 21E of the Securities Exchange Act of 1934.
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto
included elsewhere herein.
Business Overview
Las Vegas Xpress, Inc. is in the specialty passenger train business and has three operating divisions, The X Train,
currently in the planning stages, will be an excursion railroad between metropolitan areas and resort/casino destinations, X Wine Railroads, which is a rail excursion from metropolitan areas to wine regions, and Club X Train, currently in the
planning stages, will be a riders membership club for X Train customers.
X Train
The X Train will be an excursion passenger rail service between Los Angeles and Las Vegas. We expect service to begin in
early 2020. LVXI plans to have its casino guests ride the exclusive train service and to manage the host activity of its guests throughout their stay in the resort/casino. We anticipate that, in addition to the service between Los Angeles and Las
Vegas, future X Train runs will be added in the coming years.
We expect to operate the X Train as an Amtrak train listed on the Amtrak national timetable. Amtrak will provide the
locomotives, crew and railcars for the project. X Train will provide a complete bundled package of services including ticket, rooms and transfers to & from the station and weekend events such as access to nightclubs, golf outings and
restaurants. It will be scheduled as a Friday through Sunday service with passengers in Los Angeles boarding the train at Union Station and arriving at the station in downtown Las Vegas and leased and operated by the X Train. Only the X Train will
be able to use our station in Las Vegas. A typical X Train will carry 11 passenger cars and will include food service and will carry on average, 700 passengers per trip. This number can be increased by adding more cars to the route.
Our LA to Vegas business plan emanates from a regional transportation feasibility study published in 2007, which suggested
that a well-run rail service between Los Angeles and Las Vegas could garner up to 30% of the approximately 12 million passengers who regularly drive between these two metropolitan areas. See: www.rtcsouthernnevada.com. We believe that with our
current business plan, we would be able to break-even, on an operating basis, with approximately 20,000 riders per year.
To commence commercial service of the Los Angeles to Las Vegas route, we will need to negotiate and secure the necessary
rights, equipment and facilities by August 2019. These items include: securing a regularly scheduled train agreement from Amtrak to operate our excursion service on a weekly basis beginning with one round trip train per week and increasing to six
round trips per week over the next several years as demand dictates, securing operating rights to run our trains over tracks owned by private railroads, obtaining the capability to operate train equipment safely and in conformity with applicable
government regulations, and purchasing or leasing appropriate locomotive and passenger cars designed to move passengers over the route in comfort and securing leases on terminal facilities and passenger depots in Los Angeles and in Las Vegas. We
expect the X Train to begin running in January 2020.
We will operate as a railroad under Amtrak’s national entitlement common carrier status.
X Wine Railroad
The Company’s X Wine Railroad service from LA Union Station to Santa Barbara California runs on a scheduled basis, once a
month on Saturdays, with individual riders (retail) as well as charters for corporate outings and special events (corporate). The X Wine Railroad provides a unique wine tasting experience to riders who take the train aboard special period classic
railcars and an excursion to the Los Olivos wine area of Southern California. Over 250 private wineries reside in the area and the X Wine Railroad provides private access to these vineyards on an exclusive basis. Ticket prices are $369 per person,
all inclusive. Since February 2017 this train has run once and the Company expects to continue to run this train intermittently, depending on demand. X Wine provides an all-inclusive day trip including a gourmet breakfast, wine tasting in the
wineries, wine and cheese lunch at the wineries, and a gourmet dinner on the train's return trip.
Club X Train
Club X Train, which is still in the planning stage, will be a one stop shop for all Las Vegas rooms, activities, tours,
show tickets and packages. Las Vegas shows, hotel rooms, tours, nightclubs and attractions will all available for members of ClubXTrain.com. This will be the only site riders need to plan their Vegas vacation getaway.
We anticipate that when a customer purchases a train ticket on either the X Train (once it commences operations) or any of
the X Wine Railroad excursions, such tickets will include enrollment in our Club X membership club. Members will receive points from each excursion they ride and will be provided discounts on products and services we provide. The more they ride,
the more points they will receive. Club X train will be the customer's ticket within Vegas for access to nightclubs, hosted bottle service, pool parties, gentlemen's clubs and the Club X Train Crawl: a high end to visiting three nightclubs in one
night. Customers will outline their desired plan for the evening and Club X Train will take care of arranging all the details. We expect to commence offering Club X Train service when the X Train commences running, currently anticipated to be
January 2020.
Critical Accounting Policies
The preparation of our condensed financial statements and notes thereto requires management to make estimates and
assumptions that affect the amounts and disclosures reported within those financial statements. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, contingencies, litigation and
income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed
could result in differences from the estimated amounts in the financial statements. There have been no material changes to these policies during the fiscal year.
Results of Operations for the Three Months Ended March 31, 2019 as Compared to the Three Months Ended
March 31, 2018
The following is a comparison of the results of operations for the three months ended March 31, 2019 and 2018.
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Three months ended
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March 31,
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March 31,
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2019
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2018
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$ Change
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% Change
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Revenues
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$
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-
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$
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13,145
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$
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-
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100.0
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%
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Cost of sales
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-
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(8,754
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-
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-100.0
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%
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Gross profit (loss)
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-
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4,391
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-
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0.0
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%
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Operating Expenses:
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Compensation and payroll taxes
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$
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153,750
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$
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2,346,250
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$
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(2,192,500
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-93.4
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%
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Selling, general and administrative
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24,325
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42,896
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(18,571
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-43.3
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%
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Professional fees
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43,299
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116,580
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(73,281
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-62.9
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%
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Total expenses
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221,374
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2,505,726
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(2,284,352
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-91.2
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%
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Loss from operations
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(221,374
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(2,501,335
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2,279,961
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-91.1
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%
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Other income (expense)
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Excess derivative liability expense
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-
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-
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-
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0.0
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%
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Interest expense
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(51,963
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(66,158
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9,815
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-14.8
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%
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Gain (loss) on change in derivative liability
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84,218
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511,237
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(712,698
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-139.4
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%
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Total other income (expense)
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32,255
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445,079
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(702,883
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-157.9
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%
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Net income (loss) from operations before provision for income taxes
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(189,118
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(2,056,256
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1,577,079
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-76.7
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%
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Provision for income taxes
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-
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-
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-
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0.0
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%
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Net income (loss)
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$
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(189,118
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$
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(2,056,256
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$
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1,577,079
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-76.7
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%
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Revenue
During the three months ended March 31, 2019, the Company didn’t generate any revenue, since it temporarily discontinued
its operation of the wine train. During the three months ended March 31, 2018, the Company generated some revenue from operating the wine train in Santa Barbara, CA. Revenue was generated from selling train tickets, food and beverage and wine
tours.
Operating Expenses
Compensation expense decreased by $2,192,500, or 93.4%, during the three months ended March 31, 2019 as compared to the
three months ended March 31, 2018. The decrease in compensation expense was primarily due to issuances of stock to management in 2018. Selling, general and administrative expenses decreased by $18,571, or 43.3%, during the three months ended
March 31, 2019 as compared to the same period in 2018 primarily due to decrease in travel and office expenses. Professional fees decreased by $73,281, or 62.9%, during 2019 as compared to 2018 due primarily to decreases in consulting services.
Other (Expense)
Income
Interest expense decreased by $14,195, or 21.5%, during the quarter ended March 31, 2019 as compared to the same
period in 2018 due to lower of convertible promissory notes in 2019. During the three months ended March 31, 2019, change in fair value of derivative liability decreased by $427,019 or 83.5%.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support asset growth, satisfy disbursement needs, maintain
reserve requirements and otherwise operate on an ongoing basis. The Company has limited operating revenues and is currently dependent on debt financing and sale of equity to fund operations.
As shown in the accompanying financial statements, the Company has net losses of $189,118 for the three months ended
March 31, 2019 and $2,056,256 for the three months ended March 31, 2018. The Company also has an accumulated deficit of $23,009,066 and a negative working capital of $3,428,294 as of March 31, 2019, as well as outstanding convertible notes payable
$372,902, before debt discount of $27,887. Management believes that it will need additional equity or debt financing to be able to implement its business plan. Given the lack of significant revenue, capital deficiency and negative working
capital, there is substantial doubt about the Company’s ability to continue as a going concern.
We believe that the successful growth and operation of our business is dependent upon our ability to do the following:
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obtain adequate sources of debt or equity financing to acquire existing passenger rail operations; and
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manage or control working capital requirements by controlling operating expenses.
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Management is attempting to raise additional equity and debt to acquire several operating passenger rail operations which
will sustain operations until it can market its services and achieves profitability. The successful outcome of future activities cannot be determined at this time and there are no assurances that, if achieved, the Company will have sufficient
funds to execute its intended business plan or generate positive operating results.
Cash Flows
Net cash used in operating activities for the three months ended March 31, 2019 and 2018 were $24,823 and $73,892,
respectively. Cash used in operating activities for the three months ended March 31, 2019 and 2018 were primarily due to net losses of $189,118 and $2,056,256, respectively. During the three months ended March 31, 2019, the net loss included
significant non-cash expenses of $77,500 in stock issued for compensation, $37,114 in amortization of discounts on notes payable, $96,821 in derivative expense related to convertible notes payable and $100,204 in changes in operating assets and
liabilities. During the three months ended March 31, 2018, the net loss included significant non-cash expenses of $2,185,000 in stock issued for compensation, $110,658 in amortization of discounts on notes payable, $511,237 in loss on impairments of
assets, $540,308 in derivative expense related to convertible notes payable and $284,223 in changes in operating assets and liabilities.
There was no net cash used in investing activities during the three months ended March 31, 2019 and 2018.
Net cash provided by financing activities for the three months ended March 31, 2019 amounted to $22,100,
which consisted of $20,670 in proceeds from related party notes payable and $1,430 in repayments on notes payable. Net cash provided by financing activities for the three months ended March 31, 2018 was $27,500 which consisted of $32,000 from
proceeds from convertible notes payable, $10,700 in repayments on related party notes payable and $6,200 from proceeds from related party notes payable.
Description of Indebtedness
For a complete description of our outstanding debt as of March 31, 2019 and December 31, 2018, see Notes 4 and 5 to the
financial statements.