NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 27, 2014
NOTE 1 – NATURE OF OPERATIONS
Nature of Business
Labor Smart, Inc. (the “Company”)
was incorporated in the State of Nevada on May 31, 2011. Labor Smart, Inc. provides temporary blue-collar staffing services. It
supplies general laborers on demand to the light industries, including manufacturing, logistics, and warehousing, skilled trades’
people, and general laborers to commercial construction industries.
NOTE 2 – GOING CONCERN
The accompanying financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company requires capital for its contemplated operational and marketing activities. The Company’s
ability to raise additional capital through the future issuances of common stock is unknown. The Company had a net loss of $1,997,354
for the six months ended June 27, 2014. Additionally, the operating activities of the Company used $1,744,172 net cash during the
same six month period. The obtainment of additional financing and increasingly profitable operations are necessary for the Company
to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability
to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
These financial statements are presented in
United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States of
America.
On May 20, 2014, the Board of Directors of
the Company determined it is in the best interests of the Company to change its fiscal year end from December 31 to
a
52-53 week fiscal year ending on
the Friday closest to December 31. The change is intended to align
the Company’s fiscal periods more closely with the seasonality of its business and improve comparability with industry
peers.
This change is effective with the end of the registrant’s fiscal second quarter
ended June 27, 2014. The change to a 52-53 week fiscal year will be retroactively applied as if it was adopted as of January 1,
2014. The registrant’s current fiscal year will end on December 26, 2014. The three month and six month periods ended June
27, 2014 include 13 weeks and 26 weeks, respectively.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair statement of results in accordance with US GAAP have
been included and properly prepared within reasonable limits of materiality and within the framework of the significant accounting
policies summarized below:
Fair Value of Financial Instruments
As required by the Fair Value Measurements
and Disclosures Topic of the FASB ASC (“ASC 820-10”), 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).
|
Pursuant to ASC 825, the fair value of cash
and marketable securities is determined based on “Level 1” inputs, which consist of quoted prices in active markets
for identical assets. The Company believes that the recorded values of cash, accounts receivables, marketable securities, accounts
payable and accrued liabilities, and notes payable approximate their current fair values because of their nature and respective
relatively short maturity dates or durations.
Assets measured at fair value on a recurring
basis were presented on the Company’s balance sheets as of June 27, 2014 and December 31, 2013 as follows:
|
Fair Value Measurements as of June 27, 2014 Using:
|
|
|
Total Carrying Value as of
|
|
|
Quoted Market Prices in Active Markets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
06/27/14
|
|
|
(Level 1)
|
|
|
(Level 2
)
|
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
17,922
|
|
$
|
17,922
|
|
$
|
0
|
|
$
|
0
|
Total
|
$
|
17,922
|
|
$
|
17,922
|
|
$
|
0
|
|
$
|
0
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
$
|
43,719
|
|
$
|
0
|
|
$
|
43,719
|
|
$
|
0
|
Contingent liability
|
|
91,362
|
|
|
0
|
|
|
0
|
|
|
91,362
|
Total
|
$
|
135,081
|
|
$
|
0
|
|
$
|
43,719
|
|
$
|
91,362
|
|
Fair Value Measurements as of December 31, 2013 Using:
|
|
|
Total Carrying Value as of
|
|
|
Quoted Market Prices in Active Markets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
12/31/13
|
|
|
(Level 1)
|
|
|
(Level 2
)
|
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
4,972
|
|
$
|
4,972
|
|
$
|
0
|
|
$
|
0
|
Total
|
$
|
4,972
|
|
$
|
4,972
|
|
$
|
0
|
|
$
|
0
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
$
|
20,701
|
|
$
|
0
|
|
$
|
20,701
|
|
$
|
0
|
Contingent liability
|
|
79,221
|
|
|
0
|
|
|
0
|
|
|
79,221
|
Total
|
$
|
99,922
|
|
$
|
0
|
|
$
|
20,701
|
|
$
|
79,221
|
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and
short-term investments with original maturities of less than 90 days. Cash equivalents are placed with high credit quality financial
institutions and are primarily in money market funds. The carrying value of those investments approximates fair value.
Revenue Recognition
The Company recognizes revenues and the related
costs when persuasive evidence of an arrangement exists, delivery and acceptance has occurred or service has been rendered, the
price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Amounts invoiced or collected
in advance of product delivery or providing services are recorded as deferred revenue. The Company accrues for customer credits,
bad debts, and other allowances based on its historical experience. Staffing revenue is recognized as the services are performed.
Revenue also includes billable travel and other reimbursable costs and is recorded net of sales tax.
Deferred Financing Costs
Deferred financing costs consist of costs incurred
to obtain debt financing, including legal fees, origination fees and administration fees. Costs associated with the Convertible
Promissory Note are deferred and amortized in our accompanying statement of operations
using the straight-line method, which
approximates the effective interest method, over the terms of the respective financing instrument.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates
and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. These estimates and judgments are based on historical information, information that is currently available
to the Company, and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results
could differ from those estimates.
Factoring Agreement and Accounts Receivable
On
July
31, 2013 the Company entered into a Purchase and Sale Agreement with Transfac Capital, Inc. (“Transfac”).
Advances
to the Company from Transfac are with recourse and are secured by assets of the Company and are treated as a secured financing
arrangement. As of June 27, 2014 and December 31, 2013, factored accounts receivable total $1,351,175 and $865,321, respectively.
Allowance for Doubtful Accounts
The Company allows for an estimated amount
of receivables that may not be collected. The Company estimates its allowance for doubtful accounts based on historical experience
and customer relationships. As of June 27, 2014 and December 31, 2013, the Company has recorded an allowance of $168,279 and $156,297,
respectively.
Equipment
Property and equipment are stated at the lower
of cost or fair value. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, as follows:
Description
|
Estimated Life
|
Office equipment and furniture
|
3 years
|
The estimated useful lives are based on the
nature of the assets as well as current operating strategy and legal considerations such as contractual life. Future events, such
as property expansions, property developments, new competition, or new regulations, could result in a change in the manner in which
the Company uses certain assets requiring a change in the estimated useful lives of such assets.
|
|
June 27, 2014
|
|
December 31, 2013
|
Office equipment and furniture
|
|
$ 80,309
|
|
$ 11,841
|
Less: accumulated depreciation
|
|
(14,679)
|
|
(3,947)
|
|
|
$ 65,630
|
|
$ 7,894
|
Customer Relationships
Customer relationships comprise customer lists
acquired from Qwik Staffing Solutions, Inc. on April 29, 2013 with an estimated fair value of $294,100 and from Shirley’s
Employment Service, Inc. on April 9, 2014 with an estimated fair value of $162,641. Customer lists are amortized on a straight-line
basis over three years.
|
|
June 27, 2014
|
|
December 31, 2013
|
Customer lists
|
|
$ 456,561
|
|
$ 294,100
|
Less: accumulated amortization
|
|
(126,258)
|
|
(66,072)
|
|
|
$ 330,303
|
|
$ 228,028
|
Earnings Per Share
Basic earnings (loss) per common share is computed
by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding
during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average
number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock
that would have been outstanding if potentially dilutive securities had been issued.
Convertible Debentures
Beneficial Conversion Feature
If the conversion features of conventional
convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion
feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt
with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related
to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Debt Discount
The Company determines if the convertible debenture
should be accounted for as liability or equity under ASC 480, Liabilities — Distinguishing Liabilities from Equity. ASC 480,
applies to certain contracts involving a company's own equity, and requires that issuers classify the following freestanding financial
instruments as liabilities. Mandatorily redeemable financial instruments, Obligations that require or may require repurchase of
the issuer's equity shares by transferring assets (e.g., written put options and forward purchase contracts), and Certain obligations
where at inception the monetary value of the obligation is based solely or predominantly on:
– A fixed monetary amount known at inception,
for example, a payable settleable with a variable number of the issuer's equity shares with an issuance date fair value equal to
a fixed dollar amount,
– Variations in something other than
the fair value of the issuer's equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with
a variable number of the issuer's equity shares, or
– Variations inversely related to changes
in the fair value of the issuer's equity shares, for example, a written put that could be net share settled.
If the entity determined the instrument meets
the guidance under ASC 480 the instrument is accounted for as a liability with respective debt discount. The Company records debt
discounts in connection with raising funds through the issuance of convertible debt (see Note 10). These costs are amortized to
non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the
unamortized amounts is immediately expensed.
Derivative Financial Instruments
Derivative financial instruments, as defined
in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments
or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable),
require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded
in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value
and recorded as liabilities or, in rare instances, assets.
The Company does not use derivative financial
instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments
including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded
equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by
the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities,
at fair value, in our financial statements.
Stock-based compensation
The Company records stock based compensation
in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value
of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value
and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based
awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments
issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions
reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated
fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a performance commitment or completion of performance
by the provider of goods or services as defined by FASB ASC 505-50.
Recent Accounting Pronouncements
The Company does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial
position, or cash flow.
NOTE 4 – ASSET PURCHASE AGREEMENT
On April 9, 2014, the Company entered into
an Asset Purchase Agreement (“Agreement”) with Shirley’s Employment Service, Inc. (“Shirley’s”).
Under the terms of the Agreement, Shirley’s sold all of the operating assets (“Assets”) of Shirley’s,
excluding cash and accounts receivable. In consideration for the Assets, the Company agreed to pay $300,000 in cash minus
the open accounts receivable of Shirley’s. At closing it was estimated by the Company that $170,797 will be paid for the
Assets after deducting accounts receivable. The first $70,797 was paid one day prior to the delivery and transfer of the Assets.
The remaining $100,000 is due in monthly installments by paying an amount equal to 5.0% of the monthly accounts receivable
collected at the Tulsa, Oklahoma location. In the event these aggregate monthly payments total less than $100,000, after
18 months, Shirley’s will issue the Company a credit memo for the difference.
The total purchase price for Shirley’s
was approximately $162,461. The purchase price consisted of approximately (i) $70,797 in cash, (ii) Estimated fair value
of consideration payable on collection 5.0% of the monthly accounts receivable collected by operating the Tulsa, Oklahoma location
over the next 18 months of $91,664. The Company expected to pay total consideration of $100,000 in equal installments over 18 months.
The fair value of the consideration was estimated by discounting the monthly installments by 12% per annum.
The determination of the estimated fair value
of the acquired assets and liabilities assumed required management to make significant estimates and assumptions. We determined
the fair value by applying established valuation techniques, based on information that management believed to be relevant to this
determination. The following table summarizes the purchase price allocation of the fair value of the assets acquired and liabilities
assumed at the date of purchase:
Customer relationships
|
$ 164,641
|
Net assets acquired
|
$ 164,641
|
|
|
Cash
|
$ 70,797
|
Contingent consideration
|
91,664
|
Consideration paid
|
$ 164,641
|
NOTE 5 – WORKERS COMPENSATION INSURANCE
COLLATERAL FUND
During the quarter ended June 27, 2014, the
Company entered into an insurance contract for workers compensation insurance for the policy period of June 14, 2014 to June 14,
2015 for fifteen States. The policy provides coverage for (i) statutory workers compensation and (ii) employer’s liability.
Employer’s liability is limited to $1,000,000 per occurrence. Statutory workers compensation and employee liability has a
deductible $250,000 per occurrence, resulting in the Company being substantially self-insured. Upon binding of the contract, the
Company paid a collateral deposit of $222,532 to the insurance company. Thereafter, $450,000 of collateral is payable in weekly
installments of $8,654. The Workers Compensation Insurance Collateral Fund “Collateral Fund” is a depleting loss fund
whereby actual charges for losses per occurrence under $250,000 is directly charged to the fund. At the end of each accounting
period the Company estimates and records a liability for future changes against the Collateral Fund for occurrences during the
period. The Company pays a separate premium for coverage in excess of $250,000.
Other States are covered by State pools with
premiums expensed when due.
NOTE 6 – PREPAID EXPENSES
As of June 27, 2014 and December 31, 2013,
the Company had prepaid expenses of $102,389 and $45,497, respectively. Prepaid expenses at June 27, 2014 comprises prepaid lease
payments.
NOTE 7 – RELATED PARTY
On April 25, 2013, the Company entered into
a loan agreement with the CEO of the Company in the amount of $175,768. This loan is payable on demand, unsecured, and bears 0%
interest per annum. This loan consolidates all previous loans issued. As of June 27, 2014, $149,543 of this note has been repaid
and $26,225 of this note remains outstanding.
NOTE 8 – PAYROLL TAXES PAYABLE
On March 17, 2014, the Internal Revenue Service
agreed not to take collection action against the Company for payroll tax liabilities as long the Company remains current and makes
monthly installments against outstanding liabilities (“Installment Agreement”). The agreed monthly installments are
$5,000 which increases to $10,000 on July 28, 2014 which further increases to $15,000 on July 28, 2016. On the date of the Installment
Agreement, the total amount of our federal tax liability was $1,019,923, all of which is included in the Installment Agreement.
Interest under the Installment Agreement accrues at 3% plus the published Applicable Federal Short Term Rate (“AFR”)
per annum. The AFR as of August 4, 2014 is 0.36% per annum. At June 27, 2014 and August 4, 2014, we were in full compliance with
the terms of the Installment Agreement.
On June 23, 2014, the Company was refunded
$37,227 in penalties and interest which was originally paid and expensed in fiscal 2012. This amount has been applied to our outstanding
Federal payroll tax liability.
NOTE 9 – FACTORING AGREEMENT
On
July
31, 2013, the Company entered into a Purchase and Sale Agreement with Transfac Capital, Inc. (“Transfac”).
Under
the terms of the Purchase and Sale Agreement, Transfac shall have the right, but not the obligation, to purchase up to Two Million
Dollars ($2,000,000) worth of accounts receivable (the “Maximum Advances”) of the Company. For each account
receivable purchased, Transfac shall advance seventy percent (70%) of the face value of the account and the balance after receipt
of full payment on the account. As consideration, the Company shall pay Transfac two percent (2%) of the average monthly
balance of the outstanding accounts purchased, with a minimum of one half of one percent (0.5%) of the Maximum Advances per month,
as long as the Purchase and Sale Agreement remains in effect.
The factoring line of credit with Transfac
has been treated as a secured financing arrangement. As of June 27, 2014 and December 31, 2013 under the agreement with Transfac,
the Company had factored receivables in the amount of $1,622,390 and $1,281,122, respectively, and recorded a liability of $1,351,175
and $865,321, respectively. Discounts and interest provided during factoring of the accounts receivable have been expensed on the
accompanying combined statements of operations as interest expense. For the six months ended June 27, 2014, interest expense related
to the factoring arrangement was $124,583.
NOTE 10 – CONVERTIBLE PROMISSORY NOTES
On January 1, 2014, the Company entered into
an Original Issue Discount Secured Promissory Note dated December 27, 2014 with Beaufort Ventures PLC (“Holder”) for
a purchase price of $101,000 and a face amount of $136,350 and maturing June 27, 2014. After the maturity date, the Notes accrues
interest at 22% per annum and the Note together with any unpaid accrued interest is convertible into shares of common stock of
the Company at the Holder’s option at a variable conversion price calculated at 58% of the market price which means the lowest
trading price of the prior 15 trading days, determined on the then current trading market of the Company’s common stock,
for 10 trading days prior to conversion. The Company may repay the convertible promissory note at any time for a net payment of
$136,350. On June 27, 2014, the Company paid the Note in full for $136,350 in cash.
On January 2, 2014, the Company entered into
a Convertible Promissory Note with Metolius Capital, LLC (“Holder”) in the original principal amount of $106,000 bearing
a 12% annual interest rate and maturing October 4, 2014. This convertible promissory note together with any unpaid accrued interest
is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated
at 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending
on the latest complete trading day prior to the conversion date. The Company may repay the convertible promissory note if repaid
within 120 days of date of issue at 125% of the original principal amount plus interest, between 121 days and 150 days at 130%
of the original principal amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus
interest. Thereafter, the Company does not have the right of prepayment.
On January 8, 2014, the Company entered into
a Convertible Promissory Note with Asher Enterprises, Inc. (“Holder”) in the original principal amount of $63,000 bearing
an 8% annual interest rate and maturing September 8, 2014. This convertible promissory note together with any unpaid accrued interest
is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated
at 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending
on the latest complete trading day prior to the conversion date. The Company may repay the convertible promissory note if repaid
within 30 days of date of issue at 112% of the original principal amount plus interest, between 31 days and 60 days at 119% of
the original principal amount plus interest and between 61 days and 90 days at 125% of the original principal amount plus interest
and between 91 days and 120 days at 130% of the original principal amount plus interest and between 121 days and 180 days at 135%
of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment.
On January 14, 2014, the Company entered into
a Convertible Debenture with Daniel James Management, Inc. (“Holder”) in the original principal amount of $101,000
bearing a 12% annual interest rate and maturing January 14, 2015. This convertible promissory note together with any unpaid accrued
interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price
calculated at 58% of the market price which means the lowest closing bid price during the ten trading day period ending on the
latest complete trading day prior to the conversion date. The Company may repay any portion of the principal
amount at 135% of such amount along with any accrued interest of this Debenture at any time upon seven days written notice to the
Holder.
On March 4, 2013, the Company issued a Convertible
Note to Vista Capital Investments, LLC (“Holder”), in the original principle amount of $275,000 bearing a 12% annual
interest rate and maturing one year for $250,000 of consideration paid in cash and a $25,000 original issue discount. The Company
may repay the convertible note any time and if repaid within 90 days of date of issue with an interest rate is 0%. This convertible
note together with any unpaid accrued interest is convertible into shares of common stock at the Holder’s option at a variable
conversion price calculated as lessor of (a) $0.62 or (b) 60% of the lowest trade occurring during the 25 consecutive trading days
immediately preceding the conversion date. On January 14, 2014, the Company received cash proceeds of $25,000 on the third tranche
of the Convertible Note. On March 19, 2014, the Company received cash proceeds of $25,000 on the fourth tranche of the Convertible
Note. On May 27, 2014, the Company received cash proceeds of $25,000 on the fifth tranche of the Convertible Note.
On January 22, 2014, the Company entered into
a Convertible Promissory Note with WHC Capital, LLC (“Holder”) in the original principal amount of $101,000 bearing
a 12% annual interest rate and maturing January 22, 2015. This convertible promissory note together with any unpaid accrued interest
is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated
at 58% of the market price which means the lowest bid price during the fifteen trading day period ending on the latest complete
trading day prior to the conversion date. The Company may repay outstanding principal and interest due at 135% of such amount within
180 days of the execution of the Note.
On January 31, 2014, the Company entered into
a Convertible Promissory Note with Tonaquint Inc. (“Holder”) in the original principal amount of $115,000 less an original
issuer’s discount of $10,000 and transaction costs of $5,000 bearing a 0% annual interest rate and maturing December 31,
2014. The Convertible Promissory Note is due in six equal monthly installments plus interest (“Installment Amount”)
commencing six months after the issue date. At the option of the Holder, the Installment Amount is convertible into shares of common
stock of the Company at a variable conversion price calculated at 60% of the market price which means the average of the lowest
two trading prices during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
The Company may elect to prepay in cash all or any portion of the outstanding balance of the convertible promissory note if the
Company pays the holder 125% of the outstanding balance.
On February 13, 2014, the Company entered into
an Original Issue Discount Secured Promissory Note with Beaufort Ventures PLC (“Holder”) for a purchase price of $101,000
and a face amount of $136,350 and maturing August 13, 2014. After the maturity date, the Notes accrues interest at 22% per annum
and the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s
option at a variable conversion price calculated at 58% of the market price which means the lowest trading price of the prior 15
trading days, determined on the then current trading market of the Company’s common stock, for 10 trading days prior to conversion.
The Company may repay the convertible promissory note, if repaid within 90 days of date of issue, for a net payment of $136,350
plus 70,000 shares of common stock of the Company.
On March 5, 2014, the Company entered into
a Convertible Promissory Note with LG Capital Funding, LLC (“Holder”) in the original principal amount of $101,000
bearing a 10% annual interest rate and maturing March 5, 2015. This convertible promissory note together with any unpaid accrued
interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price
calculated at 58% of the market price which means the lowest bid price during the twelve trading day period ending on the latest
complete trading day prior to the conversion date. The Company may repay the convertible promissory note if repaid within 90 days
of date of issue at 125% of the original principal amount plus interest, between 91 days and 150 days at 130% of the original principal
amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment.
On March 10, 2014, the Company entered
into a Convertible Promissory Note with Adar Bays, LLC (“Holder”) in the original principal amount of $101,000 bearing
a 10% annual interest rate and maturing March 10, 2015. This convertible promissory note together with any unpaid accrued interest
is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated
at 58% of the market price which means the average of the lowest three trading prices during the ten trading day period ending
on the latest complete trading day prior to the conversion date. The Company may repay the convertible promissory note if repaid
within 90 days of date of issue at 125% of the original principal amount plus interest, between 91 days and 150 days at 130% of
the original principal amount plus interest and between 151 days and 180 days at 135% of the original principal amount plus interest.
Thereafter, the Company does not have the right of prepayment.
On March 12, 2014, the Company entered into
a Convertible Promissory Note with Asher Enterprises, Inc. (“Holder”) in the original principal amount of $103,500
bearing an 8% annual interest rate and maturing December 17, 2014. This convertible promissory note together with any unpaid accrued
interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price
calculated at 58% of the market price which means the average of the lowest three trading prices during the ten trading day period
ending on the latest complete trading day prior to the conversion date. The Company may repay the convertible promissory note if
repaid within 30 days of date of issue at 112% of the original principal amount plus interest, between 31 days and 60 days at 119%
of the original principal amount plus interest and between 61 days and 90 days at 125% of the original principal amount plus interest
and between 91 days and 120 days at 130% of the original principal amount plus interest and between 121 days and 180 days at 135%
of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment.
On March 24, 2014, the Company entered into
a Convertible Promissory Note with Carebourn Capital, L.P. (“Holder”) in the original principle amount of $112,500
bearing an 8% annual interest rate and maturing November 24, 2014. This convertible promissory note together with any unpaid accrued
interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price
calculated at 58% of the market price which means the average of the lowest three trading prices during the ten trading day period
ending on the latest complete trading day prior to the conversion date. The Company may repay the convertible promissory note if
repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115%
of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest,
between 91 days and 120 days at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the
original principal amount plus interest, and between 151 days and 180 days at 135% of the original principal amount plus interest.
Thereafter, the Company does not have the right of prepayment.
On March 27, 2014, the Company entered into
a 10% Original Issue Discount Convertible Promissory Note (“Note”) with Gemini Master Fund, Ltd. (“Holder”)
in the original principal amount of $220,000 bearing a 10% annual interest rate and maturing January 1, 2015. At the option of
the Holder:
|
i)
|
The Note together with any unpaid accrued interest is convertible
into shares of common stock of the Company at a variable conversion price calculated at 65% of the market price which means the
average of the lowest volume weighted average price during the twenty trading day period ending prior to the conversion date, or
|
|
ii)
|
All principal, costs, charges and interest amounts outstanding may
be exchanged for shares of the Company’s common stock at the Conversion Price of $0.25 per share. The Conversion Price is
subject to an anti-dilution adjustment.
|
The Company may repay the convertible promissory
note at 130% of the original principal amount plus interest.
On April 2, 2014, the Company entered into
a Convertible Promissory Note with Coventry Enterprises, LLC (“Holder”) in the original principal amount of $101,000
less transaction costs of $13,000 bearing a 10% annual interest rate and maturing April 5, 2015. This convertible promissory note
together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option
at a variable conversion price calculated at 58% of the lowest bid price during the twelve trading days prior to the conversion
date including the day upon which a Notice of Conversion is received by the Company. The Company may repay the convertible promissory
note if repaid within 180 days of date of issue at 135% of the original principal amount plus interest. Thereafter, the Company
does not have the right of prepayment.
On April 14, 2014, the Company entered into
a Convertible Promissory Note with Group 10 Holdings, LLC (“Holder”) in the original principal amount of $113,000 less
original issue discount of $12,000 bearing a 12% annual interest rate and maturing April 17, 2015. This convertible promissory
note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s
option at a variable conversion price calculated at 55% of the lowest trading price of any day during the 20 consecutive trading
days prior to the date on which the Holder elects to convert all or part of the Note. The Company may repay the convertible promissory
note if repaid within 30 days of date of issue at 125% of the original principal amount plus interest and between 31 days and 179
days at 135% of the original principal amount plus interest and thereafter, the Company may repay the convertible promissory note
at 145% of the original principal amount plus interest.
On April 16, 2014, the Company entered into
a Convertible Promissory Note with Tonaquint Inc. (“Holder”) in the original principal amount of $115,000 less an original
issuer’s discount of $10,000 and transaction costs of $13,000 bearing a 10% annual interest rate and maturing March 16, 2015.
The Convertible Promissory Note is due in six equal monthly installments plus interest (“Installment Amount”) commencing
six months after the issue date. At the option of the Holder, the Installment Amount is convertible into shares of common stock
of the Company at a variable conversion price calculated at 60% of the market price which means the average of the lowest two trading
prices during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company
may elect to prepay in cash all or any portion of the outstanding balance of the convertible promissory note if the Company pays
the holder 125% of the outstanding balance.
On April 21, 2014, the Company entered into
a Convertible Promissory Note with Tailwind Partners 3, LLC (“Holder”) in the original principal amount of $106,000
less transaction costs of $5,000 bearing a 12% annual interest rate and maturing January 21, 2015. This convertible promissory
note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s
option at a variable conversion price calculated at 58% of the market price which means the average of the lowest three trading
prices during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company may
repay the convertible promissory note if repaid within 120 days of date of issue at 125% of the original principal amount plus
interest, between 121 days and 150 days at 130% of the original principal amount plus interest and between 151 days and 180 days
at 130% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment.
On May 14, 2014, the Company entered into a
Convertible Promissory Note with KBM Worldwide, Inc. (“Holder”) in the original principal amount of $103,500 less transaction
costs of $3,500 bearing an 8% annual interest rate and maturing February 16, 2015. This convertible promissory note together with
any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable
conversion price calculated at 58% of the market price which means the average of the lowest three trading prices during the ten
trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the convertible
promissory note if repaid within 60 days of date of issue at 119% of the original principal amount plus interest, between 61 days
and 90 days at 125% of the original principal amount plus interest, between 91 days and 120 days at 130% of the original principal
amount plus interest and 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company
does not have the right of prepayment.
On May 27, 2014, the Company issued a Convertible
Note to JMJ Financial (“Holder”), in the original principle amount of $330,000 bearing a 12% annual interest rate and
maturing in one year for $300,000 of consideration paid in cash and a $30,000 original issue discount. The Company may repay the
convertible note any time and if repaid within 90 days of date of issue with an interest rate is 0%. This convertible note together
with any unpaid accrued interest is convertible into shares of common stock at the Holder’s option at a variable conversion
price calculated as lessor of (a) $0.30 or (b) 60% of the lowest trade occurring during the 25 consecutive trading days immediately
preceding the conversion date. On May 27, 2014, the Company received cash of $100,000 in the first tranche, which was net of original
issue discount of $10,000.
On June 6, 2014, the Company entered into a
Convertible Promissory Note with Firehole River Capital, LLC (“Holder”) in the original principal amount of $106,000
less transaction costs of $5,000 bearing a 12% annual interest rate and maturing March 6, 2015. This convertible promissory note
together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option
at a variable conversion price calculated at 58% of the market price which means the average of the lowest three trading prices
during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay
the convertible promissory note if repaid within 120 days of date of issue at 125% of the original principal amount plus interest,
between 121 days and 150 days at 130% of the original principal amount plus interest and between 151 days and 180 days at 135%
of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment.
On June 9, 2014, the Company entered into a
Convertible Promissory Note with Group 10 Holdings, LLC (“Holder”) in the original principal amount of $113,000 less
an original issue discount of $12,000 bearing a 12% annual interest rate and maturing June 9, 2015. This convertible promissory
note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s
option at a variable conversion price calculated at 55% of the lowest trading price of any day during the 20 consecutive trading
days prior to the date on which the Holder elects to convert all or part of the Note. The Company may repay the convertible promissory
note if repaid within 30 days of date of issue at 125% of the original principal amount plus interest and between 31 days and 179
days at 135% of the original principal amount plus interest and thereafter, the Company may repay the convertible promissory note
at 145% of the original principal amount plus interest.
See Note 13 – Stockholders’ Equity
for conversions of convertible promissory notes into shares of common stock of the Company.
NOTE 11 – CONVERTIBLE NOTE PAYABLE
DERIVATIVE LIABILITY
The Convertible Promissory Note with Willow
Creek Capital Group, LLC is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event
the Company subsequently issues equity securities including common stock or any security convertible or exchangeable for shares of common stock for no consideration or for consideration less than $0.34
a share. The Company accounted for the conversion option in accordance with ASC Topic 815. Accordingly, the Conversion Option
is not considered to be solely indexed to the Company’s own stock and, as such, recorded as a liability.
The Company’s convertible promissory
note derivative liability has been measured at fair value at June 27, 2014 and December 31, 2013 using a binomial model. Since
the Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease
as the share price decreased was incorporated into the valuation calculation.
The inputs into the binomial model are as follows:
|
December 31, 2013
|
June 27, 2014
|
Closing share price
|
$0.248
|
$0.219
|
Conversion price
|
$0.34
|
$0.34
|
Risk free rate
|
0.10%
|
0.04%
|
Expected volatility
|
99%
|
21%
|
Dividend yield
|
0%
|
0%
|
Expected life
|
7 months
|
1 months
|
The fair value of the convertible note payable
derivative liability is $0 at June 27, 2014. The decrease in the fair value of the convertible note payable derivative liability
of $20,701 is recorded as a gain in the statement of operations for the six months ended June 27, 2014.
The Convertible Promissory Note with Gemini
Master Fund, Ltd. is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the
Company subsequently issues equity securities including common stock or any security convertible or exchangeable for shares of
common stock for no consideration or for consideration less than $0.25 a share. The Company accounted for the conversion option
in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be solely indexed to the Company’s
own stock and, as such, recorded as a liability.
The Company’s convertible promissory
note derivative liability has been measured at fair value at March 27, 2014 and June 27, 2014 using a binomial model. Since the
Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as
the share price decreased was incorporated into the valuation calculation.
The inputs into the binomial model are as follows:
|
March 27, 2014
|
June 27, 2014
|
Closing share price
|
$0.49
|
$0.219
|
Conversion price
|
$0.43
|
$0.43
|
Risk free rate
|
0.09%
|
0.03%
|
Expected volatility
|
120%
|
102%
|
Dividend yield
|
0%
|
0%
|
Expected life
|
9 months
|
6 months
|
The fair value of the convertible note payable
derivative liability is $10,419 at June 27, 2014. The decrease in the fair value of the convertible note payable derivative liability
of $102,042.
The Convertible Promissory Note with Tonaquint,
Inc. is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the Company subsequently
issues equity securities including common stock or any security convertible or exchangeable for shares of common stock for no consideration or for consideration less than $0.30 a share. The Company
accounted for the conversion option in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be
solely indexed to the Company’s own stock and, as such, recorded as a liability.
The Company’s convertible promissory
note derivative liability has been measured at fair value at April 16, 2014 and June 27, 2014 using a binomial model. Since the
Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as
the share price decreased was incorporated into the valuation calculation.
The inputs into the binomial model are as follows:
|
April 16, 2014
|
June 27, 2014
|
Closing share price
|
$0.36
|
$0.219
|
Conversion price
|
$0.50
|
$0.50
|
Risk free rate
|
0.11%
|
0.10%
|
Expected volatility
|
129%
|
115%
|
Dividend yield
|
0%
|
0%
|
Expected life
|
11 months
|
10 months
|
The fair value of the convertible note payable
derivative liability is $29,281 at June 27, 2014. The decrease in the fair value of the convertible note payable derivative liability
of $18,645 is recorded as a gain in the statement of operations six months ended June 27, 2014.
The Convertible Promissory Note with JMJ Financial,
is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the Company subsequently
issues equity securities including common stock or any security convertible or exchangeable for shares of common stock for no consideration
or for consideration less than $0.30 a share. The Company accounted for the conversion option in accordance with ASC Topic
815. Accordingly, the Conversion Option is not considered to be solely indexed to the Company’s own stock and, as such, recorded
as a liability.
The Company’s convertible promissory
note derivative liability has been measured at fair value at May 27, 2014 and June 27, 2014 using a binomial model. Since the Conversion
Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share
price decreased was incorporated into the valuation calculation.
The inputs into the binomial model are as
follows:
|
May 27, 2014
|
June 27, 2014
|
Closing share price
|
$0.251
|
$0.219
|
Conversion price
|
$0.50
|
$0.50
|
Risk free rate
|
0.09%
|
0.10%
|
Expected volatility
|
135%
|
131%
|
Dividend yield
|
0%
|
0%
|
Expected life
|
12 months
|
11 months
|
The fair value of the convertible note payable
derivative liability is $20,319 at June 27, 2014. The decrease in the fair value of the convertible note payable derivative liability
of $8,961 is recorded as a gain in the statement of operations six months ended June 27, 2014.
NOTE 12 – CONTINGENT LIABILITY
The Company incurred a contingent liability
related to an Asset Acquisition Agreement with Qwik Staffing Solutions, Inc. on April 29, 2013. The obligation is due in monthly
installments by paying an amount equal to 6.5% of the monthly accounts receivable collected by operating the Orlando, Jacksonville
and Tampa, Florida locations. The total payments are not to exceed $170,000. The fair value of the obligation is determined by
estimating discounted monthly installments at an interest rate of 12% per annum. The obligation to Qwik was paid in full during
May 2014.
The Company incurred a contingent liability
related to an Asset Acquisition Agreement with Shirley’s Employment Service, Inc. on April 13, 2014. The obligation is due
in monthly installments by paying an amount equal to 5.0% of the monthly accounts receivable collected by operating the Tulsa,
Oklahoma location. The total payments are not to exceed $100,000. The fair value of the obligation is determined by estimating
discounted monthly installments at an interest rate of 12% per annum.
|
Opening balance at December 31, 2013
|
|
|
$
|
79,221
|
|
|
Purchase of Shirley’s customer list – April 13, 2014
|
|
|
|
91,664
|
|
|
Payments
|
|
|
|
(82,349
|
)
|
|
Interest
|
|
|
|
2,826
|
|
|
Closing balance at June 27, 2014
|
|
|
$
|
91,362
|
|
NOTE 13 – STOCKHOLDERS’ EQUITY
Effective May 19, 2014, the Board of Directors
and the majority shareholder of the Company consented to amend the Articles of Incorporation to increase the number of authorized
shares of the Company’s common stock from 75,000,000 to 150,000,000 and to create a class of “blank check” preferred
stock and authorize 5,000,000 shares of preferred stock.
Preferred Stock
– The Company
has 5,000,000 shares of “blank check” preferred stock authorized. As of June 27, 2014 and December 31, 2013, the Company
had no preferred shares issued and outstanding, respectively.
Common Stock
- The Company has 150,000,000
shares of $0.001 par value common stock authorized. As of June 27, 2014 and December 31, 2013, the Company had 24,710,847 and 20,982,740
shares issued and outstanding, respectively.
On January 6, 2014, JMJ Financial elected to
convert 110,000 shares of common stock with an aggregate fair value of $27,390 ($0.249 per share) based on the quoted market price
of shares at the time of issuance for $11,352 in principal and interest and $16,038 for debt discount.
On January 16, 2014, JMJ Financial elected
to convert 120,000 shares of common stock with an aggregate fair value of $28,188 ($0.2349 per share) based on the quoted market
price of shares at the time of issuance for $12,684 in principal and interest and $16,504 for debt discount.
On January 31, 2014, JMJ Financial elected
to convert 130,000 shares of common stock with an aggregate fair value of $28,600 ($0.22 per share) based on the quoted market
price of shares at the time of issuance for $13,650 in principal and interest and $13,150 for debt discount.
On February 11, 2014, the Company issued 100,000
shares of common stock for professional services valued at $21,000 ($0.21 per share).
On February 12, 2014, JMJ Financial elected
to convert 120,000 shares of common stock with an aggregate fair value of $28,680 ($0.239 per share) based on the quoted market
price of shares at the time of issuance for $12,600 in principal and interest and $16,080 for debt discount.
On February 12, 2014, JMJ Financial elected
to convert 123,943 shares of common stock with an aggregate fair value of $29,746 ($0.24 per share) based on the quoted market
price of shares at the time of issuance for $13,014 in principal and interest and $16,732 for debt discount.
On March 26, 2014, JMJ Financial elected to
convert 552,632 shares of common stock with an aggregate fair value of $243,158 ($0.44 per share) based on the quoted market price
of shares at the time of issuance for $63,000 in principal and interest and $180,158 for debt discount.
On May 5, 2014, Vista Capital Investments,
LLC elected to convert 51,867 shares of common stock with an aggregate fair value of $13,745 ($0.265 per share) based on the quoted
market price of shares at the time of issuance for $7,500 principal and interest and $6,245 for debt discount.
On May 5, 2014, Iconic Holdings, LLC elected
to convert 276,625 shares of common stock with an aggregate fair value of $73,306 ($0.265 per share) based on the quoted market
price of shares at the time of issuance for $40,000 principal and interest and $33,306 for debt discount.
On May 19, 2014, Iconic Holdings, LLC elected
to convert 305,670 shares of common stock with an aggregate fair value of $67,247 ($0.22 per share) based on the quoted market
price of shares at the time of issuance for $40,000 principal and interest and $27,247 for debt discount.
On May 21, 2014, Willow Creek Capital Group,
LLC elected to convert 201,746 shares of common stock with an aggregate fair value of $46,422 ($0.2301 per share) based on the
quoted market price of shares at the time of issuance for $26,530 principal and interest and $19,892 for debt discount.
On June 5, 2014, Iconic Holdings, LLC elected
to convert 229,167 shares of common stock with an aggregate fair value of $68,292 ($0.298 per share) based on the quoted market
price of shares at the time of issuance for $30,250 principal and interest and $38,042 for debt discount.
On June 9 2014, Vista Capital Investments,
LLC elected to convert 75,000 shares of common stock with an aggregate fair value of $19,950 ($0.266 per share) based on the quoted
market price of shares at the time of issuance for $9,815 principal and interest and $10,135 for debt discount.
On June 10, 2014, Group 10 Holdings, LLC elected
to convert 249,521 shares of common stock with an aggregate fair value of $61,981 ($0.248 per share) based on the quoted market
price of shares at the time of issuance for $30,000 principal and interest and $31,981 for debt discount.
On June 13, 2014, JMJ Financial elected to
convert 130,000 shares of common stock with an aggregate fair value of $31,850 ($0.245 per share) based on the quoted market price
of shares at the time of issuance for $17,012 principal and interest and $14,838 for debt discount.
On June 16, 2014, Tailwind Partners 3, LLC
elected to convert 274,295 shares of common stock with an aggregate fair value of $63,088 ($0.23 per share) based on the quoted
market price of shares at the time of issuance for $35,000 principal and interest and $28,088 for debt discount.
On June 18, 2014, Tonaquint, Inc. elected to
convert 184,436 shares of common stock with an aggregate fair value of $40,576 ($0.22 per share) based on the quoted market price
of shares at the time of issuance for $25,297 principal and interest and $15,279 for debt discount.
On June 25, 2014, Tailwind Partners 3, LLC
elected to convert 184,986 shares of common stock with an aggregate fair value of $40,512 ($0.219 per share) based on the quoted
market price of shares at the time of issuance for $36,000 principal and interest and $4,512 for debt discount.
On June 25, 2014, Willow Creek Capital Group,
LLC elected to convert 308,219 shares of common stock with an aggregate fair value of $67,500 ($0.219 per share) based on the quoted
market price of shares at the time of issuance for $26,823 principal and interest and $40,677 for debt discount.
On May 16, 2014, the Company issued subscriptions
payable for 100,000 shares of common stock for professional services valued at $23,000 ($0.23 per share)
The following is a summary of the common stock
options granted, forfeited or expired and exercised:
|
Number of Options
|
|
Weighted Average Exercise
Price Per Share
|
Outstanding - January 1, 2014
|
3,883,455
|
|
$ 0.18
|
Granted
|
-
|
|
-
|
Forfeited or expired
|
(325,580)
|
|
$ 0.05
|
Exercised
|
-
|
|
-
|
Outstanding– June 27, 2014
|
3,557,875
|
|
$ 0.19
|
Exercisable – June 27, 2014
|
1,835,000
|
|
$ 0.33
|
The following table summarizes information
on stock options exercisable as of June 27, 2014:
Exercise Price
|
Number Outstanding at
June 27, 2014
|
Average Remaining
Life (Years)
|
Aggregate Intrinsic
Value
|
$0.25
|
25,000
|
4.50
|
-
|
$0.295
|
50,000
|
4.25
|
-
|
$0.30
|
1,500,000
|
0.84
|
-
|
$0.41
|
30,000
|
3.81
|
-
|
$0.50
|
130,000
|
4.26
|
-
|
$0.56
|
50,000
|
3.66
|
-
|
$0.62
|
50,000
|
3.72
|
-
|
The following table summarizes information
on stock options outstanding as of June 27, 2014:
|
Exercise Price
|
|
|
|
Number Outstanding at
June 27, 2014
|
|
|
|
Average Remaining
Life (Years)
|
|
|
|
Aggregate Intrinsic
Value
|
|
$
|
0.05
|
|
|
|
1,722,875
|
|
|
|
9.29
|
|
|
|
—
|
|
$
|
0.25
|
|
|
|
25,000
|
|
|
|
4.50
|
|
|
|
—
|
|
$
|
0.295
|
|
|
|
50,000
|
|
|
|
4.25
|
|
|
|
—
|
|
$
|
0.30
|
|
|
|
1,500,000
|
|
|
|
0.84
|
|
|
|
—
|
|
$
|
0.41
|
|
|
|
30,000
|
|
|
|
3.81
|
|
|
|
—
|
|
$
|
0.50
|
|
|
|
130,000
|
|
|
|
4.26
|
|
|
|
—
|
|
$
|
0.56
|
|
|
|
50,000
|
|
|
|
3.66
|
|
|
|
—
|
|
$
|
0.62
|
|
|
|
50,000
|
|
|
|
3.72
|
|
|
|
—
|
|
The following is a summary of warrants activity
during June 27, 2014:
|
Number of Shares
|
Weighted Average Exercise Price
|
Balance, January 1, 2014
|
502,000
|
0.40
|
Warrants granted
and assumed
Warrants canceled
|
-
-
|
-
-
|
Warrants expired
|
-
|
-
|
Balance, June 27, 2014
|
502,000
|
0.40
|
All warrants
outstanding as of June 27, 2014 are exercisable.
NOTE 14 – COMMITMENTS
On January 15, 2014, the Company entered into
a 39 month lease agreement with Joe’s Creek Industrial Park, Ltd., commencing February 1, 2014, to rent office space at 4632
28th Street North, St. Petersburg, Florida. Monthly minimum lease payments are $1,500 for the first year of occupancy, $1,545 for
the second year of occupancy, $1,591 for the third year of occupancy and $1,691 for the last three months of occupancy.
On January 15, 2014, the Company entered into
a 38 month lease agreement with Joseph Vinh Properties., commencing April 1, 2014, to rent office space at 5833 Clinton Highway,
Knoxville, TN. Rent is abated for two months of the lease. Monthly minimum lease payments are $1,690 for the first and second year
of occupancy.
On March 12, 2014, the Company entered into
a 63 month lease agreement with AZG Summit Square LLC., commencing April 1, 2014, to rent office space at 8114 North Federal Blvd.,
Westminster, CO. The fixed minimum rent for the first six months is $0 per month. Monthly minimum lease payments are $1,964 for
the next nine months of occupancy. Monthly minimum lease payments increase by approximately 3% per annum thereafter.
On March 5, 2014, the Company entered into
a 60 month lease agreement HB Jacinto Investors, LLC, commencing April 1, 2014, to rent office space at 11420 East Freeway (I-10).
Suite 310, Jacinto City, Texas. Monthly minimum lease payments are $1,728 for the term of the lease.
On March 18, 2014, the Company entered into
a 39 month lease agreement with Amusement Sales & Service, Inc., commencing March 18, 2014, to rent office space at 5500 White
Bluff Road, Suite B, Savannah, GA. Rent is abated for three months of the lease. Monthly minimum lease payments are $1,500 for the first year of occupancy. Monthly minimum
lease payments increase by approximately 3% per annum thereafter.
On April 16, 2014, the Company entered into
a 36 month lease agreement with Korbet’s Restaurant, Inc., commencing August 1, 2014, to rent office space at 2029-E. Airport
Blvd, Mobile, AL. Monthly minimum lease payments are $850 for the term of the lease.
On April 16, 2014, the Company entered into
a 39 month lease agreement with JW Mariner Corporation, commencing May 1, 2014, to rent office space at 621 U.S. Highway 231. Panama
City, FL. Rent is abated for three months of the lease. Monthly minimum lease payments are $1,050 for the first year of occupancy.
Monthly minimum lease payments increase by approximately 3% per annum thereafter.
On April 21, 2014, the Company entered into
a 36 month 10 day lease agreement with William D. Sconyers and Suzanne L. Sconyers, commencing April 21, 2014, to rent office space
at 344 Meadow Ridge Dr., Tallahassee, FL. Rent is abated for three months of the lease. Monthly minimum lease payments are $1,400
for the first year of occupancy. Monthly minimum lease payments increase by approximately 3% per annum thereafter.
On April 21, 2014, the Company entered into
a 60 month lease agreement with L’Wood Associates, Inc., commencing May 1, 2014, to rent office space at 4365 Dorchester
Rd. Suite 108, North Charleston, SC. Monthly minimum lease payments are $1,452 for the first year of occupancy. Monthly minimum
lease payments increase by approximately 3% per annum thereafter.
On April 23, 2014, the Company entered into
a 36 month lease agreement with Gale York, commencing May 1, 2014, to rent office space at 1103 Broad Avenue Suite A, Gulfport,
MS. Monthly minimum lease payments are $1,250 for the term of the lease.
On April 24, 2014, the Company entered into
a 36 month lease agreement with Monterrery Plaza, LLC, commencing May 1, 2014, to rent office space at 9250 Florida Blvd, Baton
Rouge, LA. Monthly minimum lease payments are $1,450 for the term of the lease.
On April 28, 2014, the Company entered into
a 36 month lease agreement with John Cockfield, commencing April 28, 2014, to rent office space at 4621 Jefferson Hwy, Jefferson,
LA. Monthly minimum lease payments are $1,200 for the term of the lease.
On May 1, 2014, the Company entered into a
60 month lease agreement with SP Forest Oaks, LLC, commencing May 1, 2014, to rent office space at 5007 N. Davis Highway Unit 15,
Pensacola, FL. Rent is abated for three months of the lease. Monthly minimum lease payments are $1,115.25 for the first year of
occupancy. Monthly minimum lease payments increase by approximately 3% per annum thereafter.
On May 22, 2014, the Company entered into a
38 month lease agreement with Vaughn Plaza, LLC, commencing June 1, 2014, to rent office space at 5034 and 5036 Vaughn Road, Montgomery,
AL. Monthly minimum lease payments are $1,305 for the term of the lease. Rent is abated for first two months of the lease.
Six months ended December 31,
|
2014
|
$ 239,315
|
Year ended December 31,
|
2015
|
407,638
|
Year ended December 31,
|
2016
|
304,331
|
Year ended December 31,
|
2017
|
178,724
|
Year ended December 31,
|
2018
|
100,174
|
Year ended December 31,
|
2019
|
40,357
|
|
|
$ 1,270,539
|
NOTE 15 – SUBSEQUENT EVENTS
On July 1, 2014, JMJ Financial elected to convert
140,000 shares of common stock to convert $16,800 principal amount of a Convertible Promissory Note.
On July 3, 2014, the Company received cash
proceeds of a Convertible Promissory Note dated June 27, 2014 with JSJ Investment Inc. (“Holder”) in the original principal
amount of $101,000 bearing a 10% annual interest rate and maturing December 27, 2014. This convertible promissory note together
with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable
conversion price calculated at 58% of the market price which means the average of the lowest three trading prices during the ten
trading day period ending on the latest complete trading day prior to the conversion date. Upon the maturity date, this note has
a cash redemption value of 135%. This provision only may be exercised if the consent of the Note holder is obtained.
On July 7, 2014, the Company elected to pay
in full Asher Enterprises Inc. $87,535 in cash a convertible promissory note dated January 8, 2014. The payment comprises $63,000
of principal, $2,485 of interest and $22,050 of premium.
On July 7, 2014, Tailwind Partners, LLC elected
to convert 301,724 shares of common stock to convert $35,000 principal amount of a Convertible Promissory Note.
On July 7, 2014, Group 10 Holdings, LLC, elected
to convert 224,245 shares of common stock to convert $30,000 principal amount of a Convertible Promissory Note.
On July 8, 2014, Vista Capital Investments,
LLC elected to convert 112,379 shares of common stock to convert $13,486 principal amount of a Convertible Promissory Note.
On July 11, 2014, the Company entered into
a Convertible Promissory Note with Tonaquint Inc. (“Holder”) in the original principal amount of $225,000 less an original
issuer’s discount of $20,000 and transaction costs of $5,000 bearing a 10% annual interest rate and maturing June 11, 2015.
In conjunction with the Convertible Promissory Note, the Company issued a warrant, which expires in five years, to purchase the
number of common shares equal to $56,250 divided by the Market Price. Market Price is defined as the average of the lowest two
trading prices during the twenty trading day period ending on the latest complete trading day prior to the issue date. The initial
exercise price is $0.45 per share which may be adjusted downward for subsequent equity sales at a price lower than the exercise
price. The Convertible Promissory Note is due in six equal monthly installments plus interest (“Installment Amount”)
commencing six months after the issue date. At the option of the Holder, the Installment Amount is convertible into shares of common
stock of the Company at a variable conversion price calculated at 60% of the market price which means the average of the lowest
two trading prices during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
The Company may elect to prepay in cash all or any portion of the outstanding balance of the convertible promissory note if the
Company pays the holder 125% of the outstanding balance.
On July 11, 2014, the Company issued 100,000
shares in satisfaction of stock payable for $23,000 in stock-based compensation for professional fees.
On July 14, 2014, the Company elected to pay
in full Daniel James Management, Inc. $144,780 in cash a convertible promissory note dated January 14, 2014. The payment comprises
$101,000 of principal, $6,244 of interest and $37,536 of premium.
On July 15, 2014, the Company entered into
a Convertible Promissory Note with Macallan Partners, LLC (“Holder”) in the original principal amount of $115,000 less
an original issue discount of $14,000 bearing a 0% annual interest rate and maturing January 7, 2015. This convertible promissory
note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s
option at a variable conversion price calculated at 58% of the lowest trading price of any day during the 15 consecutive trading
days prior to the date on which the Holder elects to convert all or part of the Note. The Company may repay the convertible promissory
note if repaid within 60 days of date of issue at 125% of the original principal amount plus interest, and between 61 days and
120 days at 130% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal
amount plus interest.
On July 17, 2014, Tonaquint, Inc. elected to
convert 162,227 shares of common stock to convert $19,969 principal amount of a Convertible Promissory Note.
On July 22, 2014, the Company elected to pay
in full WHC Capital, LLC $144,443 in cash a convertible promissory note dated January 22, 2014. The payment comprises $101,000
of principal, $5,995 of interest and $37,448 of premium.
On July 22, 2014, JMJ Financial elected to
convert 162,629 shares of common stock to convert $16,588 principal amount of a Convertible Promissory Note.
On July 25, 2014, Metolius Capital, LLC, elected
to convert 1,075,051 shares of common stock to convert $106,000 principal amount of a Convertible Promissory Note.
On July 22, 2014, Group 10 Holdings, LLC elected
to convert 302,190 shares of common stock to convert $30,000 principal amount of a Convertible Promissory Note.