NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2019 AND 2018
NOTE 1 – ORGANIZATION AND SUMMARY of significant accounting policies
Organization
Force Protection Video Equipment Corp., together with its wholly owned subsidiary, Cobraxtreme HD Corp. (collectively, the Company), is in the business of selling video and audio capture devices and accessories to consumers and law enforcement. Force Protection Video Equipment Corp. was incorporated on March 11, 2011, under the laws of the State of Florida. On February 2, 2015 the Company changed its name to Force Protection Video Equipment Corp.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Going Concern
The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the years ended April 30, 2019 and 2018, the Company had a net operating loss of $543,825 and $1,037,066, respectively. As of April 30, 2019, the Company had negative working capital of $747,347, an accumulated deficit of $4,573,287, and net cash used in operations of $41,461.
In view of these conditions, the ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. Historically, the Company has relied upon funds from the sale of shares of stock, issuance of promissory notes and loans from its shareholders and private investors to finance its operations and growth. Management is planning to raise necessary additional funds for working capital through loans and/or additional sales of its common stock. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all. Should the Company be unable to raise this amount of capital its operating plans will be limited to the amount of capital that it can access. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.
Earnings Per Share
Basic income per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC No. 260, Earnings Per Share.
The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS, if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
Following is the computation of basic and diluted net loss per share for the years ended April 30, 2019 and 2018:
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|
For the Years Ended
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|
|
|
April 30,
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|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Basic and Diluted EPS Computation
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|
|
|
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|
Numerator:
|
|
|
|
|
|
|
Loss available to common stockholders’
|
|
$
|
(543,825
|
)
|
|
$
|
(1,037,066
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
832,752,965
|
|
|
|
40,926,044
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
|
(0.00
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
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|
Potentially dilutive securities are not included in the calculation of diluted net loss per share attributable to common stockholders, because to do so would be anti-dilutive. Common stock equivalents pertaining to the Company’s Convertible Notes are as follows:
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|
|
|
|
|
|
|
|
|
Convertible notes, principal and accrued interest
|
|
|
9,649,685,143
|
|
|
|
1,425,915,102
|
|
Convertible notes, penalties potentially settled in common stock
|
|
|
-
|
|
|
|
-
|
|
Total convertible note common stock equivalents
|
|
|
9,649,685,143
|
|
|
|
1,425,915,102
|
|
Concentrations of risk
During the year ended April 30, 2019, no customers accounted for greater than 10% of sales; while during the twelve months ended April 30, 2018, two customers accounted for 34.5% (24.1% and 10.4%) of sales.
The Company relies on third parties for the supply and manufacture of its capture devices, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. During the year ended April 30, 2019, there were no inventory purchases. During the year ended April 30 2018, four suppliers accounted for 62.6% (19.2%, 16.9%, 14.3% and 12.2%) of the Company’s inventory purchases.
Summary of Significant Accounting Policies
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Our most significant estimates are for stock-based compensation; assumptions used in calculating derivative liabilities, and deferred tax valuation allowances. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
Cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at either April 30, 2019 or 2018.
Cash Flow Reporting
The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.
Inventory
The Company’s inventory is comprised of finished goods and primarily includes cameras and recording equipment. The Company’s inventory is stated at the lower of cost or market and expensed to cost of goods sold upon sale using the average-cost method. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. During the year ended April 30, 2019, the Company wrote down $110,418 of obsolete inventory. The Company plans to become a drop ship third-party seller that will reduce the need to carry inventory.
Accounts Receivable
Accounts receivable are reported at the customers’ outstanding balances. The Company does not have a history of significant bad debt and has not recorded any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve with none this period.
Leases
In accordance with ASU 2016-02, Leases (Topic 842), the Company recognizes lease assets and liabilities with terms in excess of twelve months on its balance sheet. The Company capitalizes operating lease obligations as a right-of-use asset with a corresponding liability based on the present value of future operating leases.
Property and Equipment
Fixed assets are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. Depreciation for financial statement purposes is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
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|
Estimated
|
|
|
Useful Lives
|
Vehicles
|
|
5 years
|
Office Equipment
|
|
3 - 5 years
|
Furniture & equipment
|
|
5 - 7 years
|
Long-Lived Assets
In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date. Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.
Accounting for Uncertainty in Income Taxes
The Company applies the provisions of ASC Topic 740-10-25, Income Taxes – Overall – Recognition (“ASC Topic 740-10-25”) with respect to the accounting for uncertainty of income tax positions. ASC Topic 740-10-25 clarifies the accounting for uncertainty in income taxes recognized in a company’s consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-25 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of April 30, 2019, tax years since 2009 remain open for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) and Accounting Standards Codification (“ASC”) Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers (“ASC 340-40”), (collectively, “Topic 606”). On May 1, 2018, the Company adopted Topic 606 by applying the modified retrospective method of adoption for all contracts that were not substantially completed as of the adoption date. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. The Company implemented ASU 2014-09 for the interim and annual reporting periods of 2019, which resulted in no changes to how we recognize revenue.
Our revenue is generated from the sale of products consisting primarily of video and audio capture devices and accessories. We recognize revenue when control of our products is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. We consider a performance obligation satisfied once we have transferred control of a product to the customer, meaning the customer has the ability to use and obtain the benefit of the product. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Revenue from product sales is generally recognized upon shipment to the end customer, which is when control of the product is deemed to be transferred. Payment or invoicing typically occurs upon shipment and the term between invoicing and when payment is due is not significant. Revenue is recorded net of discounts and promotions and is disaggregated based on significant product line. Refer to Note 6. Segments and Geographic Data.
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred. The Company recognized $9,303 and $88,807 in marketing and advertising costs during the twelvemonths ended April 30, 2019 and 2018, respectively.
Stock Based Compensation
Under ASC 718, Compensation – Stock Compensation, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
In July 2019, the FASB released Accounting Standards Update (ASU) No. 2018-09, Codification Improvements. ASU 2018-09 that affect a wide variety of Topics in the FASB Accounting Standards Codification including the guidance in paragraph 718-740-35-2, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting is unclear on whether an entity should recognize excess tax benefits (or tax deficiencies) for compensation expense that is taken on the entity’s tax return. The amendment to paragraph 718-740-35-2 in this update clarifies that an entity should recognize excess tax benefits (that is, the difference in tax benefits between the deduction for tax purposes and the compensation cost recognized for financial statement reporting) in the period in which the amount of the deduction is determined. This includes deductions that are taken on the entity’s return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether (1) the entity will receive a tax deduction and (2) the amount of the tax deduction is resolved.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Certain of these significant accounting policies require us to make critical accounting estimates, as defined below.
A critical accounting estimate is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:
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·
|
we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and
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|
|
|
|
·
|
different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
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Many of our financial instruments are issued in conjunction with the issuance of debt. At the time of issuance, we allocate the proceeds received to the various financial instruments and this involves the determination of fair value. From time to time, the fair value of these financial instruments exceeds the proceeds received. When this occurs, we critically evaluate the validity of the fair value computation.
Financial Instruments
The Company’s balance sheets include the following financial instruments: cash, accrued expenses, notes payable and payables to a stockholder. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying values of the notes payable and amounts due to stockholder approximates fair value based on borrowing rates currently available to the Company for instruments with similar terms and remaining maturities.
FASB Accounting Standards Codification (ASC) topic, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
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·
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Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
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|
|
|
|
·
|
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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|
|
|
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·
|
Level 3 - Inputs that are both significant to the fair value measurement and defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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Beneficial Conversion Features
ASC 470-20 applies to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash. ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date as the difference between the conversion price and the fair market value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible. This amount is recorded as a debt discount and amortized over the life of the debt. ASC 470-20 further limits this amount to the proceeds allocated to the convertible instrument.
Recent Accounting Pronouncements
We have reviewed all FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement. The new standard modifies disclosure requirements including removing requirements to disclose the valuation process for Level 3 measurements and adding requirements to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The new standard is effective for interim and annual periods beginning after December 15, 2019. The Company does not expect adoption of ASU 2018-13 to have a material impact on its financial statements or disclosures.
In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect adoption of ASU 2017-11 to have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment awards require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company implemented ASU 2017-09 for the interim and annual reporting periods of 2019, which resulted in no impact on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) and Accounting Standards Codification (“ASC”) Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers (“ASC 340-40”), (collectively, “Topic 606”). On May 1, 2018, the Company adopted Topic 606 by applying the modified retrospective method of adoption for all contracts that were not substantially completed as of the adoption date. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. The Company implemented ASU 2014-09 for the interim and annual reporting periods of 2019, which resulted in no changes to how we recognize revenue.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), Conforming Amendments Related to Leases. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The new lease guidance was effective for fiscal years beginning after December 15, 2018, and had a material effect on the Company’s financial statements as noted further in Note 5. The Company early adopted this standard during fiscal year 2018.
The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company believes that none of the new standards will have a significant impact on its consolidated financial statements.
NOTE 2 - Fixed Assets
Fixed assets consisted of the following:
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Vehicles
|
|
$
|
-
|
|
|
$
|
7,654
|
|
Furniture and fixtures
|
|
|
9,656
|
|
|
|
10,936
|
|
Computers and office equipment
|
|
|
4,226
|
|
|
|
4,226
|
|
Leasehold improvements
|
|
|
1,775
|
|
|
|
1,775
|
|
Total fixed assets
|
|
|
15,657
|
|
|
|
24,591
|
|
Accumulated depreciation
|
|
|
(9,383
|
)
|
|
|
(7,922
|
)
|
Total fixed assets
|
|
$
|
6,274
|
|
|
$
|
16,669
|
|
The Company sold two assets during the year ending April 30, 2019 for an aggregate of $6,646 in cash and the Company recognized a gain on the sale of assets in the amount of $1,593. During the year ended April 30, 2018, the Company sold a vehicle for proceeds of $4,500 and recorded a loss on the sale of $648.
During the twelve months ended April 30, 2019 and 2018, the Company recognized $5,418 and $5,224, respectively in depreciation expense.
NOTE 3 – CONVERTIBLE PROMISSORY NOTES
The Company determined that each convertible promissory note conversion feature is indexed to the Company’s stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the notes meets the scope exception under FASB Accounting Standards Codification (“ASC”) 815-40-15-7 and treatment under ASC 470-20 – Debt with Conversion and Other Options is appropriate.
As of April 30, 2019, seven of the Company’s convertible promissory notes remain outstanding beyond their respective maturity dates; triggering an event of technical default under the respective agreements. Consequently, the Company is accruing interest on these notes at their respective default rates and has recorded default penalties of $63,788 in the aggregate. As a result of being in default on these notes, the Holders could, at their sole discretion, call these Notes in their entirety, including all associated penalties provided for under the respective agreements.
As of April 30, 2019, the Company owed $439,465 in principal and $147,456 in accrued interest on its remaining outstanding convertible promissory notes. As of April 30, 2018, the Company owed $480,623 in principal (before a debt discount of $21,225) and $62,281in accrued interest (included in accounts payable and accrued expenses) on its remaining outstanding convertible promissory notes.
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
Convertible promissory notes, various lending institutions, maturing at variable dates ranging from 180 days to one year from origination date, 8-12% interest and default interest of 12-24%, convertible at discount to trading price (60-61%) based on various measurements of prior trading, at face value of remaining original note principal balance, net of unamortized debt discounts and attributable deferred financing costs in the amount of $0 and $21,225, respectively.
|
|
|
|
|
|
|
Principal
|
|
$
|
439,465
|
|
|
$
|
480,623
|
|
Debt discount
|
|
|
-
|
|
|
|
(21,225
|
)
|
Total Principal
|
|
$
|
439,465
|
|
|
$
|
459,398
|
|
Summary of Convertible Note Transactions:
|
|
April 30,
2019
|
|
|
April 30,
2018
|
|
|
|
|
|
|
|
|
Convertible notes, May 1
|
|
$
|
480,623
|
|
|
$
|
427,128
|
|
Additional notes, face value
|
|
|
5,500
|
|
|
|
363,375
|
|
Default Penalties
|
|
|
63,788
|
|
|
|
-
|
|
Payments and adjustments
|
|
|
-
|
|
|
|
-
|
|
Settlement of debt
|
|
|
-
|
|
|
|
-
|
|
Conversions of debt
|
|
|
(110,446
|
)
|
|
|
(309,880
|
)
|
Unamortized debt discounts
|
|
|
-
|
|
|
|
(21,225
|
)
|
Convertible notes, balance
|
|
$
|
439,465
|
|
|
$
|
459,398
|
|
RDW Capital, LLC
The RDW Notes have identical terms and conditions including convertibility into common stock at the holder’s option, at a price for each share of common stock equal to 60% of the lowest traded price during the twenty (20) trading days immediately preceding the applicable conversion, and subject to anti-dilution and market adjustments set forth in the Agreement. The Notes mature in six months and bear an interest rate of 8%. In no event shall RDW effect a conversion if such conversion results in RDW beneficially owning in excess of 4.99% of the outstanding common stock of the Company. The Notes and accrued interest may be prepaid in whole or in part at any time with ten (10) days written notice to the holder for the sum of the outstanding principal and interest multiplied by one hundred and thirty percent (130%). Any principal and interest unpaid when due shall bear interest at 24% and RDW may accelerate the outstanding principal, plus accrued and unpaid interest, and other amounts owing through the date of acceleration and the amount due will be one hundred thirty percent (130%) of the outstanding principal amount of the Note and accrued and unpaid interest. In the event the Company defaults on the accelerated balance, and at the request of the Holder, the Company must pay one hundred fifty percent (150%) of the outstanding balance plus accrued interest and default interest. Acceleration by the Holder requires notice to the Company and to date, the Company has not received a notice of acceleration. The Company is required to reserve three (3) times the number of shares necessary for the issuance of common stock upon conversion; however, as of April 30, 2019, RDW Capital agreed to forego the reserve requirement called for under the Note.
Note 3 - On March 10, 2016, the Company entered into a Securities Purchase Agreement and amendments thereto, with RDW Capital, LLC, pursuant to which the Company received $210,000 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $180,000 after payment of $30,000 in legal fees.
The principal was discounted for the OID, due diligence fees, stock issued to an advisor in connection with the note totaling $18,000, and the intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $227,391. As this amount resulted in a total debt discount that exceeded the note principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of the note.
The Note became due and payable on September 10, 2016 and the Company is in default of its obligations under the Note and the default interest rate of 24% per annum is being accrued beginning on September 11, 2016.
During the years ended April 30, 2019 and 2018, respectively, the Company issued no common shares for payment on the note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $792 and $792 in principle and $0 and $0 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 13,196,334.
Note 4 - On May 13, 2016, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC pursuant to which the Company received $105,000 in financing through the execution of a Convertible Promissory Note (RDW Note 4). The Company received proceeds of $82,500 after payment of a $5,000 OID and $17,500 of legal and due diligence fees.
The principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $70,000. As this amount resulted in a total BCF debt discount that was less than note principal, the full $70,000 discount was recognized and accreted over the 6-month term of the Note.
The Note became due and payable on November 13, 2016 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum is being accrued beginning on November 14, 2016.
During the years ended April 30, 2019 and 2018, respectively, the Company issued no common shares for interest payments on the Note. During the year ended April 30, 2017, the Company issued 71,341,227 common shares for a value of $105,000, satisfying the note principal, and leaving a balance due of $4,540 in accrued interest.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $0 and $0 in principle and $4,540 and $4,540 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 75,664,694.
Note 5 - On May 20, 2016, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC pursuant to which the Company received $52,500 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $45,000 after payment of a $2,500 OID and $5,000 of due diligence fees.
The principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $35,000. As this amount resulted in a total BCF debt discount that was less than note principal, the full $35,000 discount was recognized. The resulting $42,500 discount was accreted over the 6-month term of the Note.
The Note became due and payable on November 20, 2016 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum is being accrued beginning on November 21, 2018.
During the years ended April 30, 2019 and 2018 respectively, the Company issued no common shares for the remaining accrued interest on the Note. During the year ended April 30, 2017, the Company issued 116,769 common shares for a value of $52,500, satisfying the note principal, and leaving a balance due of $2,742 in accrued interest.
As of April 30, 2019, and 2018, respectively, the Company owed $0 and $0 in principle and $2,742 and $2,742 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 45,706,301.
Note 6 - On August 22, 2016, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC pursuant to which the Company received $157,500 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $130,000 after payment of a $7,500 OID and $20,000 of legal and due diligence fees.
The principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $105,000. As this amount resulted in a total BCF debt discount that was less than note principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6-month term of the Note.
The Note became due and payable on February 22, 2017 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum has been accrued beginning on February 23, 2017.
During the year ended April 30, 2019, the Company issued no common shares for payment on the Note. During the year ended April 30, 2018, the Company issued 4,919,733 common shares for a value of $38,890..During the year ended April 30, 2017, the Company issued 474,212 common shares for a value of $125,826, satisfying the note principal, and leaving a balance due of $889 in accrued interest.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $0 and $0 in principle and $889 and $889 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 14,817,664.
Note 7 – In connection with RDW SPA 4 under which RDW agreed to purchase an aggregate of up to $367,500 in principal amount of notes, on September 1, 2016, the Company issued to RDW a convertible note due on March 1, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000. The second tranche for $210,000 will occur on the date that is two trading days from the date a registration statement is declared effective by the SEC. On March 16, 2018, the Company and RDW agreed to amend the Note to extend the Maturity Date to October 31, 2018.
The principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $105,000. As this amount resulted in a total BCF debt discount that was less than note principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6-month term of the Note.
The Note became due and payable on October 31, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum has been accrued beginning on November 1, 2018.
During the year ended April 30, 2019, the Company issued no common shares for payment on the Note. During the year ended April 30,2018, the Company issued 24,585,900 common shares for a value of $131,800, and was applied to the Note principal.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $25,700 and $25,700 in principle and $22,221 and $15,074 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 798,697,280.
Note 8 – On February 6, 2017, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC, pursuant to which the Company received $210,000 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $180,000 after payment of $10,000 OID and legal and due diligence fees totaling $20,000. On March 16, 2018, the Company and RDW agreed to amend the Note to extend the Maturity Date to October 31, 2018.
The principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $217,000. As this amount resulted in a total debt discount that exceeded the principal, the discount recorded for the BCF was limited to the principal amount of the Note. The resulting $210,000 discount was accreted over the 6-month term of the Note.
The Note became due and payable on October 31, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum began accruing on November 1, 2018 and the Company has recorded a default penalty of $23,625, which increases the principle balance of the note.
During the year ended April 30, 2019 and 2018, respectively, the Company issued 57,100,000 and 53,560,000 common shares for a value of $14,754 and $32,437, and was applied to the Note principal.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $1,221 and $15,975 in principle and $9,914 and $5,512 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 185,767,820.
Note 9 – On March 30, 2017, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC, pursuant to which the Company received $78,750 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $62,500 after payment of $3,750 OID and legal and due diligence fees totaling $12,500. On March 16, 2018, the Company and RDW agreed to amend the Note to extend the Maturity Date to October 31, 2018.
The principle was discounted for the value of the OID, fees and intrinsic value of the BCF. The calculated intrinsic value was $72,000. As this amount resulted in a total debt discount that exceeded the principal, the discount recorded for the BCF was limited to the principal amount of the Note. The resulting $78,750 discount was accreted over the 6-month term of the Note.
The Note became due and payable on October 31, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum began accruing on November 1, 2018.
During the year ended April 30, 2019, the Company issued 130,800,000 common shares for a value of $16,322, and was applied to the principal on the Note. During the year ended April 30, 2018, the Company issued no common shares for payment on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $86,053 and $78,750 in principle and $22,833 and $7,243 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 814,760,939.
Note 10 – On April 26, 2017, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC, pursuant to which the Company received $110,000 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $90,000 after payment of $10,000 OID and legal fees totaling $10,000. On March 16, 2018, the Company and RDW agreed to amend the Note to extend the Maturity Date to October 31, 2018.
The principle was discounted for the value of the OID, fees and intrinsic value of the BCF. The calculated intrinsic value was $134,000. As this amount resulted in a total debt discount that exceeded the principal, the discount recorded for the BCF was limited to the principal amount of the Note. The resulting $110,000 discount was accreted over the 6-month term of the Note.
The Note became due and payable on October 31, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum began accruing on November 1, 2018.
During the year ended April 30, 2019, the Company issued no shares on the Note. During the year ended April 30, 2018, the Company issued 100,218,200 shares, satisfying the principle balance of the Note.
As of April 30, 2019, and 2018, respectively, the Company owed $7,510 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 125,169,335.
Note 11 – On May 30, 2017, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC, pursuant to which the Company received $78,750 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $65,000 after payment of $3,875 OID and legal and due diligence fees totaling $9,875. On March 16, 2018, the Company and RDW agreed to amend the Note to extend the Maturity Date to October 31, 2018.
The principle was discounted for the value of the OID and issuance fees. The BCF intrinsic value was $102,000. As this amount resulted in a BCF that exceeded the Note proceeds, accretion of the BCF was limited to $65,000 which was accreted over the 6-month term of the Note.
The Note became due and payable on October 31, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum began accruing on November 1, 2018 and the Company has recorded a default penalty in the amount of $24,413, which was added to the principle balance of the Note.
During the years ended April 30, 2019 and 2018, the Company issued no shares on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $105,788 and $81,375 in principal and $24,784 and $6,288 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 2,176,205,030.
Note 12 – On August 7, 2017, the Company entered into a Securities Purchase Agreement with RDW Capital, LLC, pursuant to which the Company received $52.500 in financing through the execution of a Convertible Promissory Note. The Company received proceeds of $46,000 after payment of $2.500 OID and legal and due diligence fees totaling $4.000. On March 16, 2018, the Company and RDW agreed to amend the Note to extend the Maturity Date to October 31, 2018.
The principle was discounted for the value of the OID and issuance fees. The BCF intrinsic value was $107,283. As this amount resulted in a BCF that exceeded the Note proceeds, accretion of the BCF was limited to 46,000 which was accreted over the 6-month term of the Note.
The Note became due and payable on October 31, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 24% per annum began accruing on November 1, 2018 and the Company has recorded a default penalty in the amount of $15,750, which was added to the principle balance of the Note.
During the years ended April 30, 2019 and 2018, respectively, the Company issued no shares against the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $68,250 and $52,500 in principal and $14,979 and $3,197 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 1,387,141,670.
Power Up Lending Group Ltd.
The Power Up Notes have identical terms and conditions, including convertibility into common stock, at the holder’s option any time during the period beginning on the date which is one hundred eighty (180) days following the date of the Note, at a price for each share of common stock equal to 61% of the average of the lowest two (2) trading prices during the twenty (20) trading days immediately preceding the applicable conversion. In no event shall Power Up effect a conversion if such conversion results in Power Up beneficially owning in excess of 4.99% of the outstanding common stock of the Company. The Notes and accrued interest may be prepaid within the 180-day period following the issuance date at an amount equal to 115% - 140% of the outstanding principle and unpaid interest. After expiration of the 180 days, the Note may not be prepaid. Any principal and interest unpaid when due shall bear interest at 22%. Upon the occurrence of an event of default the balance of principle and interest shall become immediately due at the default amount which is equal to the sum of the unpaid principal and unpaid interest multiplied by 150%.
Power Up Settlement
On March 15, 2019, the Company received a Notice of Default from 111 Recovery Corp, as Assignee from Power Up Lending Group, Ltd. The Notice stated that the Company was in default of one or more Convertible Promisory Notes which, prior to the default, had aggregate and outstanding principal balances of $97,950. The Notice stated that as a result of the default, 111 Recovery Corp is demanding immediate payment of $146,925. On October 8, 2018, the Company and the assignee of Power Up, “Recovery”, agreed to settle the amount of all outstanding Notes, in final settlement of all related claims for the aggregate sum of $146,925. At closing, the Company was obligated to pay the first installment of $30,000; the second installment of $15,000 due on October 22, 2019, and the third and final amount of $15,000 by November 5, 2019. Should the Company fail to pay the settlement amount by the deadline, Recovery shall have all rights under the Notes and SPA’s to convert the debt amount into common stock of the Company pursuant to the terms and provisions of the Notes. Recovery, in addition, is entitled to obtain an affirmative injunction from the Court which injunction shall remain in full force and effect until Recovery has converted the debt obligation. Recovery will also have the right to enter a money judgement and have immediate execution thereon for the default amount together with accrued and unpaid interest and full default interest against the Company, giving the Company credit for all sums received by Recovery prior to enforcement. The Company subsequently met all the terms of the final settlement.
Power Up Note 1 – On October 20, 2017 the Company sold a 12% convertible note in the principal amount of $70,000 of which the Company received $60,300 after payment of legal fees of $9,700. The Note matured on July 30, 2018 and bears a default interest rate of 22%.
The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Note and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $44,754 and is being accreted over the 10-month term of the Note.
During the year ended April 30, 2019, the Company issued 243,760,201 common shares in satisfaction of $66,030 in principle and $4,200 in accrued interest. During the year ended April 30, 2018, the Company issued 9,232,558 common shares in satisfaction of $3,970 in principle on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $0 and $66,030 in principal and $0 and $4,554 in accrued interest.
Power Up Note 2 – On November 16, 2017, the Company sold a 12% convertible note in the principal amount of $36,000 of which the Company received $30,000 after payment of legal fees of $6,000.
The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Note and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $23,016 and is being accreted over the 9.5-month term of the Note.
The Note became due and payable on August 30, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 22% per annum began accruing on August 31, 2018.
During the year ended April 30, 2019, the Company issued 138,791,667 common shares for a value of $9,050, which was applied against the principal on the Note. During the year ended April 30, 2018, the Company issued no shares against the balance on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $26,950 and $36,000 in principal and $9,850 and $2,006 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 603,279,747. The number of common shares the Company is required to have in reserve on the note is 1,809,839,240.
Power Up Note 3 – On January 5, 2018 the Company sold a 12% convertible note in the principal amount of $38,000 of which the Company received $32,000 after payment of legal fees.
The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Note and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $24,295 and is being accreted over the 10-month term of the Note.
The Note became due and payable on October 10, 2018 and the Company is in default of its obligations under the Note. The default interest rate of 22% per annum began accruing on October 11, 2018.
During the years ended April 30, 2019 and 2018, the Company issued no shares against the balance on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $38,000 and $38,000 in principal and $8,961 and $1,464 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to hold in its reserves is equal to the amount required to satisfy the Note, which is 769,851,266.The number of common shares the Company is required to have in reserve on the note is 2,309,553,798.
Power Up Note 4 – On January 5, 2018 the Company sold a 12% convertible note in the principal amount of $33,000 of which the Company received $27,500 after payment of legal fees. The Note matures on December 15, 2018 and bears interest at 12%.
The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Note and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $21,098 and is being accreted over the 9-month term of the Note.
During the years ended April 30, 2019 and 2018, the Company issued no shares against the balance on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $33,000 and $33,000 in principal and $6,357 and $613 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to hold in its reserves is equal to the amount required to satisfy the Note, which is 645,204,813.The number of common shares the Company is required to have in reserve on the note is 1,935,614,439.
Adar Bays, LLC
The Adar Notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on or before March 5, 2019. After six months, the Adar Notes are convertible into common stock, at Adar’s option, at a conversion price equal to 60% of the lowest trading price of our common stock during the 20 prior trading days prior to conversion. The Company is required to reserve three (3) times the number of shares necessary for the issuance of common stock upon conversion. The two Adar Collateralized Notes may only be converted by Adar in the event they are paid in full. In addition, the Note contains pre-payment penalties. The Company is only required to make payments on the Back-End Notes if Adar funds the Collateralized Notes.
Adar has agreed to restrict its ability to convert the Adar Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The Adar Notes are a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The Adar Notes also provides for penalties and rescission rights if the Company does not deliver shares of its common stock upon conversion within the required timeframes. In the event of default, the note interest rate increases to 24%.
Adar Settlement
On October 3, 2019, the Company and Adar Bays, LLC agreed to enter into a Payment Agreement to settle the amounts outstanding on two previously outstanding Notes, whereby the Company would repay the debt in three installments; $37,000 by October 4, 2019, $18,750 by October 23, 2019, and $18,750 by November 23, 2019. The Company subsequently met all the terms of the final settlement.
Adar Note 1 - On March 5, 2018, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC providing for the purchase of a Convertible Promissory Note in the principal amount of $52,500; and two Collateralized Secured Promissory Notes also in the amount of $52,500 each (the “Adar Collateralized Notes”) and the delivery by the Company of two Back End Notes payable to Adar each in the principal amount of $52,500. The first $52,500 financing closed on March 5, 2018 with the Company receiving net proceeds of $43,500 after payment of legal fees of $6,500 and a 5%, or $2,500 original issue discount. On May 24, 2018 Adar funded $5,789 under one of the Adar Collateralized Notes with the Company receiving net proceeds of $5,500 after payment of a 5% original issue discount.
The intrinsic value of the Adar Notes beneficial conversion feature exceeded their proceeds thereby limiting the accretion of the BCF to $43,500 and $5,500 for Adar Note 1 and the Adar Collateralized Note, respectively. Accretion is over the 12-month term of the Adar Notes.
During the year ended April 30, 2019, the Company issued 76,316,667 shares against the principle balance on the Note.
As of April 30, 2019, and April 30, 2018, respectively, the Company owed $53,710 and $52,500 in principal and $14,904 and $648 in accrued interest.
As of April 30, 2019, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 994,400,796. The number of common shares the Company is required to have in reserve is 2,983,202,389, which is equal to three times the amount sufficient to satisfy the note at each measurement date.
NOTE 4 - SHORT TERM LOANS
On September 25, 2018, the Company repaid the then outstanding balance of the ACH Loan totaling $13,372 with funds received from Strategic Funding Source, Inc.
On September 25, 2018, the Company borrowed $39,574 from Strategic Funding Source, Inc. under the Loan Agreement. Pursuant to the terms of the Loan Agreement, the Company received $13,233 of proceeds after deductions for $395 of service fees and $11,340 related to interest. Repayment is achieved through 246 daily bank account withdrawals of $156. The Loan Agreement is secured by all current and future assets of the Company. As of April 30, 2019, the Company was in arrears under the terms of the Agreement by $13,104 and the balance owed on the note was $17,966, after a debt discount of $10,234.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Product Warranties
The Company’s manufacturer(s) provide the Company with a 2-year warranty. The Company products are sold with a 1-year manufacturer’s warranty. The Company offers a 1-year extended warranty for a fee. The extended warranty expires at the end of the second year from the date of purchase with warranty costs during the two-year period being born by the manufacturer. As a result, the Company has no, or limited warranty liability exposure.
Operating Leases
On November 15, 2017, the Company entered into a lease of office space at 1600 Olive Chapel Road, Apex, North Carolina 27502. The lease expires on November 30, 2020 and includes an option to extend the lease an additional term or three years. Rent is $1,650 per month and is increased each anniversary by 3%. The Company paid a $1,650 security deposit. The Company had early adopted ASC 2016-2; Leases (Topic 842) during fiscal year 2018. As a result, the Company was required to estimate and record the right of use asset (“ROU Asset”) and lease liability on the face of the Company’s balance sheet. Accordingly, the new lease guidance became effective for the Company on May 1, 2017, which is the beginning of the earliest comparative period presented in the financial statements in which the Company first applies the new lease accounting guidance.
During fiscal year 2018, the Company determined the ROU Asset and lease liability to be $51,063 which compares to the total, undiscounted cash flow payments of the initial three-year term of $61,200. As of April 30, 2018, since the right of use asset and lease liability were the same, there was not adjustment to retained earnings. The company determined that there was no discount rate implicit in the lease. Thus, the Company used its incremental borrowing rate of 12% to discount the lease payments in the determination of the ROU asset and lease liability.
On March 21, 2015, the Company entered into a lease of office space at 130 Iowa Lane, Suite 102, Carry, North Carolina 27511. During January, 2018, the Company moved and this lease was terminated with no further obligations.
The Company has no other non-cancelable operating leases. The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of April 30, 2019:
Fiscal Year
|
|
|
|
2020
|
|
$
|
20,649
|
|
2021
|
|
$
|
12,253
|
|
|
|
$
|
32,902
|
|
As of April 30, 2019, total operating lease liability was as follows:
Total undiscounted cash flows
|
|
$
|
32,902
|
|
Less unamortized interest
|
|
|
(3,091
|
)
|
Total operating lease liability
|
|
$
|
29,811
|
|
Less short-term liability
|
|
$
|
(18,033
|
)
|
Total long-term operating lease liability
|
|
$
|
11,778
|
|
During the twelve months ended April 30, 2019 and 2018, operating lease expense for rent for office space totaled $17,905 and $17,119, respectively.
NOTE 6 - SEGMENT AND GEOGRAPHIC DATA
Contract assets represent accrued revenues that have not yet been billed to the customers due to certain contractual terms other than the passage of time. For the twelve months ended April 30, 2019, the Company did not have any contract assets. Receivables from customers are included in current assets on the consolidated balance sheet. Due to the nature of our sales transactions, we have elected the following practical expedients: (i) Shipping and handling costs are treated as fulfillment costs. Accordingly, shipping and handling costs are classified as a component of Cost of goods sold while amounts billed to customers are classified as a component of Net Sales.
The Company’s operations are disaggregated as follows. All of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue by major product line, type of customer, and timing of revenue recognition:
Major Product Lines
Product Lines
|
|
Revenue
|
|
|
% of sales
|
|
Cameras
|
|
$
|
150,940
|
|
|
|
92.18
|
%
|
Accessories
|
|
|
7,210
|
|
|
|
4.40
|
%
|
Software
|
|
|
5,590
|
|
|
|
3.41
|
%
|
Total Net Revenue
|
|
$
|
163,740
|
|
|
|
100.00
|
%
|
Types of Customers
Customer Type
|
|
% of sales
|
|
Federal
|
|
|
91.00
|
%
|
State, Local
|
|
|
2.00
|
%
|
Non-government
|
|
|
7.00
|
%
|
Total Net Revenue
|
|
|
100.00
|
%
|
Timing of Revenue Recognition
|
|
Revenue
|
|
|
Percentage
|
|
Transferred at a point in time
|
|
$
|
163,740
|
|
|
|
100.00
|
%
|
Transferred over time
|
|
|
-
|
|
|
|
0
|
%
|
Total Net Revenue
|
|
$
|
163,740
|
|
|
|
100.00
|
%
|
NOTE 7 – INCOME TAXES
The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Tax Cuts and Jobs Act of 2017 changed the top corporate federal tax rate from 35% to one rate of 21%. This rate will be effective for corporations whose tax year begins after January 1, 2018, and it is a permanent change. Under ASC 740, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The resulting amendments to IRC Section 172 disallow the carryback of net operating losses but allow for the indefinite carryforward of those net operating losses. Pursuant to Section 172(e)(2) of the statute, the amended carryback and carryover rules apply to any net operating loss arising in a taxable year ending after December 31, 2017. In addition to the carryover and carryback changes, the Act also introduces a limitation on the amount of net operating losses that a corporation may deduct in a single tax year under section 172(a) equal to the lesser of the available net operating loss carryover or 80 percent of a taxpayer’s pre-NOL deduction taxable income (the ”80-percent limitation”). This limitation applies only to losses arising in tax years that begin after December 31, 2017 based upon section 172(e)(1) of the amended statute. The Company also has a state tax rate of approximately 3% for fiscal year 2019 and 2018.
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax provision (benefit) at blended rate
|
|
$
|
(132,000
|
)
|
|
$
|
(217,784
|
)
|
Nondeductible items
|
|
|
-
|
|
|
|
105,325
|
|
Subtotal
|
|
|
(132,000
|
)
|
|
|
(112,460
|
)
|
Change in valuation allowance
|
|
|
132,000
|
|
|
|
112,460
|
|
Income Tax Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities were comprised of the following:
|
|
|
|
|
|
|
|
|
Net Operating Losses
|
|
$
|
552,679
|
|
|
$
|
420,679
|
|
Valuation allowance
|
|
|
(522,679
|
)
|
|
|
(420,679
|
)
|
Deferred tax asset, net
|
|
$
|
-
|
|
|
$
|
-
|
|
As of April 30, 2019, the Company has estimated tax net operating loss carryforwards of approximately $4 million, which can be utilized or expire in 2037 and the remainder is carried forward indefinitely.
The Company has adopted the accounting guidance related to uncertain tax positions, and has evaluated its tax positions and believes that all of the positions taken by the Company in its tax returns are more likely than not to be sustained upon examination. The Company returns are subject to examination by federal and state taxing authorities generally for three years after they are filed.
NOTE 8 – RELATED PARTY TRANSACTIONS
The majority shareholder has advanced funds since inception for the purpose of financing working capital. As of April 30, 2019, and 2018, the Company owed $14,650 and $7,500, respectively. The advances are payable upon demand and non-interest bearing.
During the year ended April 30, 2018, the Company issued 4,000,000 shares of the Company’s Series A Preferred Shares to its sole director and chief executive officer in exchange for $4,000.
Pursuant to the Employment Agreement for the Company’s CEO which was extended for an additional three years to November 30, 2020, Mr. Feldman is entitled to an annual salary of $100,000. As of April 30, 2019, the Company owed deferred compensation in the amount of $16,538 as Mr. Feldman has agreed to defer until such time the Company has sufficient cash flows to support his salary under the agreement.
NOTE 9 –REDEEMABLE PREFERRED STOCK AND StockholderS’ DEFICIT
Redeemable Preferred Stock
As of April 30, 2019, and April 30, 2018, respectively, there were 5,000,000 shares of par value $0.0001, Series A Preferred Stock outstanding. The Preferred Stock pays no dividends and has no conversion rights into common stock. Each share of Preferred Stock is entitled to 200 votes per share and is redeemable in whole, but not in part, at the option of the holder for $0.0001 per share. Due to the redemption feature being at the option of the holder, the Company classifies the purchase price in the temporary equity section of the balance sheet.
During the year ended April 30, 2018, the Company issued 4,000,000 shares of Series A Preferred Stock to Paul Feldman, CEO in exchange for $4,000. Each Series A preferred share is entitled to 200,000 (i.e., 200:1) votes per share and carries no right of conversion into shares of common stock.
Common Stock
As of April 30, 2019, and April 30, 2018, there were 841,184,289 and 194,415,754 shares of common stock outstanding, respectively.
As of April 30, 2019, and 2018, respectively, the Company accreted its debt discounts related to the beneficial conversion feature in our convertible promissory notes in the amounts of $113,286 and $433,316.
On September 20, 2018, the Company amended its Articles of Incorporation to affect a 1:1,000 reverse stock split. As of the date of this filing, the Company is waiting for FINRA to approve this corporate action. All share amounts included in this report have not been updated to reflect the reverse split.
On May 17, 2018, the Company filed its Amended Articles of Incorporation which increased its authorized common stock to 20,000,000,000 shares and it Series A Preferred to 20,000,000 shares, with no changes in par value. The increase in the common stock was made necessary because of the reserves required by the Company’s holders of convertible notes.
During the twelve months ended April 30, 2019, the Company issued an aggregate of 646,768,535 shares of common stock in exchange for convertible notes and accrued interest totaling $115,289.
During the year ended April 30, 2018, the Company issued 192,516,391 shares of common stock in exchange for convertible notes totaling $317,096. In addition, a total of 100,000 common shares were issued for cash in the amount of $600, and 100,000 common shares were issued for services and valued at $600.
NOTE 10 – SUBSEQUENT EVENTS
On October 3, 2019, the Company and Adar Bays, LLC agreed to enter into a Payment Agreement to settle the amounts outstanding on two previously outstanding Notes, whereby the Company would repay the debt in three installments; $37,000 by October 4, 2019, $18,750 by October 23, 2019, and $18,750 by November 23, 2019. The Company subsequently met all the terms of the final settlement.
On October 11, 2019, the Company entered into a secured promissory note with RDW Capital, LLC in the amount of $27,500. The Note matures on April 11, 2020 and bears an interest rate of 5%. Interest payments are due and payable on the 90-day anniversary of the execution of the note, and with the principal payment of the note on or before the maturity date. In security for the note, the Company’s President has pledged the Preferred Shares of the Company registered on the books of the Company in his or designees name and shall be the sole recourse the Note Holder has in relation to repayment of the Note. The Company subsequently satisfied the balance of the Note by the due date.
Pursuant to a Securities Purchase Agreement originally dated August 8, 2017, the Company entered into additional convertible promissory notes with RDW Capital, LLC for aggregate proceeds of $208,256. The Notes mature six months from the respective dates of issuance, bear interest at 8%, and are convertible into common stock of the Company at the Holder’s option. The conversion price for each share of common stock is equal to 60% of the lowest traded price during the twenty (20) trading days immediately preceding the applicable conversion (subject to anti-dilution and market adjustments set forth in the Agreement). Upon the occurrence of any default, and at the Holder’s option, the Holder may require the Company to convert all or any part of the Note into common stock at the Alternative Conversion Price which is 50% of the lowest traded price during the twenty (20) days prior to the conversion date. In no event shall RDW effect a conversion if such conversion results in RDW beneficially owning in excess of 4.99% of the outstanding common stock of the Company. The Notes and accrued interest may be prepaid in whole or in part at any time with ten (10) days written notice to the holder for the sum of the outstanding principal and interest multiplied by one hundred and thirty percent (130%). Any principal and interest unpaid when due shall bear interest at 24% and RDW may accelerate the outstanding principal, plus accrued and unpaid interest, and other amounts owing through the date of acceleration and the amount due will be one hundred thirty percent (130%) of the outstanding principal amount of the Note and accrued and unpaid interest. In the event the Company defaults on the accelerated balance, and at the request of the Holder, the Company must pay one hundred fifty percent (150%) of the outstanding balance plus accrued interest and default interest. The Company is required to reserve three (3) times the number of shares necessary for the issuance of common stock upon conversion.
On October 15, 2019, the Company was notified that the Notes held by RDW Capital, LLC, were assigned by them to RedDiamond Partners, LLC in a private transaction. The terms of the original Notes remained unchanged.
Power Up Settlement
On October 8, 2018, the Company and the assignee of Power Up, “Recovery”, agreed to settle the amount of all outstanding Notes, in final settlement of all related claims for the aggregate sum of $146,925. At closing, the Company was obligated to pay the first installment of $30,000; the second installment of $15,000 due on October 22, 2019, and the third and final amount of $15,000 by November 5, 2019. Should the Company fail to pay the settlement amount by the deadline, Recovery shall have all rights under the Notes and SPA’s to convert the debt amount into common stock of the Company pursuant to the terms and provisions of the Notes. Recovery, in addition, is entitled to obtain an affirmative injunction from the Court which injunction shall remain in full force and effect until Recovery has converted the debt obligation. Recovery will also have the right to enter a money judgement and have immediate execution thereon for the default amount together with accrued and unpaid interest and full default interest against the Company, giving the Company credit for all sums received by Recovery prior to enforcement. The Company subsequently met all the terms of the final settlement.