Notes
to 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
Principles
of consolidation
For
the ended December 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 December 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 December 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 December 31, 2020 and December 31, 2019.
Depreciation expense for years ended December 31, 2020 and December 31, 2019 was $126.474 and $130,831 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 December 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 two major customers which generated 30%, (17% and13%) of total revenue in the year ended December 31, 2020.
The
Company had one major customer which generated approximately 12% of total revenue in the year ended December 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 December 31, 2020 and December 31, 2019:
December
31, 2020
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Embedded conversion
derivative liability
|
|
$
|
2,246,080
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,246,080
|
|
Warrant derivative liabilities
|
|
$
|
1,565
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,565
|
|
Total
|
|
$
|
2,247,645
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,247,645
|
|
December
31, 2019
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Embedded conversion
derivative liability
|
|
$
|
1,169,515
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,169,515
|
|
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 when 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 adoption of these standards did not have an impact on the Company’s Statements of Operations for the year ended December 31,
2018.
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of each segment. Revenue
is characterized by several lines of services and typically the pricing is fixed.
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.
Year
ended December 31,
|
|
Revenue
Breakdown by Streams
|
|
2020
|
|
|
2019
|
|
Service: Guards
|
|
$
|
-
|
|
|
$
|
991,581
|
|
Service: Transportation
|
|
|
1,928,289
|
|
|
|
1,442,049
|
|
Service: Currency Processing
|
|
|
2,111,966
|
|
|
|
1,614,905
|
|
Service: Compliance
|
|
|
91,395
|
|
|
|
76,851
|
|
Other
|
|
|
-
|
|
|
|
673
|
|
Total
|
|
$
|
4,131,650
|
|
|
$
|
4,126,059
|
|
As
of December 31, 2019 the Company discontinued its Service-Guards segment.
Gain
on settlement of accounts payable
Represents
a $4,500 gain on settlement of payables with vendors.
Advertising
costs
The
Company expenses all costs of advertising as incurred.
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.
Cost
of Revenue
The
Company’s cost of revenue primarily consists of labor, fuel costs and items purchased by the Company specifically for the benefit
of the Company’s clients.
Basic
and Diluted Earnings per share
Net
loss per share is calculated 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 other 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 December 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 to the Company. 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. If litigation is commenced the Company will defend any claims by Mr. Sullivan. As of December 31, 2019 and 2020 the
Company has accrued $34,346.
Mile
High Real Estate Group, an entity owned by Mr. Sullivan, sent correspondence to the Company 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.
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 required 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 December 31, 2020 and
December 31, 2019 there was no payable recorded.
During
the year ended December 31 2020 the Company recorded a gain of $4,500 for settlement of a vendor payable.
Finance
leases
On
July 25, 2017, the Company recorded finance lease obligation for a leased a vehicle for $29,390. The Company agreed to make 48 monthly
payment of $621.23 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 asset.
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 $976.71 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 asset.
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 $1,165.10,
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 asset.
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 $1,165.10,
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 asset.
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
which included 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 December 31, 2020:
|
|
|
|
|
|
|
|
2021
|
|
$
|
65,985
|
|
2022 and
thereafter
|
|
|
1,820
|
|
Total
minimum lease payments
|
|
$
|
67,805
|
|
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 which 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 which 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. During the year ended December 31, 2020 the Company
terminated the lease agreement. The Company paid a $35,760 cancellation fee included in rent expense and recorded a gain of $8,800
on the termination 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 the adoption date.
Supplemental
balance sheet information related to leases is as follows:
December
31, 2020
Operating
Leases
|
|
Classification
|
|
December
31, 2020
|
|
Right-of-use
assets
|
|
Operating
right of use assets
|
|
$
|
636,968
|
|
Total
|
|
|
|
$
|
636,968
|
|
Current lease liabilities
|
|
Current operating lease liabilities
|
|
|
107,242
|
|
Non-current
lease liabilities
|
|
Long-term
operating lease liabilities
|
|
|
565,632
|
|
Total
|
|
|
|
$
|
672,874
|
|
Lease
term and discount rate were as follows:
|
|
December
31, 2020
|
|
Weighted average
remaining lease term (years)
|
|
|
4.50
|
|
Weighted average discount
rate
|
|
|
12
|
%
|
The
following summarizes lease expenses for the year ended December 31, 2020:
Finance
lease expenses:
Depreciation/amortization
expense
|
|
$
|
118,291
|
|
Interest
on lease liabilities
|
|
|
101,934
|
|
Finance lease expense
|
|
$
|
220,225
|
|
Supplemental
disclosures of cash flow information related to leases were as follows:
|
|
December
31, 2020
|
|
Cash paid for
operating lease liabilities
|
|
$
|
216,587
|
|
Operating right of use assets
obtained in exchange for operating lease liabilities
|
|
$
|
-
|
|
Maturities
of lease liabilities were as follows as of December 31, 2020:
|
|
Operating
Leases
|
|
|
|
|
|
2021
|
|
$
|
113,320
|
|
2022
|
|
|
131,284
|
|
2023
|
|
|
105,593
|
|
2024
|
|
|
98,931
|
|
2025
|
|
|
141,302
|
|
2026
|
|
|
107,558
|
|
Total
|
|
|
697,988
|
|
Less:
Imputed interest
|
|
|
(25,114
|
)
|
Present
value of lease liabilities
|
|
$
|
672,874
|
|
December
31, 2019
Operating
Leases
|
|
Classification
|
|
December
31, 2019
|
|
Right-of-use
assets
|
|
Operating
right of use assets
|
|
$
|
859,426
|
|
Total
|
|
|
|
$
|
859,426
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
Current operating lease
liabilities
|
|
|
114,653
|
|
Non-current
lease liabilities
|
|
Long-term
operating lease liabilities
|
|
|
785,802
|
|
Total
|
|
|
|
$
|
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:
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Automotive vehicles
|
|
$
|
398,614
|
|
|
$
|
381,844
|
|
Furniture and equipment
|
|
|
85,435
|
|
|
|
85,435
|
|
Machinery and Equipment
|
|
|
135,706
|
|
|
|
135,706
|
|
Leasehold
improvements
|
|
|
128,414
|
|
|
|
105,714
|
|
Fixed assets, total
|
|
|
748,169
|
|
|
|
708,699
|
|
Total
: accumulated depreciation
|
|
|
(451,759
|
)
|
|
|
(325,285
|
)
|
Fixed
assets, net
|
|
$
|
296,410
|
|
|
$
|
383,414
|
|
Depreciation
expense for years ended December 31, 2020 and 2019 were $126,474 and $130,831, respectively.
Note
6 – Notes payable
Notes
payable to non-related parties
During
February 2015, the Company borrowed $50,000 from a non-related party. The loan was due and payable on April 6, 2015 and is now payable
on demand with interest at 10% per annum. As of December 31, 2020 and December 31, 2019, the principal balance owed on this loan was
$50,000 and $50,000, respectively. The due date was extended to January 1, 2022.
During
April 2015, the Company borrowed $25,000 from a non-related party. 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 December 31, 2020 and December 31, 2019, the principal balance owed on this loan was
$25,000 and $25,000, respectively. The due date was extended to January 1, 2022.
On
January 5, 2016, the Company borrowed $10,000 from a non-related party. 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 December 31, 2020 and December
31, 2019 was $10,000 and $10,000, respectively. The due date was extended to January 1, 2022.
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. During the year ended December 31, 2020 the Company repaid $100,000 of principle. As of December 31, 2020 the remaining
balance on the note is $0.
Convertible
notes payable to non-related parties
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 ended December 31, 2019, the Company paid $75,000 in 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 December 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. On September 18, 2020 Crown Bridge Partners,
LLC converted notes payable in the principal amount of $2,980 and $500 of fees into 29,000,000 shares of common stock. Conversions were
made per the terms of agreement. As of December 31, 2020 and December 31, 2019 there was a balance remaining on the loan of $19,218.
The note is currently in default.
During
the year ended December 31, 2020, the Company recognized amortization expense of $8,710 of discount from derivative liabilities.
During
the year ended December 31, 2019, the Company recognized amortization expense of $419,323 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 December 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 January 1, 20222 and bears no interest. During the year ended December 31, 2015 the Company borrowed an additional $20,000.
As of December 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 December
31, 2020 and December 31, 2019; the principal balance owed on this loan was $54,621 and $54,621, respectively.
On
March 5, 2015, the Company borrowed $20,000 from MKM Capital Advisor, which is a related party. The loan is payable on demand and bears
interest at 0% 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 December
31, 2020 and December 31, 2019 was $20,000. As of December 31, 2020 and December 31, 2019 the Note is currently in default.
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 $126,501. During the year ended December
31, 2020 the Company repaid $126,665 and borrowed an additional $24,000 from the same related party and reclassed $62,000
from accounts payable to a note payable. The Company recorded a loan of $10,665 on the transaction. As of December 31, 2020 and December
31, 2019, the principal balance owed on this loan was $0 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 January 1, 2022.
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 December 31, 2012 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 December 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 December 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 December 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 December 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 December 31, 2020 and 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 December 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 December 31, 2020 and 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 December 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 December 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 December 31, 2020 and December 31, 2019 was $75,000. As of December 31, 2020 the Note is currently in default.
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 December 31, 2020 and December 31, 2019 was $21,000. As of December 31, 2020 the Note is currently in default.
During
the year ended December 31, 2020, the Company repaid Patrick Deparini $575.
Convertible
notes payable to related parties
On
November 13, 2015, the Company borrowed $25,000 from Hypur Inc., which is a related party. The loan is due and payable on November 12,
2015 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 December 31, 2020 and December 31, 2019 was $25,000. As of December 31, 2020 and December 31, 2019 the note is currently in default.
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 December 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 January 1, 2022.
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 December 31, 2020 and December 31, 2019, the Company owed a total of $475,000 and $475,000, 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 December 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 December 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 December 31, 2020, Hyper has waived the default provision until January 1, 2022.
On
October 14, 2016, the Company entered into a 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 December 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 December 31, 2020, Hyper has waived the default provision until January 1, 2022.
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 December 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 December 31, 2020, Hyper has waived
the default provision until January 1, 2022.
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 December 31, 2020 and December 31, 2019 was $100,000 and
$100,000, respectively. As of December 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 December 31, 2020 and December 31, 2019 was $150,000. The
conversion feature has been waved through October 15, 2019. As of December 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 year ended December 31,
2019. The principal balance owed on this loan at December 31, 2020 and December 31, 2019 is $130,000 and $130,000, respectively. On November
5, 2019 CGDK waived the default provision until January 1, 2022.
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 year ended December 31, 2019. The principal balance owed on this loan at December 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 December 22, 2020
the Company received a waiver from CGDL, LLC extending until June 14, 2021.
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 December
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 December 22, 2020 the Company received a waiver from CGDL, LLC extending until June 14, 2021.
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 December 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 December 22, 2020 the Company received a waiver from CGDL, LLC extending until June 14, 2021.
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 December 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 December 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 December 31, 2020 and December 31, 2019 is $1,830,217
and $1,821,507, respectively. Total unamortized debt discount at December 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 December 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 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
|
|
Settlement of derivatives
upon conversion
|
|
|
(14,327
|
)
|
Debt discount from derivative
liability
|
|
|
176,858
|
|
Loss
on change in fair value of the derivative
|
|
|
915,054
|
|
Balance
– December 31, 2020
|
|
$
|
2,247,645
|
|
The
table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each measurement
date:
|
|
|
Year
ended
December 31, 2020
|
|
|
|
Year
ended
December 31, 2019
|
|
Expected
term
|
|
|
0.08
– 1.01 years
|
|
|
|
0.01
– 1.67 years
|
|
Expected
average volatility
|
|
|
291.56%
– 378.27
|
%
|
|
|
24.93%
– 270.08
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free
interest rate
|
|
|
0.08%
– 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.
On
September 18, 2020 Crown Bridge Partners, LLC converted notes payable in the principal amount of $2,980 and $500 of fees into 29,000,000
shares of common stock. No gain or loss was recorded as the conversion was made within the terms of the agreement.
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.
All
of the options granted by the Company expired as of December 31, 2020.
The
following is a summary of the Company’s stock option activity for the year ended December 31, 2020 and the year ended December,
31 2019:
|
|
Number
Of
Options
|
|
|
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
|
|
|
(24,011,738
|
)
|
|
$
|
0.11
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
at December 31. 2020
|
|
|
-
|
|
|
$
|
-
|
|
Options
exercisable at December 31, 2019
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
Options
exercisable at December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
The
following tables summarize information about stock options outstanding and exercisable at December 31, 2020 and December 31, 2019:
OPTIONS
OUTSTANDING AND EXERCISABLE AT DECEMBER 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
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
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 year ended December 31, 2020 and 2019 was $0 and $0 respectively.
Warrants
The
following is a summary of the Company’s warrant activity for the year ended December 31, 2020:
|
|
Number
Of
Warrants
|
|
|
Weighted-Average
Exercise
Price
|
|
Outstanding
at December 31, 2019
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
at December 31, 2020
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Warrants
exercisable at December 31, 2019
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Warrants
exercisable at December 31, 2020
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
‘
The
following tables summarize information about warrants outstanding and exercisable at December 31, 2020 and December 31, 2019:
WARRANTS
OUTSTANDING AND EXERCISABLE AT DECEMBER 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
|
|
|
|
.52
|
|
|
$
|
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
11 – Income taxes
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the
Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant
changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective
as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to
80% of current year taxable income and elimination of net operating loss carry backs, in each case, for losses arising in taxable years
beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing many business
deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain
drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal of the federal Alternative Minimum
Tax (“AMT”).
The
staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations
when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail
to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA,
the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future,
which is generally 21%. The remeasurement of the Company’s deferred tax assets and liabilities was offset by a change in the valuation
allowance.
For
the years ended December 31, 2020 and 2019, the Company incurred net operating losses and, accordingly, no provision for income taxes
has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets.
At December 31, 2020 and 2019, the Company had approximately $9,585,469 and $7,889,253 of federal and state net operating losses.
The net operating loss carry forwards, if not utilized, will begin to expire in 2029. The provision for income taxes consisted of the
following components for the years ended December 31:
Components
of net deferred tax assets, including a valuation allowance, are as follows at December 31:
|
|
December
31
|
|
|
|
2020
|
|
|
2019
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
1,641,647
|
|
|
$
|
1,656,743
|
|
Valuation
allowance
|
|
|
(1,641,647
|
)
|
|
|
(1,656,743
|
)
|
Total
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
FASB
ASC 740, Income Taxes, requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the
evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of
all the evidence, both positive and negative, management has determined that a full valuation allowance of $1,641,647 and $1,656,743
against its net deferred taxes is necessary as of December 31, 2020 and December 31, 2019, respectively. The change in valuation allowance
for the years ended December 31, 2020 and 2019 is $15,096 and $337,740 respectively.
At
December 31, 2020 and December 31, 2019, the Company had $7,817,366 and $7,884,253, respectively, of U.S. net operating loss carryforwards
remaining, which expire beginning in 2017.
As
a result of certain ownership changes, the Company may be subject to an annual limitation on the utilization of its U.S. net operating
loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change, has
not been undertaken.
Tax
returns for the years ended December 31, 2020, 2019, 2018, 2017, and 2016 are subject to examination by the Internal Revenue Service.
A
reconciliation of the Company’s income taxes to amounts calculated at the federal statutory rate is as follows for the years ended
December 31:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Federal
statutory taxes
|
|
|
(21.00
|
)%
|
|
|
(21.00
|
)%
|
Change
in tax rate estimate
|
|
|
—
|
|
|
|
—
|
|
Change
in valuation allowance
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
|
|
|
—
|
%
|
|
|
—
|
%
|
The
valuation allowance for deferred tax assets as of December 31, 2020 and 2019 was $1,641,647 and $1,656,743 respectively. In assessing
the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred
tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined
it was more likely than not the deferred tax assets would not be realized as of December 31, 2020 and 2019 and recorded a full valuation
allowance.
Reconciliation
between the statutory rate and the effective tax rate is as follows at December 31:
|
|
2020
|
|
|
2019
|
|
Federal statutory tax Reconciliation
rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
Permanent difference and other
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Note
12 – Subsequent events
On
September 18, 2020 Crown Bridge Partners, LLC converted notes payable in the principal amount of $9,510 and $1,000 of fees into 26,000,000
shares of common stock.
The
Company has evaluated all other 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.