Notes
to Unaudited Consolidated Financial Statements
Note
1 – History and organization of the company
The
Company was originally organized on September 11, 2006 (Date of Inception) under the laws of the State of Nevada, as The Engraving
Masters, Inc. The Company was authorized to issue up to 100,000,000 shares of its common stock and 100,000,000 shares of preferred
stock, each with a par value of $0.001 per share.
On
March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a Colorado corporation formed in February 2014 (“Blue
Line Colorado”), as a wholly-owned subsidiary of the Company. Blue Line Colorado provides protection, compliance, and financial
services to the lawful cannabis industry.
On
May 2, 2014, the Company changed its name from The Engraving Masters, Inc. to Blue Line Protection Group, Inc. (“BLPG”)
On
May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1,
whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the authorized capital
of the Company concurrently increased to 1,400,000,000 shares of common stock. All references to share and per share amounts in
the consolidated financial statements and accompanying notes thereto have been retroactively restated to reflect the forward stock
split.
The
Company provides armed protection, logistics, and compliance services for businesses engaged in the legal cannabis industry. The
Company offers asset logistic services, such as armored transportation service; security services, including shipment protection,
money escorts, security monitoring, asset vaulting, VIP and dignitary protection, financial services, such as handling transportation
and storage of currency; training; and compliance services.
Note
2 – Accounting policies and procedures
Interim
financial statements
The
unaudited interim consolidated financial statements included herein, presented in accordance with United States generally accepted
accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
In
the opinion of management, these statements reflect all adjustments, all of which are of a normal recurring nature, which, in
the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these
interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31,
2019 and notes thereto included in the Company’s annual report on Form 10-K. The Company follows the same accounting policies
in the preparation of interim reports.
Results
of operations for the interim periods are not indicative of annual results.
Principles
of consolidation
For
the three months ended March 31, 2020 and 2019, the consolidated financial statements include the accounts of Blue Line Protection
Group, Inc. (formerly The Engraving Masters, Inc.), Blue Line Advisory Services, Inc. (a Nevada corporation; “BLAS”),
Blue Line Capital, Inc. (a Colorado corporation; “Blue Line Capital”), Blue Line Protection Group (California), Inc.
(a California corporation; “Blue Line California”), Blue Line Colorado, Blue Line Protection Group Illinois, Inc.
(an Illinois corporation; “Blue Line Illinois”), BLPG, Inc. (a Nevada corporation; “Blue Line Nevada”),
Blue Line Protection Group (Washington), Inc. (a Washington corporation; “Blue Line Washington”). All significant
intercompany balances and transactions have been eliminated. BLPG and its subsidiaries are collectively referred herein to as
the “Company.”
Basis
of presentation
The
financial statements present the balance sheets, statements of operations, stockholder’s equity (deficit) and cash flows
of the Company. The financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America.
The
Company has adopted December 31 as its fiscal year end.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Cash
and cash equivalents
The
Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For
the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are
considered to be cash equivalents. There were no cash equivalents as of March 31, 2020 and December 31, 2019.
Accounts
receivable
Accounts
receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company
provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The
allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s
existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for
additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement
for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with
past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted
and the potential for recovery is considered remote.
Allowance
for uncollectible accounts
The
Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred.
There was no allowance for doubtful customer receivables at March 31, 2020 and December 31, 2019.
Property
and equipment
Property
and equipment is recorded at cost and capitalized from the initial date of service. Expenditures for major additions and improvements
are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment
is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful
lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation
methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment
categories are as follows:
Automotive
Vehicles
|
|
5
years
|
Furniture
and Equipment
|
|
7
years
|
Buildings
and Improvements
|
|
15
years
|
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing
this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects
of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as March 31,
2020 and December 31, 2019. Depreciation expense for the three months ended March 31, 2020 and March 31, 2019, is $28,180 and
$31,082, respectively.
Impairment
of long-lived assets
The
Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal
of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company
assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the
asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment
loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. As of
March 31, 2020 and December 31, 2019, the Company determined that none of its long-term assets were impaired.
Concentration
of business and credit risk
The
Company has no significant off-balance sheet risks such as foreign exchange contracts, option contracts or other hedging arrangements.
The Company’s financial instruments that are exposed to concentration of credit risks consist primarily of cash. The Company
maintains its cash in bank accounts, which may at times, exceed federally insured limits.
The
Company had three major customers which generated 19%, 14% and 10%, respectively, for a total of approximately 43% of total
revenue in the three months ended March 31, 2020.
The
Company had one major customer which generated approximately 18% of total revenue in the three months ended March 31, 2019.
Related
party transactions
FASB
ASC 850, “Related Party Disclosures” requires companies to include in their financial statements disclosures of material
related party transactions. The Company discloses all material related party transactions. Related parties are defined to include
any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director
or executive officer.
Fair
value of financial instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and related party payables approximate the respective
fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
following table presents the derivative financial instruments, the Company’s only financial liabilities, measured and recorded
at fair value on the Company’s consolidated balance sheet on a recurring basis, and their level within the fair value hierarchy
as of March 31, 2020 and December 31, 2019:
March
31, 2020
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Embedded conversion derivative liability
|
|
$
|
1,455,129
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,455,129
|
|
Warrant derivative liabilities
|
|
$
|
282
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
282
|
|
Total
|
|
$
|
1,455,411
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,455,411
|
|
December
31, 2019
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Embedded conversion derivative liability
|
|
$
|
1,169,515
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,695,515
|
|
Warrant derivative liabilities
|
|
$
|
545
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
545
|
|
Total
|
|
$
|
1,170,060
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,170,060
|
|
The
embedded conversion feature in the convertible debt instruments that the Company issued, that became convertible qualified them
as derivative instruments since the number of shares issuable under the notes are indeterminate based on guidance in FASB ASC
815, Derivatives and Hedging. These convertible notes tainted all other equity linked instruments including outstanding warrants
and fixed rate convertible debt on the date that the instrument became convertible. The valuation of the derivative liability
of the warrants was determined through the use of Black Scholes option-pricing model (See Note 8).
Revenue
Recognition
The
Company recognizes revenue when delivery of the promised goods or services is transferred to its customers, in an amount that
reflects the consideration that the Company expects to be entitled to in exchange for those goods or services. We determine revenue
recognition through the following five steps:
|
●
|
Identify
the contract with the customer;
|
|
|
|
|
●
|
Identify
the performance obligations in the contract;
|
|
●
|
Determine
the transaction price;
|
|
|
|
|
●
|
Allocate
the transaction price to the performance obligations in the contract; and
|
|
|
|
|
●
|
Recognize
revenue when, or as, the performance obligations are satisfied.
|
We
generate substantially all our revenue from providing services to customers. The Company records revenue with the 5 steps above
have been completed.
Effective
January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue
recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout
the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect
to revenues and cash flows arising from contracts with customers. The Company adopted the standard using the modified retrospective
approach effective January 1, 2018.
The
Company adopted these standards at the beginning of the first quarter of fiscal 2018 using the modified retrospective method.
The adoption of these standards did not have an impact on the Company’s Statements of Operations in for the year ended December
31, 2018.
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics. Revenue is
characterized by several lines of services and typically the pricing is fixed.
Three months ended March 31,
|
Revenue Breakdown by Streams
|
|
2020
|
|
|
2019
|
|
Service: Guards
|
|
$
|
-
|
|
|
$
|
267,734
|
|
Service: Transportation
|
|
|
518,728
|
|
|
|
22,865
|
|
Service: Currency Processing
|
|
|
458,667
|
|
|
|
355,237
|
|
Service: Compliance
|
|
|
14,067
|
|
|
|
12,248
|
|
Other
|
|
|
-
|
|
|
|
525
|
|
Total
|
|
$
|
991,462
|
|
|
$
|
928,609
|
|
As
of December 31, 2019 the Company discontinued its Service-Guards segment.
Advertising
costs
The
Company expenses all costs of advertising as incurred. There were $3,075 and $3,770 in advertising costs for the three months
ended March 31, 2020 and 2019, respectively.
General
and administrative expenses
The
significant components of general and administrative expenses consist mainly of rent and compensation.
Share-Based
Compensation
Share-based
compensation expense is recorded as a result of stock options granted in return for services rendered. Previously, the share-based
payment arrangements with employees were accounted for under ASC 718, while nonemployee share-based payments issued for goods
and services are accounted for under ASC 505-50. ASC 505-50 differs significantly from ASC 718. On June 20, 2018, the FASB issued
ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the
ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted
to employees. The Company has adopted the new standard and has made some adjustment with regard to the share-based compensation
costs. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments is generally fixed on the
grant date and the options are no longer revalued on each reporting date. The expenses related to the share-based compensation
are recognized on each reporting date. The amount is calculated as the difference between total expenses incurred and the total
expenses already recognized.
(Redundant.
See next page)
Cost
of Revenue
The
Company’s cost of revenue primarily consists of labor, fuel costs and items purchased by the Company specifically purposed
for the benefit of the Company’s client.
Basic
and Diluted Earnings per share
Net
loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic loss per share is computed
by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period.
Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss
per share excludes all potential common shares if their effect is anti-dilutive. For the periods presented all common stock equivalents
were excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.
Dividends
The
Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Income
Taxes
The
Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests
that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance
is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of
assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset
or liability are classified as current or non-current depending on the periods in which the temporary differences are expected
to reverse.
Recent
Pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize
(i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;
however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard
was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company
elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply
the transition provision for Topic 842 at the Company’s adoption date instead of at the earliest comparative period presented
in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospective
application. Therefore, there was no impact recorded to beginning retained earnings or the statement of operations
The
Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not
have a material effect on the financial position, results of operations or cash flows of the Company.
Note
3 – Going concern
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company has a net loss, accumulated deficit and had a working capital deficit as of March 31, 2020.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is
significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing. There
are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to
continue as a going concern.
The
financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the
amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These
financial statements do not include any adjustments that might arise from this uncertainty.
Note
4 – Commitments and contingencies
Contingencies
On
November 6, 2015, Daniel Sullivan sent a wage claim demand. Mr. Sullivan purports to have had an Independent Contractor Agreement
with the Company which provides he is entitled to certain compensation and to be reimbursed for Company expenses. The demand claims
unpaid compensation in the amount of $8,055 and unreimbursed expenses in the amount of $154,409. The Company denies the agreement
was ever signed. As of March 31, 2020 and December 31, 2019 the Company accrued a total of $34,346 and $34,346, respectively of
contingent liabilities. If litigation is commenced the Company will defend any claims by Mr. Sullivan.
Mile
High Real Estate Group, an entity owned by Mr. Sullivan, sent correspondence stating the Mr. Sullivan and/or Mile High Real Estate
loaned the Company either directly or directly to contractors, material suppliers or utilities for operating and building remodeling
in the amount of $98,150. Counsel for Mr. Sullivan stated that he was still compiling information. The Company is investigating
whether Mr. Sullivan and/or Mile High Real Estate Group ever made the alleged loans. The Company will defend any claims
of Mile High Real Estate Group. As of March 31, 2020 and December 31, 2019 the Company accrued a total of $98,150.
On
April 14, 2016, the Company entered into an agreement with an unrelated third party to provide the Company with investor relations
services. Upon signing the agreement, the Company paid the investor relations consultant $75,000 and agreed to issue the consultant
1,500,000 shares of its restricted common stock. The agreement requires the Company to pay the consultant an additional $75,000
prior to June 14, 2016. The Company cancelled the agreement and is of the opinion that the shares are not owed to the consultant.
As of March 31, 2020 and December 31, 2019 there was no payable recorded.
During the three months ended March 31,
2020 the Company recorded a gain of $4,500 for settlement of a vendor payable.
Finance
leases
On
April 25, 2018, the Company recorded finance lease obligation for a leased a vehicle for $38,388. The Company made a down payment
of $7,500 and agreed to make 36 monthly payment of $1,015.78 including sales tax. The Company recognized this arrangement as a
finance lease based on the determination that the lease exceeded 75% of the economic life of the underlying assets
On
August 16, 2018, the Company recorded finance lease obligation for a leased a vehicle for $58,476. The Company made a down payment
of $20,000 and an additional $10,000 for delivery fees, taxes and its first month payment and agreed to make 36 monthly payments
of $1,265.30, including sales tax. The Company recognized this arrangement as a finance lease based on the determination that
the lease exceeded 75% of the economic life of the underlying assets
On
August 16, 2018, the Company recorded finance lease obligation for a leased a vehicle for $58,476. The Company made a down payment
of $20,000 and an additional $10,000 for delivery fees, taxes and its first month payment and agreed to make 36 monthly payments
of $1,265.30, including sales tax. The Company recognized this arrangement as a finance lease based on the determination that
the lease exceeded 75% of the economic life of the underlying assets
On
March 1, 2019, the Company recorded finance lease obligation for a leased a vehicle for $64,354. The Company made a down payment
of $30,000 for delivery fees, taxes and its first month payment and agreed to make 36 monthly payments of $1,129.76, including
sales tax. The Company recognized this arrangement as a finance lease based on the determination that the lease exceeded 75% of
the economic life of the underlying assets
Future minimum lease payments as of March 31, 2020:
|
2020
|
|
$
|
44,415
|
|
2021
|
|
|
30,338
|
|
2022 and thereafter
|
|
|
2,260
|
|
Total minimum lease payments
|
|
$
|
77,013
|
|
Operating
Leases
On
October 27, 2016 the Company sold its building located at 5765 Logan Street Denver, Colorado to an unrelated third party for $1,400,000.
The Company repaid the mortgage on the building in the amount of $677,681. After the sale, the Company leased the building from
the purchaser of the property. The lease is for an initial term of ten years, with the Company having the option to extend the
term of the lease for two additional five-year periods. The lease requires rental payments of $10,000 per month and will increase
2% annually. The Company paid a $30,000 deposit at the inception of the lease
On
May 29, 2018 the Company leased a building located at 4328 E. Magnolia Street, Phoenix, Arizona. The lease is for an initial
term of one years, with the Company having the option to extend the term of the lease for additional four year periods. The lease
requires rental payments of $3,880 per month and will increase 2% annually. The Company paid a $4,369 deposit at the inception
of the lease.
On
January 22, 2019 the Company leased a building located at 7490 Bridgewater Road, Huber Heights, Ohio the lease is for an initial
term of 63 months. The lease requires rental payments of $3,200 per month and will increase to $3,400 between months 28 through
63. The Company paid a $3,200 deposit at the inception of the lease
The
Company adopted ASC 842 and recorded right of use asset and operating lease liability of $1,082,241. The company used 12% as incremental
borrowing rate as is the average interest rate of the company’s outstanding third party note. The lease agreement gives
the Company the option to renew it for two additional 5 year terms but the Company did not consider it likely to exercise that
option. Therefore, the company did not include such amounts in its computations of the present value of remaining lease payment
on adoption date.
Supplemental
balance sheet information related to leases is as follows:
Operating Leases
|
|
Classification
|
|
March 31, 2020
|
|
Right-of-use assets
|
|
Operating right of use assets
|
|
$
|
831,115
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
Current operating lease liabilities
|
|
|
119,135
|
|
Non-current lease liabilities
|
|
Long-term operating lease liabilities
|
|
|
754,288
|
|
Total lease liabilities
|
|
|
|
$
|
873,423
|
|
Lease
term and discount rate were as follows:
|
|
March 31, 2020
|
|
Weighted average remaining lease term (years)
|
|
|
5.00
|
|
Weighted average discount rate
|
|
|
12
|
%
|
The
following summarizes lease expenses for the year ended March 31, 2020:
Finance
lease expenses:
Depreciation/amortization
expense
|
|
$
|
28,311
|
|
Interest
on lease liabilities
|
|
|
26,745
|
|
Finance
lease expense
|
|
$
|
55,056
|
|
Supplemental
disclosures of cash flow information related to leases were as follows:
|
|
March 31, 2020
|
|
Cash paid for operating lease liabilities
|
|
$
|
28,311
|
|
Operating right of use assets obtained in exchange for operating lease liabilities
|
|
$
|
-
|
|
Maturities
of lease liabilities were as follows as of March 31, 2020:
|
|
Operating Leases
|
|
|
|
|
|
2020
|
|
$
|
161,531
|
|
2021
|
|
|
222,067
|
|
2022
|
|
|
227,253
|
|
2023
|
|
|
199,098
|
|
2024
|
|
|
155,531
|
|
2025
|
|
|
141,302
|
|
2026
|
|
|
107,558
|
|
Total
|
|
|
1,214,340
|
|
Less: Imputed interest
|
|
|
(340,917
|
)
|
Present value of lease liabilities
|
|
$
|
873,423
|
|
December
31, 2019
Operating Leases
|
|
Classification
|
|
December 31, 2019
|
|
Right-of-use assets
|
|
Operating right of use assets
|
|
$
|
859,426
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
Current operating lease liabilities
|
|
|
114,653
|
|
Non-current lease liabilities
|
|
Long-term operating lease liabilities
|
|
|
785,802
|
|
Total lease liabilities
|
|
|
|
$
|
900,455
|
|
Lease
term and discount rate were as follows:
|
|
December 31, 2019
|
|
Weighted average remaining lease term (years)
|
|
|
5.26
|
|
Weighted average discount rate
|
|
|
12
|
%
|
The
following summarizes lease expenses for the year ended December 31, 2019:
Finance
lease expenses:
Depreciation/amortization expense
|
|
$
|
189,290
|
|
Interest on lease liabilities
|
|
|
6,009
|
|
Finance lease expense
|
|
$
|
195,299
|
|
Supplemental
disclosures of cash flow information related to leases were as follows:
|
|
December 31, 2019
|
|
Cash paid for operating lease liabilities
|
|
$
|
155,549
|
|
Operating right of use assets obtained in exchange for operating lease liabilities
|
|
$
|
1,082,241
|
|
Maturities
of lease liabilities were as follows as of December 31, 2019:
|
|
Operating Leases
|
|
|
|
|
|
2020
|
|
$
|
216,587
|
|
2021
|
|
|
222,067
|
|
2022
|
|
|
227,253
|
|
2023
|
|
|
199,098
|
|
2024
|
|
|
155,531
|
|
2025
|
|
|
141,302
|
|
2026
|
|
|
107,558
|
|
Total
|
|
|
1,269,396
|
|
Less: Imputed interest
|
|
|
(368,941
|
)
|
Present value of lease liabilities
|
|
$
|
900,455
|
|
Note
5 – Fixed assets
Machinery
and equipment consisted of the following at:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Automotive vehicles
|
|
$
|
381,844
|
|
|
$
|
381,844
|
|
Furniture and equipment
|
|
|
85,435
|
|
|
|
85,435
|
|
Machinery and Equipment
|
|
|
135,706
|
|
|
|
135,706
|
|
Leasehold improvements
|
|
|
105,714
|
|
|
|
105,714
|
|
Fixed assets, total
|
|
|
708,699
|
|
|
|
708,699
|
|
Total : accumulated depreciation
|
|
|
(353,465
|
)
|
|
|
(325,285
|
)
|
Fixed assets, net
|
|
$
|
355,234
|
|
|
$
|
383,414
|
|
Total
depreciation expenses for the three months ended March 31, 2020 and March 31, 2019 were $28,120 and $31,082, respectively.
Note
6 – Notes payable
Notes
payable to non-related parties
During
February 2015, the Company borrowed $50,000 from a non-affiliated person. The loan is due and payable on April 6, 2015 and is
now payable on demand with interest at 10% per annum. As of March 31, 2020 and December 31, 2019, the principal balance owed on
this loan was $50,000 and $50,000, respectively. The note is currently past due.
During
April 2015, the Company borrowed $25,000 from a non-affiliated person. The loan is due and payable May 1, 2015 with interest at
6% per year and has a 5% per month penalty upon default. As of March 31, 2920 and December 31, 2019, the principal balance owed
on this loan was $25,000 and $25,000, respectively. The note is currently past due.
On
January 5, 2016, the Company borrowed $10,000 from a non-affiliated person. The loan was due and payable on January 5, 2017 and
bore interest at 5% per annum and has a 5% per month penalty upon default. The principal balance owed on this loan at March 31,
2020 and December 31, 2019 was $10,000 and $10,000, respectively. The note is currently past due.
On
May 15, 2019 the Company entered in a 12% promissory loan with Helix Funding, LLC for the Principle amount of $100,000. The note
matures on November 1, 2019. The note is currently past due.
Convertible
notes payable to non-related party
On
October 18, 2017, the Company borrowed $150,000 from an unrelated third party. The Company paid $15,250 of fees associated with
the loan, which was recorded as discount and to be amortized over the term of the debt and was fully amortized as of December
31, 2018. The loan bears interest at a rate of 10% (default interest 24%) and has a maturity date of July 16, 2018. The Holder
has the option to convert the outstanding principal and accrued interest into common stock of the Company. The conversion price
is the lesser of (1) lowest trading price during the previous 25 days prior to the note agreement or (2) 50% lowest trading price
during the 25 days prior to conversion. Covenants: The Borrower shall not, without the Holder’s consent, sell, lease or
dispose of any significant portion of its assets outside the ordinary course of business. During the year ended December 31, 2018
the Company paid $150,000 to extend the maturity date until May 11, 2019. During the year months ended December 31, 2019 the Company
paid an $75,000 of extension fees. The note was discounted for a derivative (see note 8 for details) and the discount of $134,750
is being amortized over the life of the note using the effective interest method which was fully amortized as of December 31,
2018. During the year ended December 31, 2019 the holder converted $39,478 of accrued interest into 217,882,455 shares of common
stock resulting in a loss of $61,624. As of March 31, 2020 and December 31, 2019 the balance outstanding on the loan is $150,000.
On
January 2, 2018 the Company borrowed $30,000 from an unrelated third party. The Company paid $2,000 of fees associated with the
loan and the Company amortized $1,989 as of December 31, 2018. The loan has a maturity date of January 2, 2019 and bears interest
at the rate of 12% (default interest lesser of 15% or maximum permitted by law). The conversion Feature Convertible immediately
after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the
Company. The Conversion price is 55% of the lowest trading price during the 25 Trading Day periods prior to the Conversion. The
note was discounted for a derivative (see note 8 for details) and the discount of $28,000 is being amortized over the life of
the note using the effective interest method resulting in $27,847 of interest expense for the year ended December 31, 2018. On
February 24, 2019, the remaining balance of the note payable in the amount of $9,373, fees of $500 and accrued interest of $2,625
were converted into 18,380,000 shares of common stock. During the year ended December 31, 2019 the Company recorded amortization
expense of $164 and a loss on conversion of $10,527.
On
January 25, 2018 the Company borrowed $150,000 from an unrelated third party. The Company paid $7,500 of fees associated with
the loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $6,986 as of December
31, 2018. The loan has a maturity date of January 25, 2019 and bears interest at the rate of 12% per year. If the loan is not
paid when due, any unpaid amount will bear interest at 18% per year. The Lender is entitled, at its option, at any time after
July 24, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company’s
common stock at a price per share equal to 55% of the average of the lowest trading price for the 20 trading days immediately
preceding the conversion date. On July 24, 2018, the Company recorded a discount of $142,500 and recorded day one loss due to
derivative of $74,900 As during the year ended December 31, 2018 the principal of $85,149 converted into a total of 33,375,972
shares of common stock. During the year ended December 31, 2019 the remaining balance of $64,881 and accrued interest was converted
into a total of 104,466,022 shares of common stock. The Company also recorded amortization of debt discount (from derivative)
of $132,740 during the year ended December 31, 2018. During the year ended December 31, 2019 the Company recorded amortization
expense of $9,863. The conversion resulted in a loss of $2,532.
On
March 21, 2018, the Company borrowed $45,000 from an unrelated third party. The Company paid $4,500 of fees associated with the
loan and had amortized $3,514 of the costs as of December 31, 2018. The note bears an interest rate: 12% (default interest lesser
of 15% or maximum permitted by law) and matures on March 21, 2019. The conversion Feature Convertible immediately after the issuance,
the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion
price is 55% of the lowest trading price during the 25 Trading Day periods prior to the Conversion. Covenants: The Borrower shall
not, without the Holder’s consent, sell, lease or dispose of any significant portion of its assets outside the ordinary
course of business. The note was discounted for a derivative (see note 8 for details) and the discount of $40,500 is being amortized
over the life of the note using the effective interest method resulting in $31,623 of interest expense for the year ended December
31, 2018. During the year ended December 31, 2019 $23,223 of principle and interest were converted into 84,160,250 shares of common
stock resulting in a loss of $32,858. During the year ended December 31, 2019 the Company recorded amortization expense of $9,863.
As of March 31, 2020 and December 31, 2019 there was a balance remaining on the loan of $22,198.
During
the three months ended March 31, 2020, the Company recognized amortization expense of $8,710 of discount from derivative liabilities.
During
the three months ended March 31, 2019, the Company recognized amortization expense of $1,511 from deferred financing cost and
amortization expense of $18,790 of discount from derivative liabilities.
Note
7 – Notes payable – related parties
On
July 31, 2014, the Company borrowed $98,150 from an entity controlled by an officer and shareholder of the Company. The loan is
due and payable on demand and bears no interest. As of March 31, 2020 and December 31, 2019, the principal balance owed on this
loan is $98,150 and $98,150, respectively.
As
of December 31, 2014, a related party loaned the Company $10,000, in the form of cash and expenses paid on behalf of the Company.
The loan is due and payable on demand and bears no interest. During the year ended December 31, 2015 the Company borrowed an additional
$20,000. As of March 31, 2020 and December 31, 2019, the principal balance owed on this loan was $30,000 and $30,000, respectively.
As
of December 31, 2014, a related party loaned the Company $180,121, in the form of cash and expenses paid on behalf of the Company.
The loan is due and payable on demand and bears no interest. The Company repaid $125,500 towards this note during 2015 and as
of March 31, 2020 and December 31, 2019; the principal balance owed on this loan was $54,621 and $54,621, respectively.
During
October 2015, the Company borrowed $30,000 from an entity controlled by an officer of the Company. The loan is due and payable
on demand and is non-interest bearing. During the year ended December 31, 2017, the Company repaid $251,363 and borrowed an additional
$265,363 from the same related party. On March 10, 2020 the Company entered into an additional note payable in the amount of $102,665
for severance As of March 31, 2020 and December 31, 2019 the principal balance outstanding is $102,665 and $20,000, respectively.
During
the year ended December 31, 2018 the Company repaid $121,500 and borrowed an additional $184,500 from the same related party.
During year ended December 31, 2019 the Company borrowed an additional $22,500 and repaid a total of $49,500. During the three
months ended March 31, 2020 the Company repaid $24,000 and borrowed an additional $24,000 from the same related party and reclassed
$65,000 from accounts payable to a note payable. The Company recorded a loan of $10,665 on the transaction. As of March 31,
2020 and December 31, 2019, the principal balance owed on this loan was $102,665 and $30,000, respectively.
On
July 7, 2016, the Company borrowed $73,000 from a related party. The loan was due and payable on July 7, 2017 and bore interest
at 5% per annum. The holder of the note has agreed to extend the default date of the note to September 30, 2018. As of
and March 31, 2020 and December 31, 2019 the note is currently in default.
On
August 8, 2016, the Company entered into a promissory note with Hypur Inc., a Nevada Corporation, a related party, pursuant to
which the Company borrowed $52,000. If an Event of Default remains uncured after 30 days Holder has the option to convert the
outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the Borrower
The loan was due and payable on August 10, 2017 and bore interest at 18% per annum. The principal balance owed on this loan at
March 31, 20120 and December 31, 2019 was $52,000 and $52,000, respectively. The Note is currently in default at bears a default
rate of interest of 24% per annum as part of the default terms of this note. Upon default, if the default has not been remedied
within 30 days, the redemption price would be 150% of the principal amount. The notes are in default as of March 31, 2020 and
December 31, 2019, but the holder has agreed to waive the 150% redemption price default term.
On
September 20, 2016, the Company borrowed $47,500 from Hypur Inc., which is a related party. The loan is due and payable on December
20, 2016 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. The principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $47,500 and $47,500, respectively.
The loan is currently past due and in default. The Note is currently in default at bears a default rate of interest of 24% per
annum as part of the default terms of this note. Upon default, and if the default has not been remedied within 30 days, the redemption
price would be 150% of the principal amount. The notes are in default as of March 31, 2020 and December 31, 2019, but the holder
has agreed to waive the 150% redemption price default term.
On
October 29, 2018, the Company borrowed $100,000 from Hypur Inc., which is a related party. The loan is due and payable on January
28, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note. The
principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $100,000 and $100,000, respectively. The note
was discounted for a derivative (see note 8 for details) and the discount of $89,350 is being amortized over the life of the note
using the effective interest method resulting in $89,350 of interest expense for the year ended December 31, 2019. As of March
31, 2020 December 31, 2019 the note is currently in default.
On
November 21, 2018, the Company borrowed $70,000 from Hypur Inc., which is a related party. The loan is due and payable on February
19, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note. The
principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $70,000 and $70,000, respectively. The note was
discounted for a derivative (see note 8 for details) and the discount of $55,830 is being amortized over the life of the note
using the effective interest method resulting in $55,830 of interest expense for the year ended December 31, 2019. As of March
31, 2020 December 31, 2019 the note is currently in default.
On
November 26, 2018, the Company borrowed $75,000 from Hypur Inc., which is a related party. The loan is due and payable on February
24, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note. The
principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $75,000 and $75.000, respectively. The note was
discounted for a derivative (see note 8 for details) and the discount of $58,913 is being amortized over the life of the note
using the effective interest method resulting in $58,913 of interest expense for the year ended December 31, 2019. As of March
31, 2020 and December 31, 2019 the Note is currently in default.
On
May 10, 2019, the Company borrowed $75,000 from Hypur Inc., which is a related party. The loan is due and payable on May 12, 2020
and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert the
outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the Borrower.
Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note. The principal
balance owed on this loan at March 31, 2020 and December 31, 2019 was $75,000.
On
September 3, 2019, the Company borrowed $21,000 from Hypur Inc., which is a related party. The loan is due and payable on December
3, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note. The
principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $21,000.
Convertible
notes payable to related party
In
November 2015, the Company entered into an arrangement with a related party, whereby the Company borrowed $25,000 in Convertible
Notes. The Convertible Note bears interest at a rate of 5% per annum and payable quarterly in arrears and matures twelve months
from the date of issuance, and is convertible into shares of the Company’s common stock at a per share conversion price
equal to $0.025. The note was due on November 4, 2016. In December 2015 the lender loaned the Company an additional $20,000 with
same terms except that it is payable upon demand. As of March 31, 2020 and December 31, 2019, the Company owed a total of $45,000
and $45,000, respectively. The holder of the note has agreed to extend the default date of the note to September 30, 2018. As
of March 31, 202 and December 31, 2019 the note is currently in default.
In
July 2015, the Company entered into an arrangement with a related party, whereby the Company could borrow up to $500,000 in Convertible
Notes. The Convertible Note bears interest at a rate of 5% per annum and payable quarterly in arrears and matures twelve months
from the date of issuance, and is convertible into shares of the Company’s common stock at a per share conversion price
equal to $0.025. Upon the occurrence and during the continuation of an event of default, the holder may require the Company to
redeem all or any portion of this Note in cash at a price equal to 150% of the principal amount. During the year ended December
31, 2017, the Company borrowed an additional $110,000. As of March 31, 2020 and December 31, 2019, the Company owed a total of
$500,000 and $500,000, respectively. Since the debt holder has not elect the right to require the Company to redeem the note at
a price equal to 150% of the principal amount, the terms stated prior to maturity are still in effect. The holder has waived the
default term and the note is not considered to be in default as of March 31, 2020 and December 31, 2019.
On
September 1, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $75,000. The loan was due
180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of
$.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day
period. The principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $75,000 and $75,000, respectively.
Upon default, the note bears a default rate of interest of 15% per annum, and if the default has not been remedied within 30 days,
the redemption price would be 150% of the principal amount. As of March 31, 2020, Hyper has waived the default provision.
On
October 14, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) and a related party, pursuant to which the Company borrowed $100,000. The loan was due 180
days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05
per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period.
The principal balance owed on this loan at March 31, 2020 and December 31, 2019 was $100,000 and $100,000, respectively. Upon
default, the note bears a default rate of interest of 15% per annum, and if the default has not been remedied within 30 days,
the redemption price would be 150% of the principal amount. As of March 31, 2020, Hyper has waived the default provision.
On
March 7, 2017, the Company borrowed $100,000 from Hypur Ventures, L.P., a related party. The loan is due 180 days from March 7,
2017 and bears interest at 10% per annum. The loan is convertible into shares of the Company’s common stock at a price of
$.05 per share. The loan will automatically convert into shares of the Company’s common stock if the price of the Company’s
common stock is over $.50 per share during any ten-day period. The principal balance owed on this loan at March 31, 2020 and December
31, 2019 was $100,000 and $100,000 respectively. Upon default, the note bears a default rate of interest of 15% per annum, and
if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. As of March 31,
2020, Hyper has waived the default provision.
On
May 26, 2017, the Company borrowed $100,000 from CGDK, a related party. The loan is due 360 days from May 26, 2017 and bears interest
at 5% per annum. The loan is convertible into shares of the Company’s common stock at a price of $.025 per share. The loan
will automatically convert into shares of the Company’s common stock if the price of the Company’s common stock is
over $.25 per share during any ten-day period. The principal balance owed on this loan at March 31, 2020 and December 31, 2019
was $100,000 and $100,000, respectively. As of March 31, 2020 and December 31, 2019 the note was currently in default.
On
July 13, 2017, the Company borrowed $150,000 from CGDK, a related party. The loan is due 360 days from July 13, 2017, and bears
interest at 5% per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share.
The loan will automatically convert into shares of the Company’s common stock if the price of the Company’s common
stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at March 31, 2020 and December
31, 2019 was $150,000. The conversion feature has been waved through October 15, 2019. As of March 31, 2020 and December 31, 2019,
the note is currently in default.
On
April 13, 2018, the Company borrowed $130,000 from CGDK, a related party. The loan is due 360 days from April 13, 2018, bears
interest at 12% per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share.
The loan will automatically convert into shares of the Company’s common stock if the price of the Company’s common
stock is over $.25 per share during any ten-day period. The Company recorded a discount of $101,272 due to derivative. The Company
amortized $72,694 in debt discounts during the year ended December 31, 2018. The Company amortized $27,560 in debt discounts during
the nine months ended September 30, 2019. The principal balance owed on this loan at March 31, 2020 and December 31, 2019 is $130,000
and $130,000, respectively. On November 5, 2019 CGDK waived the default provision until April 13, 2020.
On
June 14, 2018, the Company issued a $30,217 to CGDK, a related party, for previous expenses paid on behalf of the Company. The
loan is due 360 days from June 18, 2018, bears interest at 12% per annum. The loan is convertible into shares of the Company’s
common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company’s common stock
if the price of the Company’s common stock is over $.25 per share during any ten-day period. The Company recorded a debt
discount of $10,292 due to derivative. During the year ended December 31, 2018 the Company amortized $5,639 of the discount. The
Company amortized $3,697 in debt discounts during the nine months ended December 31, 2019. The principal balance owed on this
loan at March 31, 2020 and December 31, 2019 is $30,217 and $30,217, respectively. On November 5, 2019 CGDK waived the default
provision until June 14, 2020.
On
July 2, 2018, the Company borrowed $150,000 from CGDK, a related party. The loan is due July 2, 2019 and bears interest at 12%
per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share. The loan will
automatically convert into shares of the Company’s common stock if the price of the Company’s common stock is over
$.10 per share during any ten-day period or the trading volume of the Company’s common stock during these ten trading days
was at least 2,500,000 shares. The Company recorded a debt discount of $19,779 due to derivative. During the year ended December
31, 2018 the Company amortized $9,862 of the discount. The Company amortized $7,390 in debt discounts during the year ended December
31, 2019. The principal balance owed on this loan at March 31, 2020 and December 31, 2019 is $150,000 and $150,000, respectively.
On November 5, 2019 CGDK waived the default provision until July 2, 2020.
On
August 6, 2018, the Company borrowed $150,000 from CGDK, a related party. The loan is due July 2, 2019 and bears interest at 12%
per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share. The loan will
automatically convert into shares of the Company’s common stock if the price of the Company’s common stock is over
$.10 per share during any ten-day period or the trading volume of the Company’s common stock during these ten trading days
was at least 2,500,000 shares. The Company recorded a debt discount of $20,095 due to derivative. During the year ended December
31, 2018 the Company amortized $8,093 of the discount. The Company amortized $7,793 in debt discounts during the year ended December
31, 2019. The principal balance owed on this loan at March 31, 2020 and December 31, 2019 is $150,000 and $150,000, respectively.
On November 5, 2019 CGDK waived the default provision until August 6, 2020.
On
January 18, 2019, the Company entered into, a convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $250,000. The loan was due
10 days from the date of issuance and bears interest at 18% per annum. The note is convertible into common stock at a price at
the lower of $.0002 per share or 60% of the closing price of the common stock prior to conversion. Upon default, the note bears
a default rate of interest of 24% per annum. The note was discounted for a derivative (see note 8 for details) and the discount
of $167,079 is being amortized over the life of the note using the effective interest method resulting in $167,079 of interest
expense for the year ended December 31, 2019. As of March 31, 2020 and December 31, 2019 the note is currently in default.
On
March 5, 2019, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $50,000. The loan was due
10 days from the date of issuance and bears interest at 18% per annum. The note is convertible into common stock at a price at
the lower of $.0002 per share or 60% of the closing price of the common stock prior to conversion. Upon default, the note bears
a default rate of interest of 24% per annum. As of March 31, 2020 and December 31, 2019 the note is currently in default.
The
carrying amount of the convertible note, net of the unamortized debt discount, at March 31, 2020 and December 31, 2019 is $1,830,217
and $1,821,507, respectively. Total unamortized debt discount at March 31, 2020 and December 31, 2019 was $0 and $8,710, respectively.
On
October 1, 2017, these notes were tainted by the variable conversion price notes and remained tainted as of December 31, 2019.
The Company re-measured the fair value of derivative liabilities on March 31, 2020 and December 31, 2019. See Note 8.
NOTE
8 – Derivative Liability
The
Company analyzed the conversion options for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging,
and determined that the instrument should be classified as a liability when the conversion option becomes effective.
The
derivative liability in connection with the conversion feature of the convertible debt is measured using, level 3 inputs.
The
change in the fair value of derivative liabilities is as follows:
Balance - December 31, 2018
|
|
$
|
727,332
|
|
Addition of new derivative as a derivative loss
|
|
|
|
|
Settlement of derivatives upon conversion
|
|
|
(292,611
|
)
|
Debt discount from derivative liability
|
|
|
383,265
|
|
Loss on change in fair value of the derivative
|
|
|
352,074
|
|
Balance - December 31, 2019
|
|
$
|
1,170,060
|
|
Loss on change in fair value of the derivative
|
|
|
285,351
|
|
Balance – March 31, 2020
|
|
$
|
1,455,411
|
|
The
table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each
measurement date:
|
|
|
Three
Months ended
March 31, 2020
|
|
|
|
Year ended
December 31, 2019
|
|
Expected term
|
|
|
0.01 – 1.42 years
|
|
|
|
0.01 – 1.67 years
|
|
Expected average volatility
|
|
|
142% – 361.46
|
%
|
|
|
24.93% – 270.08
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
0.09% – 0.15
|
%
|
|
|
1.55% – 1.60
|
%
|
Note
9 – Stockholders’ equity
The
Company was originally authorized to issue 100,000,000 shares of common stock and 100,000,000 shares of preferred stock. On May
6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1,
whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the number of authorized
shares increased to 1,400,000,000 shares of common stock. All references to share and per share amounts in the consolidated financial
statements and these notes thereto have been retroactively restated to reflect the forward stock split.
Common
stock
During
the year ended December 31, 2019 the Company issued a total of 424,888,727 shares of common stock for the conversion of $157,960
of convertibles loans, accrued interest, and fees. The Company recorded on a loss on conversion of $107,541.
Preferred
stock
On
May 3, 2016, the Company entered into, an agreement with Hypur Ventures, L.P., a Delaware limited partnership (the “Hypur
Ventures”) which is a related party pursuant to which the Company sold to Hypur Ventures, in a private placement, 10,000,000
shares of the Company’s preferred stock and 5,000,000 common stock warrants with a five year term and an exercise price
of $0.10, at a purchase price of $0.05 per share for gross proceeds of $500,000. The shares of preferred stock are convertible
into shares of the Company’s common stock. The preferred stock shall have such other rights, preferences and privileges
to be set forth in a certificate of designation to be filed with the Nevada Secretary of State. The Company evaluated the convertible
preferred stock under FASB ASC 470-20-30 and determined it contained a beneficial conversion feature. The intrinsic value of the
beneficial conversion feature was determined to be $114,229. The beneficial conversion feature was fully amortized and recorded
as a deemed dividend.
Between
July and August of 2016 Hypur Ventures purchased an additional 10,000,000 shares of the Company’s preferred stock and 5,000,000
common stock warrants with a five year term and an exercise price of $0.10, at a purchase price of $0.05 per share for net proceeds
of $445,000, net of legal fees of $55,000. The shares of preferred stock are convertible into shares of the Company’s common
stock. The preferred stock shall have such other rights, preferences and privileges to be set forth in a certificate of designation
to be filed with the Nevada Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30
and determined it does not contain a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was
determined to be $0. The preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall
automatically convert to common stock if the closing price of the Company’s common stock equals or exceeds $.50 per share
over any consecutive twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential
dividends apply to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights
to appoint one director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration
rights.
The
preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically convert
to common stock if the closing price of the Company’s common stock equals or exceeds $.50 per share over any consecutive
twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply
to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one
director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
The
Company has reserved thirty million shares of common stock that may be issued upon the conversion and/or exercise of the preferred
stock and the warrants. The preferred stock sold to Hypur Ventures will be subject to the terms and conditions of the Certificate
of Designation, as well as further documentation to be drafted in accordance with the terms and conditions agreed upon between
the Company and Hypur Ventures.
Note
10 – Options and warrants
Options
All
stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of
each option award is estimated using a Black-Scholes-Merton option valuation model. The Company has not paid any cash dividends
on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses
an expected dividend yield of zero in the Black-Scholes-Merton option valuation model. Volatility is an estimate based on the
calculated historical volatility of similar entities in industry, in size and in financial leverage, whose share prices are publicly
available. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company
has no historical experience with which to establish a basis for determining an expected life of these awards. Therefore, the
Company only gave consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting
and post-vesting forfeitures significant to the expected life of the option award. The Company bases the risk-free interest rate
used in the Black-Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury issues with
an equivalent remaining term equal to the expected life of the award.
On
December 28, 2016, the Company issued stock options to various offices and employees of the Company to purchase 7,950,000 shares
of the Company’s common stock at an exercise price of $0.05 per share. The options vest immediately. The options carry a
life of three years and have since expired.
During
the year ended December 31, 2018 a total of 466,667 stock options were forfeited by various employees of the Company.
The
following is a summary of the Company’s stock option activity for the three months ended March 31, 2020 and year ended December,
31 2019:
|
|
Number Of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at December 31, 2019
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Expired (1)
|
|
|
(7,950,000
|
)
|
|
$
|
0.05
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at March 31. 2020
|
|
|
16,061,738
|
|
|
$
|
0.14
|
|
Options exercisable at December 31, 2019
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
Options exercisable at March 31, 2020
|
|
|
16,061,738
|
|
|
$
|
0.14
|
|
The
following tables summarize information about stock options outstanding and exercisable at March 31, 2020 and December 31, 2019:
OPTIONS OUTSTANDING AND EXERCISABLE AT MARCH 31, 2020
|
|
Range of
Exercise Prices
|
|
|
Number of
Options
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual Life
in Years
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
$
|
0.034 – 1.00
|
|
|
|
16,061,738
|
|
|
|
.30
|
|
|
$
|
0.11
|
|
|
|
10,061,738
|
|
|
$
|
0.11
|
|
OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2019
|
|
Range of
Exercise Prices
|
|
|
Number of
Options
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual Life
in Years
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
$
|
0.034 – 1.00
|
|
|
|
24,011,738
|
|
|
|
.30
|
|
|
$
|
0.11
|
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
Total
stock-based compensation expense in connection with options and modified awards recognized in the consolidated statement of operations
for three months ended March 31, 2020 and 2019 was $0 and $0 respectively.
Warrants
The
following is a summary of the Company’s warrant activity for the three months ended March 31, 2020:
|
|
Number Of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at December 31, 2019
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at March 31, 2020
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Warrants exercisable at December 31, 2019
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Warrants exercisable at March 31, 2020
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
The
following tables summarize information about warrants outstanding and exercisable at March 31, 2020 and December 31, 2019:
WARRANTS OUTSTANDING AND EXERCISABLE AT MARCH 31, 2020
|
|
Range of Exercise
Prices
|
|
|
Number of
Warrants
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual Life
in Years
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
|
1.32
|
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
WARRANTS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2019
|
|
Range of Exercise
Prices
|
|
|
Number of
Warrants
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual Life
in Years
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
|
1.52
|
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Note
12 – Subsequent events
The
Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and
has determined there are no additional events required to be disclosed.
Os
September 18, 2020 Crown Bridge Partners, LLC, converted notes payable in the amount of $2,980 principal and $500 of fees into
29,000,000 shares of common stock