Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
1 – ORGANIZATION
Organization,
Nature of Business and Trade Name
Intelligent
Highway Solutions, Inc. (the “Company” or “IHS”) was formed on April 22, 2011; IHS is a technology based
intelligent highway solutions contractor. Through June 30, 2013, the Company’s primary focus was in the California transportation
market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance
services for the State’s transportation infrastructure. Since that time, the Company has devoted its time to electrical
service contracts. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads,
traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors
and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication
will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler
safety and convenience. On March 9, 2017, the Company acquired all of the outstanding ownership interest in Crescent Construction
Company, Inc., a full-service general contracting firm.
NOTE
2 – GOING CONCERN
The
Company’s financial statements are prepared using generally accepted accounting principles in the United States of America
applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow
it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining
adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it
could be forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient
to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management
plans to fund future operations through short term related party loans as well as convertible and non-convertible debt with non-related
parties.
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting
period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial
condition and results of operations during the period in which such changes occurred.
Actual
results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes
are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2016 or 2015.
Property,
Plant and Equipment
Property
and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments
that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the
period.
Depreciation
is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
|
Estimated
Useful Life
|
Furniture
and fixtures
|
|
3
- 5 years
|
|
|
|
Machinery
and equipment
|
|
5
years
|
|
|
|
Vehicles
|
|
5
years
|
For
federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements
purposes, depreciation is computed under the straight-line method. Balances of each asset class as of December 31, 2016 and 2015
were:
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property,
Plant and Equipment (continued)
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Machinery
and equipment
|
|
$
|
2,149
|
|
|
$
|
2,149
|
|
Furniture
and fixtures
|
|
|
6,273
|
|
|
|
6,273
|
|
Vehicles
|
|
|
-
|
|
|
|
15,249
|
|
Sub
Total
|
|
$
|
8,422
|
|
|
$
|
23,671
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(8,102
|
)
|
|
|
(18,713
|
)
|
Total
|
|
$
|
320
|
|
|
$
|
4,958
|
|
Depreciation
expense for the years ended December 31, 2016 and 2015 was $4,638 and $9,984, respectively.
Accrued
Expenses and Other Liabilities
Accrued
expenses and other liabilities consisted of the following at December 31, 2016 and 2015:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Payroll
tax liabilities
|
|
$
|
761,396
|
|
|
$
|
758,773
|
|
Other
payroll accruals
|
|
|
162,765
|
|
|
|
45,851
|
|
Other
|
|
|
737,615
|
|
|
|
562,486
|
|
Total
|
|
$
|
1,661,776
|
|
|
$
|
1,367,110
|
|
Other
accrued expenses mainly consists of accrued consulting fees due to management and other consulting firms as well as state and
federal income taxes payable.
Revenues
and Cost of Revenues
Revenues
from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term
contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the
ratio of the actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to
be the best available measure of progress on these contracts. Revenues from cost-plus-fee contracts are recognized on the basis
of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues
and Cost of Revenues (continued)
Cost
of revenues include all direct material, sub-contract, labor, and certain other direct costs, as well as those indirect costs
related to contract performance, such as indirect labor and fringe benefits. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changed in job performance, job conditions and estimated profitability may result in revisions to cost and income,
which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes
in estimates in the current period. Claims for additional contract revenue are recognized when realization of the claim in probable
and the amount can be reasonably determined.
The
asset, “cost and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized
in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,”
represents billings in excess of revenues recognized.
Cost
of sales totaled $0 and $214,454 during the years ended December 31, 2016 and 2015, respectively.
Fair
Value Measurements
The
fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial
liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used
to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is
defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable market-based inputs or inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market data.
Derivative
Liabilities
The Company
records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt
discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in
additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value
of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the
change in fair market values of derivative liabilities over the life of the convertible notes.
Related
Party Transactions
The
registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and
disclosure of related party transactions.
Pursuant
to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their
equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section
825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees,
such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of
the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests. During the years ended December 31, 2016 and 2015, the Company had related party transactions
with members of its management and management’s immediate family members.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Net
Loss Per Share
Net
loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified
period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and
potential common shares during the specified period. For the years ended December 31, 2016 and 2015, potential common shares are
not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares
are excluded when the effect would be to reduce net loss per share. There were 13,005,173,549 and 13,680,002,638
such potentially dilutive shares excluded for the years ended December 31, 2016 and 2015, respectively. The potentially dilutive
shares arise from the following instruments:
|
|
2016
|
|
|
2015
|
|
Convertible notes payable and accrued interest
|
|
|
12,982,581,545
|
|
|
|
13,660,833,053
|
|
Series A convertible preferred stock
|
|
|
22,592,004
|
|
|
|
19,169,585
|
|
Total
|
|
|
13,005,173,549
|
|
|
|
13,680,002,638
|
|
There
were 365,237 and 631,905 options and warrants exercisable as of December 31, 2016 and 2015 that were not considered to be anti-dilutive
due to the exercise prices being greater than the close price of our common stock as of the reporting date.
Reclassification
of Prior Period Presentation
Certain
amounts have been reclassified on the December 31, 2015 balance sheet to conform to current period presentation. Specifically,
long term prepaid expenses of $34,965 have been reclassified as current prepaid expenses and a $3,000 contra-liability for related
party payables has been removed from current notes payable and is included in related party payables. These reclassifications
have no impact on net loss.
Recent
Accounting Pronouncements
In
February 2015, the FASB issued ASC 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidation Analysis.”
This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they
should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and requires
either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company adopted has
this standard and determined it does not have a significant impact on its financial statements.
In
September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period
Adjustments.” This update eliminates the requirement to restate prior period financial statements for measurement period
adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on
prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied
prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim
and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company has adopted this guidance and
the adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash
flows for the three or six months ended March 31, 2017 or 2016.
In
March 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting
.
”
The amendments in this update simplify several aspects of the accounting for employee share-based
payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well
as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017. The primary impact
of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital. However,
as the Company has a full valuation allowance against its deferred tax asset, a corresponding adjustment was recorded to increase
the valuation allowance.
In
January 2017, the FASB issued ASU 2017-04, “
Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment”.
The amendments in this update simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests
in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will
implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update
will have a material impact on the financial statements.
Management
believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
4 – CONTRACTS RECEIVABLE, NET
Contracts
receivable consisted of the following at December 31, 2016 and 2015:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Completed
contracts
|
|
$
|
-
|
|
|
$
|
-
|
|
Contracts
in progress
|
|
|
-
|
|
|
|
57,281
|
|
Unbilled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
57,281
|
|
Retentions:
|
|
|
|
|
|
|
|
|
Completed
contracts
|
|
|
-
|
|
|
|
-
|
|
Contracts
in progress
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
57,281
|
|
Allowance
for doubtful accounts
|
|
|
-
|
|
|
|
(57,281
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 5 – DERIVATIVE LIABILITIES
As discussed in Note 3, on a recurring
basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information
about the Company’s liabilities measured at fair value as of December 31, 2016 and 2015:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
December 31, 2016
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
|
-
|
|
|
|
11,855,072
|
|
|
|
-
|
|
|
|
11,855,072
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
December 31, 2015
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
|
-
|
|
|
$
|
1,005,791
|
|
|
|
-
|
|
|
$
|
1,005,791
|
|
As
of December 31, 2016, the Company had a $11,855,072 derivative liability balance on the balance sheet and recorded a loss from
derivative liability fair value adjustment of $10,781,397 during the year ended December 31, 2016. The Company assessed its outstanding
convertible notes payable as summarized in
Note 8 – Convertible Notes Payable
and determined certain convertible
notes payable with variable conversion features contain embedded derivatives and are therefore accounted for at fair value under
ASC 920, Fair Value Measurements and Disclosures
and
ASC 825, Financial Instruments.
Utilizing
Level 2 Inputs, the Company recorded fair market value adjustments related to convertible notes payable for the year ended
December 31, 2016 and 2015 of $10,781,397 and $522,468, respectively. The fair market value adjustments were calculated utilizing
the Black-Sholes method using the following assumptions: risk free rate of 0.85%, dividend yield of 0%, expected life of 1 year,
and volatility of 198% to 199%.
A
summary of the activity of the derivative liability is shown below:
Balance
at December 31, 2015
|
|
$
|
1,005,791
|
|
Derivative
liabilities recorded
|
|
|
100,097
|
|
Change
due to note conversion
|
|
|
(32,213
|
)
|
Fair
value adjustment
|
|
|
10,781,397
|
|
Balance
at December 31, 2016
|
|
$
|
11,855,072
|
|
NOTE
6 – NOTES PAYABLE
The
Company has entered into various debt agreements to fund operations. A summary of outstanding non-convertible notes payable is
as follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Note
payable to non-related party, unsecured, due on September 1, 2014, interest rate of 0%. Currently in default. Principal due
on demand.
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Note
payable to non-related party, unsecured, due on December 31, 2014, interest rate of 0%. Currently in default. Principal due
on demand.
|
|
|
5,000
|
|
|
|
5,000
|
|
Note
payable to non-related party, secured by vehicles owned by the Company, due on October 22, 2016, interest rate of 15%. Principal
and accrued interest due on demand.
|
|
|
100,000
|
|
|
|
100,000
|
|
Note
payable to non-related party, unsecured, due on April 29, 2016, interest rate of 8%. Currently in default. Principal and accrued
interest due on demand.
|
|
|
33,000
|
|
|
|
33,000
|
|
Note
payable to non-related party, unsecured, due on June 22, 2016, interest rate of 8%. Currently in default. Principal and accrued
interest due on demand.
|
|
|
73,455
|
|
|
|
-
|
|
Sale
of future receivable to non-related party, secured by future accounts receivable, due on December 31, 2016. Principal due
as future accounts receivable are collected.
|
|
|
27,154
|
|
|
|
-
|
|
Total
principal outstanding
|
|
|
258,609
|
|
|
|
158,000
|
|
Less:
debt discounts
|
|
|
-
|
|
|
|
(3,934
|
)
|
Total
balance
|
|
$
|
258,609
|
|
|
$
|
154,066
|
|
Required
principal payments from December 31, 2016 forward are as follows:
2017
|
|
$
|
258,609
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
Total
|
|
$
|
258,609
|
|
There
was $27,377 and $7,083 of accrued interest payable on non-convertible notes payable as of December 31, 2016 and 2015, respectively.
NOTE
7 – CONVERTIBLE NOTES PAYABLE
The
Company has entered into various convertible debt agreements to fund operations. A summary of outstanding convertible notes payable
is as follows:
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
7 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on February 13, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on April 8, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
15,000
|
|
|
|
15,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on March 21, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on May 9, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on November 4, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on July 15, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on September 3, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on October 31, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on October 21, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
20,000
|
|
|
|
20,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on December 30, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
45,000
|
|
|
|
45,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on March 26, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on April 26, 2013. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
Convertible
note payable to non-related party, interest of 10%, unsecured, due on June 11, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the
five days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
59,800
|
|
|
|
59,800
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on December 12, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 40% discount from the lowest closing bid price
during the fifteen days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
55,000
|
|
|
|
55,000
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on July 7, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 40% discount from the lowest closing bid price during
the fifteen days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
27,466
|
|
|
|
27,466
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
20,134
|
|
|
|
21,564
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on June 25, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
5,500
|
|
|
|
5,500
|
|
Convertible
note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
77,947
|
|
|
|
77,947
|
|
Convertible
note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
80,236
|
|
|
|
80,236
|
|
Convertible
note payable to non-related party, interest rate of 10, unsecured, due on June 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
11,500
|
|
|
|
11,500
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 19, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading
prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
60,000
|
|
|
|
60,000
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on September 30, 2016. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest
trading prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
47,000
|
|
|
|
47,000
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 19, 2015. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading
prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
16,018
|
|
|
|
21,183
|
|
Convertible
note payable to non-related party, interest rate of 22%, unsecured, due on October 12, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during
the twenty days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
58,941
|
|
|
|
58,941
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 30, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the
twenty days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
36,000
|
|
|
|
36,000
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on November 3, 2017. May be converted at the option
of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the twenty days prior
to conversion effective May 3, 2017. The Company may repay the note in cash through May 3, 2017 and not thereafter.
|
|
|
16,500
|
|
|
|
-
|
|
Convertible
note payable to non-related party, interest rate of 15%, default interest rate of 22%, unsecured, due on September 11, 2015.
Currently in default. May be converted at the option of the holder into common stock at a price equal to a 60% discount from
the average of the three lowest trading prices during the twenty five days prior to conversion. The Company may not repay
the convertible note in cash.
|
|
|
16,652
|
|
|
|
16,651
|
|
Convertible
note payable to non-related party, interest rate of 22%, unsecured, due on October 28, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 60% discount from the average of the three lowest
trading prices during the twenty five trading days prior to conversion. The Company may not repay the convertible note in
cash.
|
|
|
9,050
|
|
|
|
9,050
|
|
Total
principal outstanding
|
|
|
987,744
|
|
|
|
977,839
|
|
Less:
debt discounts
|
|
|
(1,581
|
)
|
|
|
(177,863
|
)
|
Total
balance
|
|
$
|
986,163
|
|
|
$
|
799,976
|
|
Required
principal payments from December 31, 2016 forward are as follows:
2017
|
|
$
|
987,744
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
Total
|
|
$
|
987,744
|
|
There
was $250,452 and $141,572 of accrued interest payable on convertible notes payable as of December 31, 2016 and 2015, respectively.
The
Company has recorded a derivative liability for each convertible note payable with a variable conversion rate. See Note 5 for
further discussion.
NOTE
8 – RELATED PARTY TRANSACTIONS
We
have engaged an entity controlled by the director of the Company to perform consulting services related to the development of
new technologies. Payments to this party totaled $0 and $6,909 years ended December 31, 2016 and 2015, respectively.
During
the year ended December 31, 2014, the Company received an interest free $8,000 loan from a related party to fund operations. The
loan is unsecured, due on demand and as such is included in current liabilities. There was $8,000 due as of December 31, 2016
and 2015.
During
the year ended December 31, 2014, the Company received an interest free $2,000 loan from a related party to fund operations. The
related party made additional advances of $396 during the year ended December 31, 2016. The loan is unsecured, due on demand and
as such is included in current liabilities. There was $2,396 and $2,000 due as of December 31, 2016 and 2015, respectively.
During
the year ended December 31, 2014, the Company received a $10,000 loan from a related party to fund operations. The loan plus fixed
interest of $1,000 was repaid in December 2014.
During
the year ended December 31, 2015, the Company received three separate $3,000 loans from a related party to fund operations. Each
loan was entered into by the lender paying expenses on behalf of the company. The loans plus fixed interest of $500 were repaid
during the year ended December 31, 2015.
During
the year ended December 31, 2015, the Company issued a total of 75,000,000 common shares as bonuses to officers at a total value
of $481,500. The Company also issued a total of 2,500,000 series A preferred shares as bonuses to officers and directors at a
total value of $500.
NOTE
9 – COMMON STOCK
The
Company is authorized to issue up to 10,000,000,000 shares of $0.00001 par value common stock and 50,000,000 shares of $0.0001
par value blank check preferred stock of which 10,000,000 has been designated as Series A Convertible Preferred Stock. Each share
of Series A Convertible Preferred Stock may be converted to common stock at the option of the holder at the greater of one share
of common for each share of Series A Convertible Preferred Stock or the par value of the stock divided by a 10% discount from
the volume weighted average price of the common stock of the preceding ten trading days.
During
the year ended December 31, 2015, the Company issued 75,000,000 common shares valued at $481,500 as bonuses to officers, 5,200,000
common shares valued at $22,513 for services provided by consultants; 2,403,780,070 common shares for total note conversions of
$448,742 and 1,625,000 common shares valued at $21,415 for default penalties on notes payable.
On
June 29, 2015, the Company entered into a consulting agreement whereby the consultant would provide services for a period of 30
days in exchange for 5,000,000 shares of common stock. The common shares were valued equal to the close price as of the date of
the agreement, or $0.006 per share, resulting in a total value of $30,000.
On
July 9, 2015, the Company entered into a settlement agreement with a former note holder of the Company. The settlement agreement
required the Company to issue 500,000 shares of common stock which were valued equal to the close price as the date of the agreement,
or $0.0038 per share, resulting in a total value of $1,900.
During
the year ended December 31, 2016, the Company issued a total of 363,292,475 shares of common stock in exchange for $6,595 of outstanding
principal on convertible notes payable. All conversions were performed at contractually obligated terms.
There
were 2,915,701,670 shares issued and 2,915,651,670 outstanding as of December 31, 2016.
There
were 2,552,409,195 shares issued and 2,552,359,195 outstanding as of December 31, 2015.
NOTE
10 – COMMITMENTS AND CONTINGENCIES
The
Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of
unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information
known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating
and settling similar matters.
As
of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is
a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental
authorities.
Payroll
Tax Liabilities
As
of December 31, 2016 and 2015, the Company had accrued $761,396 and $758,773 in payroll tax liabilities. The payment of these
liabilities has not been made due to our limited profitability. Due to the uncertainty regarding our future profitability, it
is difficult to predict our ability to pay these liabilities. As a result, a federal tax lien has been levied that will have to
be satisfied.
Federal
Income Tax Liability
On
January 29, 2015, we received a notification from the Internal Revenue Service (the “IRS”) regarding deficiencies
in our tax return for the year ended December 31, 2011. The notice was the result of not filing our tax return for the year then
ended and included the results of an IRS examination which yielded an income tax amount due of $92,804 plus penalties and interest
totaling $34,337 for a total amount due of $127,141. While we believe we will be able to successfully reduce the tax liability
and assessed penalties to zero or near zero due to our net loss sustained during the year ended December 31, 2011, the possibility
exists we will be unsuccessful and could face an assessment for the full amount of $127,141. Because of the undeterminable nature
of our ability to successfully reduce or eliminate the amount due, the Company has accrued $127,141 as of December 31, 2016 and
2015 for these amounts due.
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
11 – STOCK OPTIONS AND WARRANTS
The
following table summarizes all stock option and warrant activity for the year ended December 31, 2016:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding,
December 31, 2015
|
|
|
631,905
|
|
|
$
|
0.30
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(266,667
|
)
|
|
|
0.30
|
|
Outstanding,
December 31, 2016
|
|
|
365,237
|
|
|
$
|
0.30
|
|
The
following table discloses information regarding outstanding and exercisable options and warrants at December 31, 2016:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Life
(Years)
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.30
|
|
|
|
365,237
|
|
|
$
|
0.30
|
|
|
|
1.39
|
|
|
|
365,237
|
|
|
$
|
0.30
|
|
|
|
|
|
|
365,237
|
|
|
$
|
0.30
|
|
|
|
1.39
|
|
|
|
365,237
|
|
|
$
|
0.30
|
|
In
determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
December
31, 2016
|
|
Expected term of
options granted
|
|
|
2
- 5 years
|
|
Expected volatility
range
|
|
|
394
- 408
|
%
|
Range of risk-free
interest rates
|
|
|
1.70
– 1.73
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
INTELLIGENT
HIGHWAY SOLUTIONS, INC.
Notes
to Financial Statements
December
31, 2016 and 2015
NOTE
12 – EQUITY LINE OF CREDIT
On
August 6, 2015, the Company entered into line of credit whereby it has the right to sell to the investor up to $5,000,000 of common
stock over a period of 24 months. The Company may sell up to $100,000 of common stock, but not less than $5,000, at any time at
is sole discretion by issuing a put notice to the investor. The sales price of the stock will be equal to a 30% discount from
the average of the lowest two closing bid prices in the preceding five trading days. There is a minimum of ten trading days between
put notices. The agreement requires the Company to issue 3% of the total credit line, or $150,000, in common stock with an issue
price equal to the average of the daily volume weighted average prices of the Company’s common stock during the five business
days immediately preceding the due date of the issuance. The Company did not exercise its rights under the agreement during the
years ended December 31, 2016 or 2015.
NOTE
13 – INCOME TAXES
We
did not provide any current or deferred U.S. federal income tax provision or benefit for the year ended December 31, 2016 due
to the operating losses experienced during the year ended December 31, 2016. During the year ended December 31, 2015 we recorded
income tax expense of $92,804 for a federal income tax due arising from an examination by the Internal Revenue Service as discussed
in
Note 11 – Commitments and Contingencies
. When it is more likely than not that a tax asset cannot be realized through
future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax
asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that
we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The
Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years
ended December 2016 or 2015 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain
tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.
All tax returns for the Company remain open.
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
Income
tax provision at the federal statutory rate
|
|
|
35.00
|
%
|
California
state corporation income tax rate, net of benefit from federal income tax
|
|
|
5.75
|
%
|
Combined
tax rate
|
|
|
40.75
|
%
|
Effect
of permeant differences between book and tax net losses
|
|
|
(38.47
|
)%
|
Change
in valuation allowance
|
|
|
(2.28
|
)%
|
Effect
on operating losses
|
|
|
0.00
|
%
|
Net
deferred tax assets consist of the following:
|
|
2016
|
|
|
2015
|
|
Net operating loss carry
forward
|
|
$
|
2,445,041
|
|
|
$
|
2,279,219
|
|
Valuation allowance
|
|
|
(2,445,041
|
)
|
|
|
(2,279,219
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
A
reconciliation of income taxes computed at the statutory rate is as follows:
|
|
2016
|
|
|
2015
|
|
Computed
federal income tax expense at statutory rate of 40.75%
|
|
$
|
(4,780,595
|
)
|
|
$
|
(1,491,995
|
)
|
Stock issued for services
|
|
|
-
|
|
|
|
205,578
|
|
Amortization of deferred
loan costs
|
|
|
6,201
|
|
|
|
42,127
|
|
Amortization of debt
discount
|
|
|
99,290
|
|
|
|
272,552
|
|
Depreciation and amortization
|
|
|
1,890
|
|
|
|
4,067
|
|
Change in derivative
liability
|
|
|
4,392,988
|
|
|
|
212,885
|
|
Stock issued for legal
settlement
|
|
|
-
|
|
|
|
8,108
|
|
Stock issued for penalties
|
|
|
-
|
|
|
|
8,726
|
|
Excess derivative liability
charged to interest
|
|
|
14,926
|
|
|
|
236,167
|
|
Gain on extinguishment
of debt
|
|
|
-
|
|
|
|
(69,362
|
)
|
Non-deductible penalties
|
|
|
-
|
|
|
|
13,991
|
|
Increase in convertible
notes outstanding for default penalties
|
|
|
-
|
|
|
|
56,279
|
|
Non-deductible change in
accrued expenses
|
|
|
50,948
|
|
|
|
-
|
|
Non-deductible change
in paid time off accrual
|
|
|
2,351
|
|
|
|
2,351
|
|
Non-deductible change
in payroll accrual
|
|
|
46,179
|
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
165,822
|
|
|
|
591,330
|
|
Income
tax expense
|
|
$
|
-
|
|
|
$
|
92,804
|
|
The net federal operating loss carry forward
will expire in 2031. This carry forward may be limited upon the consummation of a business combination under IRC Section 382.
NOTE
14 – SUBSEQUENT EVENTS
Common
Stock Issuances
On various dates through June 28, 2017, the
Company issued a total of 1,651,282,420 common shares for the conversion of a total of $86,519 of outstanding principal
on convertible notes payable. All conversions were done under contractual terms within each respective convertible note payable.
On various dates through June 28, 2017, the
Company issued a total of 316,611,256 common shares for the conversion of a total of $17,160 of outstanding accrued
interest on convertible notes payable. All conversions were done under contractual terms within each respective convertible note
payable.
On
various dates through June 28, 2017, the Company issued a total of 260,000,000 common shares for services provided by consultants.
The shares were valued using the closing price on the dates of issuance which was from $0.0001 to $0.0002 per share resulting
in a total value of $42,000.
Convertible
Notes Payable
On
April 25, 2017, the Company executed a securities purchase agreement with an existing convertible noteholder to enter into an
additional $21,230 of convertible notes payable with each carrying a 10% original issue discount resulting in net cash borrowings
of $19,300 being available to the Company. The note is carries interest at 12% and each tranche of cash received is due nine months
after receipt. The note is convertible into shares of the Company’s common stock at a rate equal to a 42% discount from
the lowest intra-day trading price for the Company’s common stock during the twenty days prior to conversion. The Company
has received all of the available cash borrowings under the convertible note payable resulting in $21,230 being outstanding as
of June 28, 2017.
On
May 10, 2017, the Company executed a securities purchase agreement with an existing convertible noteholder to enter into an additional
$11,250 of convertible notes payable with and original issue discount totaling $1,500 resulting in net cash borrowings of $9,750
being available to the Company. The note is carries interest at 12% and each tranche of cash received is due nine months after
receipt. The note is convertible into shares of the Company’s common stock at a rate equal to a 42% discount from the lowest
intra-day trading price for the Company’s common stock during the twenty days prior to conversion. The Company has received
all of the available cash borrowings under the convertible note payable resulting in $11,250 being outstanding as of June 28,
2017.
Acquisition
and Financing
On
March 9, 2017, the Company, through a newly created special purpose entity, executed a share purchase agreement to acquire all
outstanding ownership interests in Crescent Construction Company, Inc. a full service general contracting firm for total consideration
of $1,800,000. The agreement requires a cash payment of $500,000 at closing plus a note payable for $1,300,000. The note carries
interest of 6%, matures on March 31, 2022 and requires equal quarterly payments of $152,693.
As
part of the transaction, the Company entered into a revolving credit facility to borrow up to $5,000,000 of which $1,500,000 as
advanced to the Company upon closing. Of the $1,500,000 advanced to the Company, $631,855 was paid for the seller and financier’s
closing costs resulting in net cash to the Company of $868,145. The credit line carries an interest rate of 12% per annum and
requires repayment based on cash collected from clients which are required to be sent to a lockbox maintained by the financier
of which the net receipts after required payments to the financier under the credit facility agreement will be provided to the
Company. The Company also issued a total of 7,500,000 shares of series A convertible preferred stock to the financier as part
of the transaction.