NOTES TO THE FINANCIAL STATEMENTS
June 30, 2016
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
SAFE LANES SYSTEMS, INC. (the “Company”),
was incorporated in the State of Colorado on September 10, 2013. The Company was formed to engage in the sale of traffic
safety equipment. The Company may also engage in any other business permitted by law, as designated by the Board of Directors of
the Company. During the second quarter of 2014 the Company secured a perpetual license to all of the intellectual property of Superior
Traffic Control in exchange for the issuance of nonvoting convertible stock in the company.
Basis of Presentation - The accompanying financial
statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”)
and pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information and the instructions
to Form 10-Q and Article 10 of Regulation S-X. In the opinion of the Company’s management, the information contained herein
reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position and
cash flows. All such adjustments are of a normal, recurring nature.
Reclassifications - Certain amounts in the
prior period’s financial statements have been reclassified to conform to the current quarter’s presentation and to
correct prior period errors.
Cash and Cash Equivalents
Cash Flows - During the period ending June
30, 2016, the Company primarily utilized cash proceeds from an unsecured short term loan to fund its operations.
Cash flows used by operations for the period
ended June 30, 2016 and 2015 were $42,628 and $118,998 respectively.
The Company considers all highly liquid investments
with an original maturity of three months or less as cash equivalents. As of June 30, 2016, the Company had cash and cash equivalents
of $931 as compared to cash and cash equivalents of $15,282 as of December 31, 2015.
Impairment of Long-life Assets
In accordance with ASC Topic 360, the Company
reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future
net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and
carrying amount of the asset. No impairment was deemed necessary as of June 30, 2016 and December 31, 2015.
Intangible Assets, Patents
During the second quarter of 2014 fiscal year
the Company acquired the exclusive license rights and intellectual property for the patent of the Kone General device which expires
July 2022. As payment for the license rights the company agreed to issue 22,768,273 shares of class B preferred, nonvoting shares
to the shareholders of the original license holders “Superior Traffic Controls”. The Company accounts for its patent
sub-license in accordance with ASC 350-30-30 “Intangibles – goodwill and other” and 805-50-30 and 805-50-15 related
to “Business Combinations” by recognizing the fair value to the amount paid by the company for the asset at the time
of purchase. Since Safe Lanes Systems has a limited operating history management determined to use par value as the value recognized
for the transaction. Since the patent has a predetermined, finite life span, the cost of the asset will be recognized on a straight
line basis over the remaining life of the patent.
At the conclusion of each reporting period
the patent is evaluated for impairment. As of June 30, 2016 due to the lack of sales and determining that incomplete engineering
plans were provided the Company determined it should impair the entire remaining value of the intangible asset.
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Patents
|
|
$
|
2,277
|
|
|
$
|
2,277
|
|
Less: Accumulated Amortization
|
|
|
(595
|
)
|
|
|
(446
|
)
|
Impairment
|
|
|
(1,682
|
)
|
|
|
–
|
|
|
|
$
|
–
|
|
|
$
|
1,831
|
|
Amortization expense for the six-month period ended June 30, 2016
and 2015 was $149 and $29 respectively.
Accounts payable and accrued liabilities
Accounts payable consisted of $24,892 at June
30, 2016 and $1,080 at December 31, 2015 respectively. Accrued expense consisted of $5,800 at June 30, 2016 and $0 at December
31, 2015 respectively. Accrued interest consisted of $23,220 at June 30, 2016 and $14,942 at December 31, 2015 respectively.
Unsecured, short-term notes payable
The company obtained an unsecured, short-term
note of $250,000 at 4% from the original holder of the license to the Kone-General patent in the second quarter of 2014. As of
June 30, 2016 the Company had received funding of $250,000 on the note payable and an additional $165,000 under the same terms
with a verbal agreement in place and had recognized $23,220 in accrued interest expense.
Stockholders’ Equity
At March 31, 2016 and December 31, 2015, the
Company was authorized to issue 500,000,000 shares of common stock, $0.0001 par value per share. In addition, 10,000,000 shares
of Class A preferred super majority voting stock, $.0001 par value and 50,000,000 shares of Class B preferred, $.0001 par value
nonvoting convertible shares were authorized. All common stock shares have full dividend rights. However, it is not anticipated
that the Company will be declaring distributions in the foreseeable future.
Upon formation, the Company sold the founder
2,000,000 shares of $0.0001 par value common stock for $1,000 cash. Also upon formation, the Company paid the founder stock based
compensation for services rendered of 10,000,000 shares of $0.0001 par value class A preferred super majority voting stock. These
preferred shares have a stated value of par value of $0.0001. The holder of the Class Stock shall have the right to vote on any
matter with holders of Common Stock and may vote as required on any action, which Colorado law provides may or must be approved
by vote or consent of the holders of the specific series of voting preferred shares and the holders of common shares. The Record
Holders of the Class B Preferred Shares shall have that number of votes equal to that number of common shares which is not less
than 60% of the vote required to approve any action, which Colorado law provides may or must be approved by vote or consent of
the holders of other series of voting preferred shares and the holders of common shares or the holders of other securities entitled
to vote, if any
Upon execution of a patent sublicense agreement
the Company issued 22,768,273 shares of its class B preferred convertible stock to a trustee on behalf of shareholders of the original
license agreement. These shares were converted into regular common stock upon the company registering the underlying shares with
the SEC and distribution to stockholders which occurred in the 2015 fiscal year.
In the last quarter of 2016 the Company issued
350,000 shares of stock to two contractors for past work. As the Company has issued no stock for cash the Company valued the compensation
based upon par value of $.001 per share resulting in a compensation expense of $35 per share in the period the stock was issued.
Professional and contractor expenses
Professional
and contractor expenses are comprised of the following in the six-month period ended June 30, 2016:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Contract Management Fees
|
|
$
|
32,400
|
|
|
$
|
32,400
|
|
Other Professional Services
|
|
|
30,910
|
|
|
|
83,330
|
|
|
|
$
|
63,310
|
|
|
$
|
115,730
|
|
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stock Based Compensation
The Company accounts for share-based payments
pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based
awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes
option pricing model.
Stock compensation expense for stock options
is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when options are given
for previous service without further recourse. The Company issued stock options to contractors that had been providing services
to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these options were recognized as expense in the
period issued because they were given as a form of compensation for services already rendered with no recourse.
The
following table summarizes
share-based compensation expense recorded in selling, general and administrative expenses during each period presented:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Stock award
|
|
|
–
|
|
|
|
350,000
|
|
Total Share-Based Compensation Exp
|
|
$
|
–
|
|
|
$
|
35
|
|
In the last quarter of 2016 the Company issued
350,000 shares of stock to two contractors for past work. As the Company has issued no stock for cash the Company valued the compensation
based upon par value of $.001 per share resulting in a compensation expense of $35 per share in the period the stock was issued.
Stock option activity was as follows:
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price ($)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
10,000,000
|
|
|
|
0.20
|
|
Granted
|
|
|
0
|
|
|
|
–
|
|
Exercised
|
|
|
0
|
|
|
|
–
|
|
Forfeited or expired
|
|
|
0
|
|
|
|
–
|
|
Balance at December 31, 2015
|
|
|
10,000,000
|
|
|
|
0.20
|
|
Granted
|
|
|
0
|
|
|
|
–
|
|
Exercised
|
|
|
0
|
|
|
|
–
|
|
Forfeited or expired
|
|
|
0
|
|
|
|
–
|
|
Balance at June 30, 2016
|
|
|
10,000,000
|
|
|
|
0.20
|
|
The following table presents information regarding
options outstanding and exercisable as of June 30, 2016:
Weighted average contractual remaining term - options outstanding
|
|
|
0.0 years
|
|
Aggregate intrinsic value - options outstanding
|
|
|
–
|
|
Options exercisable
|
|
|
10,000,000
|
|
Weighted average exercise price - options exercisable
|
|
$
|
0.20
|
|
The fair value of each option granted is estimated
on the date of the grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:
Risk-free interest rate
|
0.01%
|
Expected life of options
|
4-5 years
|
Annualized volatility
|
144.00%
|
Dividend Income
|
0.00%
|
Income Tax
The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109 (“SFAS 109”). Under SFAS 109 deferred taxes are provided
on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Fiscal year
The Company employs a fiscal year ending December 31.
Net Income (Loss) per share
The net income (loss) per share is computed
by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options,
and common stock issuable upon the conversion of the Company’s preferred stock (if any), are not included in the computation
if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.
Revenue Recognition
The Company is currently in the Development stage and has very limited
revenues. Revenue will be recognized on an accrual basis as earned once operations commence.
Financial Instruments
The carrying value of the Company’s financial instruments,
including cash and cash equivalents, as reported in the accompanying balance sheet, are stated at fair value.
Going Concern and Managements’ Plans
As shown in the accompanying financial statements
for the period ended June 30, 2016, the Company has a limited operating history.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern, however, the above conditions raise substantial doubt
about the Company’s ability to do so. The financial statements do not include any adjustment to reflect the possible
future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
should the Company be unable to continue as a going concern.
The Company has a plan in place to remove this
threat through the issuance of notes payable and common stocks offerings. If the Offering raises at least $250,000,
then the Company’s estimated expenses related to the Offering and the expenses related to initial projected operating costs
of the Company will be covered. However, the Company will need to generate more than the expenses of the Offering in order to have
enough capital to execute its business plan.
Recent Accounting Pronouncements
The Company has reviewed all recently issued but not yet effective
accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material
impact on its financial condition or results of operations.
Related Party Transactions
The Company pays its Chief Executive Officer, Paul Dickman through
Mr. Dickman’s consulting company, Breakwater Finance, LLC. For the six-month period ended June 30, 2016 and June 30, 2015,
management fees were $32,400 and $32,400 respectively.
Subsequent Events
The Company evaluates events and transactions after the balance
sheet date but before the financial statements are issued. As of the date of this filing there were no events that materially impacted
the company.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks
and uncertainties and are based on the beliefs and assumptions of management and information currently available to management.
The use of words such as “believes”, “expects”, “anticipates”, “intends”, “plans”,
“estimates”, “should”, “likely” or similar expressions, indicates a forward-looking statement.
The identification in this
report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative
and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.