NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 – BASIS OF PRESENTATION AND ORGANIZATION
2050
Motors, Inc., (the “Company”) was incorporated on October 9, 2012, in the state of Nevada to import, market, and sell
electric cars manufactured in China. On October 25, 2012, 2050 Motors, Inc., entered into an agreement with Jiangsu Aoxin New
Energy Automobile Co., Ltd., (“Aoxin”), located in Jiangsu, China, for the distribution in the United States of a
new electric automobile, known as the e-Go EV.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Information
The
accompanying unaudited condensed financial statements have been prepared in accordance with the SEC’s requirements for Form
10-Q and, in the opinion of management, contain all adjustments, of a normal and recurring nature, which are necessary for a fair
statement of (i) the condensed balance sheets at September 30, 2017 and December 31, 2016; (ii) the condensed statements of operations
for the three and nine month periods ended September 30, 2017 and 2016; and (iii) the condensed statements of cash flows for the
nine month periods ended September 30, 2017 and 2016. However, the accompanying unaudited condensed financial statements do not
include all information and notes required by accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The Condensed balance sheet, included in this report, as of December 31, 2016 was derived from the 2016 audited
financial statements, but does not include all disclosures required by U.S. GAAP.
These
unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April
17, 2017.
Basis
of Presentation
The
accompanying financial statements were prepared in conformity with generally accepted accounting principles in the United States
of America (“US GAAP”).
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make certain 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. Actual results could differ from those
estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability
of long-term assets.
Cash
and Cash Equivalents
Cash
consists of deposits in one large national bank. At September 30, 2017 and December 31, 2016, the Company had $1,293 and $11,766
in cash in the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any
risks on its cash in bank accounts.
Property,
Plant & Equipment
Property,
plant and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful
life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: tools
and equipment, five years; vehicles and parts, three years; leasehold improvements, lesser of lease term or life of related asset;
and furniture and fixtures, seven years.
As
of September 30, 2017 and December 31, 2016, Property, plant and equipment consisted of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Furniture & furnishings
|
|
$
|
14,303
|
|
|
$
|
14,303
|
|
Leasehold improvements
|
|
|
18,184
|
|
|
|
18,184
|
|
Vehicle and parts
|
|
|
76,045
|
|
|
|
76,045
|
|
Tools and equipment
|
|
|
22,494
|
|
|
|
22,494
|
|
Total
|
|
|
131,027
|
|
|
|
131,026
|
|
Less: Accumulated depreciation
|
|
|
(92,244
|
)
|
|
|
(66,076
|
)
|
Property, plant and equipment, net
|
|
$
|
38,783
|
|
|
$
|
64,950
|
|
Depreciation
expense was $7,947 and $9,785 for the three months ended September 30, 2017 and 2016, respectively. Depreciation expense was $26,167
and $29,585 for the nine months ended September 30, 2017 and 2016, respectively.
Impairment
of Long-Lived Assets and Assets
The
Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows is less than
the carrying amount of the asset, an impairment loss is recorded. No impairment losses were recognized for the nine months ended
September 30, 2017 and 2016.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash accounts payable, accrued liabilities, short-term debt and
derivative liability, the carrying amounts approximate their fair values due to their short maturities. We adopted ASC Topic 820,
“Fair Value Measurements and Disclosures”, which requires disclosure of the fair value of financial instruments held
by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying
amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a
reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their
expected realization and their current market rate of interest. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs
(level 3 measurements). The three levels of valuation hierarchy are defined as follows:
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3 inputs to the valuation methodology are unobservable in which little or no market data exists, therefore requiring an entity
to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
We
have recorded the conversion option on few notes as a derivative liability as a result of the variable conversion price, which
in accordance with U.S. GAAP, prevents them from being considered as indexed to our stock and qualified for an exception to derivative
accounting.
We
recognize derivative instruments as either assets or liabilities on the accompanying balance sheets at fair value. We record changes
in the fair value of the derivatives in the accompanying statement of operations.
Assets
and liabilities measured at fair value are as follows as of September 30, 2017:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
761,683
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
761,683
|
|
Total liabilities measured at fair value
|
|
$
|
761,683
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
761,683
|
|
The
following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair
value:
Balance as of December 31, 2016
|
|
$
|
270,075
|
|
Fair value of derivative liabilities issued
|
|
|
423,035
|
|
Change in derivative liability
|
|
|
68,573
|
|
Balance as of September 30, 2017
|
|
$
|
761,683
|
|
Earnings
Per Share (EPS)
Basic
EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock
options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for
the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock
method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted
method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at
the time of issuance, if later). During the three months and nine months ended September 30, 2017 and 2016, the Company incurred
losses. Therefore, the effect of any common stock equivalents is anti- dilutive during those periods.
The
following table sets for the computation of basic and diluted earnings per share for three and nine months ended September 30,
2017 and 2016:
|
|
3 Month Ended
|
|
|
9 Month Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
|
September 30
|
|
|
September 30
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(595,824
|
)
|
|
$
|
(126,818
|
)
|
|
$
|
(809,286
|
)
|
|
$
|
(427,050
|
)
|
Weighted
average number of shares in computing basic and diluted net loss
Basic
|
|
|
39,003,986
|
|
|
|
33,948,599
|
|
|
|
38,234,011
|
|
|
|
33,882,906
|
|
Diluted
|
|
|
39,003,986
|
|
|
|
33,948,599
|
|
|
|
38,234,011
|
|
|
|
33,882,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Advertising
and Marketing Costs
Costs
incurred for producing and communicating advertising and marketing are expensed when incurred and included in selling general
and administrative expenses. Advertising and marketing expense amounted to $0 and $69,000 for the three months ended September
30, 2017 and 2016, respectively. Advertising and marketing expense amounted to $0 and $126,841 for the nine months ended September
30, 2017 and 2016, respectively.
Income
Taxes
The
Company utilizes FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Additionally,
the Company follows FASB ASC Topic 740, Uncertainty in Income Taxes and Disclosure, in filing tax returns. When tax returns are
filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax
benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties
are classified in selling, general and administrative expenses in the statements of income.
At
December 31, 2016 and 2015, the Company had not taken any significant uncertain tax positions on its tax returns for period ended
December 31, 2016 and prior years or in computing its tax provision for 2016. Management has considered its tax positions and
believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained
upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from inception to present, generally
for three years after they are filed.
Concentration
of Credit Risk
Cash
is mainly maintained by one highly qualified institution in the United States. At various times, such amounts are in excess of
federally insured limits. Management does not believe that the Company is subject to any unusual financial risk beyond the normal
risk associated with commercial banking relationships. The Company has not experienced any losses on our deposits of cash.
Foreign
Currency Risk
Any
significant changes in foreign currency exchange rates may have significant impact on Company’s future financial statements
upon fulfilling certain purchase commitments in accordance to the license agreement disclosed in Note 5.
Recently
Issued Accounting Pronouncements
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses
a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows
under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted,
including adoption in an interim period. We adopted this ASU in 2016 and the implementation did not have a material impact on
our financial position or statement of operations.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15, “
Presentation of Financial Statements – Going
Concern”
, Subtopic 205-40, “
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern.”
The amendments in this ASU apply to all entities and require management to assess an entity’s ability
to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards.
Specifically, the amendments (1) provide a definition of the term
substantial doubt,
(2) require an evaluation every reporting
period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4)
require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5)
require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for
a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this
update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
Early application is permitted. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial
position or results of operations.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flow.
Note
3 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America, which contemplate the continuation of the Company as a going concern. The Company reported accumulated deficit
of $3,618,201 as of September 30, 2017. The Company also incurred net losses of $809,286 and $427,050 for the nine months ended
September 30, 2017 and 2016, respectively and had negative working capital for the nine months ended September 30, 2017 and 2016.
To date, these losses and deficiencies have been financed principally through the issuance of common stock, loans from related
parties and from third parties.
In
view of the matters described, there is substantial doubt as to the Company’s ability to continue as a going concern without
a significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next
12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations,
we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other
offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any
future financing will involve substantial dilution to existing investors.
Note
4 – VEHICLE DEPOSITS
Vehicle
deposit of $24,405, as of September 30, 2017 and December 31, 2016, represents one prototype test model for delivery into the
United States in late 2017. This vehicle will undergo an advanced crash test known in the Automobile Safety Industry as the “overlap
crash test”.
Note
5 – LICENSE AGREEMENT
In
2012 and 2013, the Company made a total payment of $50,000 and signed an exclusive license agreement with Aoxin to import, assemble
and manufacture the advanced carbon fiber electric vehicle, the e-Go EV model. The cost of this license agreement has been recognized
as a long-term asset and is evaluated, by management, for impairment losses at each reporting period. As of September 30, 2017,
no such impairment losses have been identified by the management.
Note
6 – ACCOUNTS PAYABLE DUE TO RELATED PARTIES
During
the nine months ended September 30, 2017, the Company issued 140,808 shares of common stock for payment of a related party accounts
payable totaling $8,589, including penalties.
Note
7 – LOANS PAYABLE DUE TO RELATED PARTIES
During
the year ended December 31, 2014, the Company raised two loans for a total amount of $100,000 due to a shareholder. The loans
bear 12% interest and were scheduled to mature on February 28, 2015 and March 30, 2015, respectively. Subsequently, the loans
have been combined and the maturity date has been extended to April 1, 2018. The outstanding balance as of September 30, 2017
and December 31, 2016 was $0 and $36,050, respectively. During the three and nine months ended September 30 2017, the Company
recorded an interest of $186 and $979, respectively, on the note.
The
Company received a $10,000 loan during the third quarter of 2016 from an unrelated party. The loan bears 12% interest and on March
16, 2017, the original maturity date, an extension was granted to April 1, 2018. The outstanding balance on the loan as of September
30, 2017 was $10,000. The Company accrued an interest of $302 and $898 on the loan during the three and nine months ended September
30, 2017.
On
July 1, 2017, the Company entered into a loan payable agreement with a related party for $14,100, which was due on September 15,
2017. The Company granted the related party an option to purchase up to 1,000,000 shares of common stock at an exercise price
of $0.015 per share. The Company valued the options using the black schools options pricing model. The fair market value of the
options was $26,746. The value was restricted to the face value of the note and hence, $14,100 was recorded as a debt discount
which is being amortized over the term of the loan. The Company also agreed to pay $1,500 as an interest on the loan. On September
27, 2017, the Company entered into a note amendment, whereby, the term of the note was extended until November 1, 2017, in exchange
for an additional $1,500 finance fee and $1,500 late fee. The Company recorded the same as interest expense in the accompanying
financials. During the three and nine months ended September 30, 2017, the Company amortized the debt discount of $14,100. During
the three and nine months ended September 30, 2017, the Company recorded $1,632 of interest expense. The Company is currently
renegotiating the terms of the loan for a second extension.
On
September 27, 2017, the Company entered into another loan payable agreement with the same related party for $17,500, which was
due on November 1, 2017. The loan holder charged $1,750 as funding fee and $1,650 as processing fee for the loan, which were recorded
as debt discount, with net loan proceeds of $14,100. The Company also granted the related party an option to purchase up to 1,000,000
shares of common stock at an exercise price of $0.015 per share. The Company valued the options using the black schools options
pricing model. The fair market value of the options was $22,945. The value was restricted to the net proceeds of the note and
hence, $14,100 was recorded as a debt discount which is being amortized over the term of the loan. During the three and nine months
ended September 30, 2017, the Company amortized the debt discount of $1,500. The Company is currently renegotiating the terms
of the loan for an extension.
Note
8 – CONVERTIBLE NOTE PAYABLES
On
November 1, 2016, the Company entered into four convertible promissory notes with three unrelated parties. The principle amount
is $10,000 for each note and carries interest of 12% annum. All four notes were scheduled to mature on April 30, 2017. The notes
may be converted into common stock of the Company at any time by the election of the lender at a conversion price of $0.075 per
share. The Company recorded a debt discount of $16,000 for the difference in the conversion price and the fair market value on
the date of agreement. The debt discount is being amortized over the term of the notes. On April 30, 2017, the Company extended
the term of the four notes by 90 days until July 29, 2017. The remaining debt discount is being amortized over the extended term.
During the three and nine months ended September 30, 2017, the Company amortized $0 and $10,667, respectively, of the debt discount.
During the three and nine months ended September 30, 2017, the Company recorded $1,200 and $3,600, respectively, of interest expense.
The four loans are in default and the Company is currently renegotiating the terms of the loans with the three unrelated parties.
On
October 26, 2016, the Company entered into a convertible note agreement, with an accredited investor, for $65,000. The note bears
interest at 12% per annum and was due and payable on July 26, 2017. The note has financing cost of $9,500 associated with it.
This deferred financing fee has been deducted directly from the carrying value of the note, pursuant to ASU 2015-03. The deferred
financing fee is being amortized over the term of the convertible note payable. The Company may prepay the note in full together
with any accrued and unpaid interest plus any applicable pre-payment premium set forth in the note. Until the Ninetieth (90th)
day after the Issuance Date the Company may pay the principal at a cash redemption premium of 135%, in addition to outstanding
interest, which can be paid without the Holder’s consent; from the 90th day to the One Hundred and Twentieth (120th)
day after the Issuance Date, the Company may pay the principal at a cash redemption premium of 140%, in addition to outstanding
interest, which can be paid without the Holder’s consent; from the 12th day to the One Hundred and Eightieth (180th)
day after the Issuance Date, the Company may pay the principal at a cash redemption premium of 145%, in addition to outstanding
interest, which can be paid without the Holder’s consent. After the 180th day up to the Maturity Date this Note shall have
a cash redemption premium of 150% of the then outstanding principal amount of the Note, plus accrued interest and Default Interest
if any, which may only be paid by the Company upon Holder’s prior written consent The note is convertible into fully paid
and non-assessable shares of common stock, after 180 days from the date of the note, at a conversion price which is lower of:
(i) a 50% discount to the lowest trading price during the previous twenty trading days prior to the date of a conversion notice;
or (ii) a 50% discount to the lowest trading price during the previous twenty trading days before the date that this note was
executed. Since the conversion price of the note is variable, the conversion option has been treated as a derivative liability.
The derivative liability on the note was calculated, using the Binomial model, to be $242,450, of which $55,500 was recorded as
a debt discount and the balance $186,950 was recorded as an interest expense, at inception. As of December 31, 2016, the derivative
liability amounted to $270,025.
On
April 25, 2017, the Company entered into a note amendment whereby, the maturity of the note was extended to January 26, 2018 and
the principal was increased by $7,800 to $72,800. The Company wired $33,118 to the note holder as loan extension fee. The derivative
liability was recalculated on September 30, 2017 as $231,504 and the difference in the value was recorded as a change in derivative
liability in the income statement. The additional finance fee of $7,800 is being amortized over the remaining term of the note.
The remaining debt discount of $18,500, as of the date of amendment, is also being amortized over the remaining term of the note.
The Company amortized a debt discount of $6,167 and $34,944, respectively, during the three months and nine months ended September
30, 2017. The Company amortized the finance fee of $3,656 and $10,315, respectively, during the three months and nine months ended
September 30, 2017. Interest expense of $2,184 and $6,248 was accrued on the convertible note respectively, during the three months
and nine months ended September 30, 2017. Additional interest of $33,118 was paid in cash on April 25, 2017, pursuant to the amended
note terms.
The
variables used for the Binomial model are as listed below:
|
●
|
Volatility:
286%
|
|
●
|
Risk
free rate of return: 1.20%
|
|
●
|
Expected
term: 118 days
|
On
January 6, 2017, the Company entered into a convertible note agreement with a third party for $78,750. The Company received $70,000,
net of the financing fee of $8,750. This deferred financing fee has been deducted directly from the carrying value of the note,
pursuant to ASU 2015-03. The deferred financing fee is being amortized over the term of the convertible note payable. The note
was due on October 6, 2017 and carries interest at the rate of 12% per annum. The note is convertible at the lower of ; (i) a
50% discount to the lowest trading price during the previous twenty five trading days prior to the date of a conversion notice;
or (ii) a 50% discount to the lowest trading price during the previous twenty five trading days before the date that this note
was executed. Since the conversion price of the note is variable, the conversion option has been treated as a derivative liability.
The derivative liability on the note was calculated, using the Binomial model, to be $137,118, of which $70,000 was recorded as
a debt discount and the balance $67,118 was recorded as an interest expense, at inception.
On
June 30, 2017, the Company entered into a note amendment agreement to increase the principal balance of the note by $14,100 to
$92,850. The Company paid the $14,100 to the holder on July 6, 2017, to delay conversion option until September 5, 2017, pursuant
to the amended terms. The derivative liability was recalculated on June 30, 2017 as $96,279 and the difference in the value was
recorded as a change in derivative liability in the income statement. On September 27, 2017, the Company entered into a second
note amendment agreement to increase the principal balance of the note by $21,100 to $99,850 to extend the conversion option date
to November 7, 2017, and the maturity date to February 6, 2018. The Company wired $14,100 on September 27, 2017, to reduce the
principal balance of the note to $85,750. The derivative liability was recalculated on September 30, 2017 as $257,250 and the
difference in the value was recorded as a change in derivative liability in the income statement. The amendments resulted in an
extension of the maturity date to February 6, 2018.
The
Company amortized a debt discount of $22,994 and $67,865, respectively, during the three months and nine months ended September
30, 2017. The Company amortized the finance fee of $17,359 and $22,968, respectively, during the three months and nine months
ended September 30, 2017. Interest expense of $2,799 and $7,330 was accrued on the convertible note during the three months and
nine months ended September 30, 2017.
The
variables used for the Binomial model are as listed below:
|
|
January
6, 2017
|
|
September
30, 2017
|
|
●
|
Volatility:
206%
|
|
Volatility:
286%
|
|
●
|
Risk
free rate of return: 1.03%
|
|
Risk
free rate of return: 0.96%
|
|
●
|
Expected
term: 98 days
|
|
Expected
term: 37 days
|
On
April 21, 2017, the Company entered into a convertible note agreement with a third party for $58,000. The Company received $55,000,
net of the financing fee of $3,000. This deferred financing fee has been deducted directly from the carrying value of the note,
pursuant to ASU 2015-03. The deferred financing fee is being amortized over the term of the convertible note payable. The note
is due on January 30, 2018 and carries interest at the rate of 12% per annum. The note is convertible at any time starting after
the first 180 days of the note and ending on the later of the maturity date or the date of payment. The note is convertible at
61% of the Market Price. Market price shall mean the average of the lowest two trading prices during the last fifteen trading
day period completed on the latest trading day prior to the conversion. Since the conversion price of the note is variable, the
conversion option has been treated as a derivative liability. The derivative liability on the note was calculated, using the Binomial
model, to be $85,380, of which $55,000 was recorded as a debt discount and the balance $30,380 was recorded as an interest expense,
at inception.
The
derivative liability was recalculated on September 30, 2017 as $114,172 and the difference in the value of $28,792, was recorded
as a change in derivative liability in the income statement. The Company amortized a debt discount of $18,010 and $31,567, respectively,
during the three and nine months ended September 30, 2017. The Company amortized the finance fee of $972 and $1,711, respectively,
during the three and nine months ended September 30, 2017. Interest expense of $1,754 and $3,089, respectively, was accrued on
the convertible note during the three and nine months ended September 30, 2017.
The
variables used for the Binomial model are as listed below:
|
|
April
21, 2017
|
|
September
30, 2017
|
|
●
|
Volatility:
160%
|
|
Volatility
: 286%
|
|
●
|
Risk
free rate of return: 1.2%
|
|
Risk
free rate of return : 1.2%
|
|
●
|
Expected
term: 284 days
|
|
Expected
term: 122 days
|
On
May 31, 2017, the Company entered into a convertible note agreement with a third party for $28,000. The Company received $25,000,
net of the financing fee of $3,000. This deferred financing fee has been deducted directly from the carrying value of the note,
pursuant to ASU 2015-03. The deferred financing fee is being amortized over the term of the convertible note payable. The note
is due on March 15, 2018 and carries interest at the rate of 12% per annum. The note is convertible at any time starting after
the first 180 days of the note and ending on the later of the maturity date or the date of payment. The note is convertible at
61% of the Market Price. Market price shall mean the average of the lowest two trading prices during the last fifteen trading
day period completed on the latest trading day prior to the conversion. Since the conversion price of the note is variable, the
conversion option has been treated as a derivative liability. The derivative liability on the note was calculated, using the Binomial
model, to be $37,967, of which $25,000 was recorded as a debt discount and the balance $12,967 was recorded as an interest expense,
at inception.
The
derivative liability was recalculated on September 30, 2017 as $57,421 and the difference in the value of $19,455, was recorded
as a change in derivative liability in the income statement. The Company amortized a debt discount of $7,986 and $10,590, respectively,
during the three and nine months ended September 30, 2017. The Company amortized the finance fee of $958 and $1,271, respectively,
during the three and nine months ended September 30, 2017. Interest expense of $847 and $1,123, respectively, was accrued on the
convertible note during the three and nine months ended September 30, 2017.
The
variables used for the Binomial model are as listed below:
|
|
May
31, 2017
|
|
September
30, 2017
|
|
●
|
Volatility:
189%
|
|
Volatility:
286%
|
|
●
|
Risk
free rate of return: 1.17%
|
|
Risk
free rate of return: 0.96%
|
|
●
|
Expected
term: 288 days
|
|
Expected
term: 37 days
|
On
July 25, 2017, the Company entered into a convertible note agreement with a third party for $28,000. The Company received $25,000,
net of the financing fee of $3,000. This deferred financing fee has been deducted directly from the carrying value of the note,
pursuant to ASU 2015-03. The deferred financing fee is being amortized over the term of the convertible note payable. The note
is due on April 30, 2018 and carries interest at the rate of 12% per annum. The note is convertible at any time starting after
the first 180 days of the note and ending on the later of the maturity date or the date of payment. The note is convertible at
51% of the Market Price. Market price shall mean the average of the lowest two trading prices during the last fifteen trading
day period completed on the latest trading day prior to the conversion. Since the conversion price of the note is variable, the
conversion option has been treated as a derivative liability. The derivative liability on the note was calculated, using the Binomial
model, to be $48,934, of which $25,000 was recorded as a debt discount and the balance $23,934 was recorded as an interest expense,
at inception.
The
derivative liability was recalculated on September 30, 2017 as $38,156 and the difference in the value of $10,779, was recorded
as a change in derivative liability in the income statement. The Company amortized a debt discount of $6,004, during the three
and nine months ended September 30, 2017. The Company amortized the finance fee of $720, during the three and nine months ended
September 30, 2017. Interest expense of $617, was accrued on the convertible note during the three and nine months ended September
30, 2017.
The
variables used for the Binomial model are as listed below:
|
|
July
25, 2017
|
|
September
30, 2017
|
|
●
|
Volatility:
189%
|
|
Volatility:
286%
|
|
●
|
Risk
free rate of return: 1.24%
|
|
Risk
free rate of return: 1.20%
|
|
●
|
Expected
term: 279 days
|
|
Expected
term: 212 days
|
On
September 15, 2017, the Company entered into a convertible note agreement with a third party for $25,000. The Company received
$22,500, net of the financing fee of $2,500. This deferred financing fee has been deducted directly from the carrying value of
the note, pursuant to ASU 2015-03. The deferred financing fee is being amortized over the term of the convertible note payable.
The note is due on September 15, 2018 and carries interest at the rate of 10% per annum. The Company also granted a warrant with
the convertible note to buy 250,000 shares of common stock of the Company at an exercise price of $0.10 per share. The Company
valued the warrants using the black schools option pricing model at $14,700, which was recorded as a debt discount. The note is
convertible at any time starting after the first 180 days of the note and ending on the later of the maturity date or the date
of payment. The note is convertible at 61% of the Market Price. Market price shall mean the average of the lowest two trading
prices during the last fifteen trading day period completed on the latest trading day prior to the conversion. Since the conversion
price of the note is variable, the conversion option has been treated as a derivative liability. The derivative liability on the
note was calculated, using the Binomial model, to be $113,636, of which $7,800 was recorded as a debt discount and the balance
$105,836 was recorded as an interest expense, at inception.
The
derivative liability was recalculated on September 30, 2017 as $63,182 and the difference in the value of $50,455, was recorded
as a change in derivative liability in the income statement. The Company amortized a debt discount of $925 during the three and
nine months ended September 30, 2017. The Company amortized the finance fee of $103, during the three and nine months ended September
30, 2017. Interest expense of $103, was accrued on the convertible note during the three and nine months ended September 30, 2017.
The
variables used for the Binomial model are as listed below:
|
|
September
15, 2017
|
|
September
30, 2017
|
|
●
|
Volatility:
286%
|
|
Volatility:
286%
|
|
●
|
Risk
free rate of return: 1.17%
|
|
Risk
free rate of return: 1.20%
|
|
●
|
Expected
term: 137 days
|
|
Expected
term: 122 days
|
Note
9 – COMMITMENTS AND CONTINGENCIES
Effective
March 1, 2014, the Company signed a lease for four thousand square feet of industrial space in North Las Vegas. The term of the
lease is for three years and cost $2,200 per month. The lease expired on April 30, 2017 and thereafter, the Company has continued
leasing the space on a monthly basis at the same amount.
Rent
expense amounted to $6,600 and $8,817 for the three months ended September 30, 2017 and 2016, respectively. Rent expense amounted
to $19,556 and $41,300 for the nine months ended September 30, 2017 and 2016, respectively.
According
to the license agreement signed between the Company and Aoxin, in order to maintain exclusive rights for the United States (US),
the Company is required to purchase and sell certain amount of e-Go EV model vehicles per year for a certain period of time starting
from the completion of the requirements established by the United States Department of Transportation’s protocols for the
e-Go EV model. The table below demonstrates the required amount of vehicles that the company needs to sell per year.
First
year
|
|
|
2,000
|
|
Second
year
|
|
|
6,000
|
|
Third
year
|
|
|
12,000
|
|
Fourth
year
|
|
|
24,000
|
|
Fifth
year
|
|
|
48,000
|
|
|
|
|
92,000
|
|
As
part of the license agreement, the Company is committed to pay expenses related to any required airbag testing procedures. The
cost of these airbags could be as little as $500,000 or as much as $2 million.
The
Company may from time to time, become a party to various legal proceedings, arising in the ordinary coure of business. The Company
investigates these claims as they arise. Management does not believe, based on current knowledge, that there were any such claims
outstanding as of September 30, 2017.
Note
10 – REVOLVING LINE OF CREDIT- RELATED PARTY
On
February 12, 2016, the Company signed a twelve months revolving line of credit agreement with a consulting firm which is also
utilized for consulting services. The line amount is $100,000 and carries interest at 12% per annum. Both parties have mutually
agreed to extend the due date to February 12, 2018 with no other changes to the terms of the line of credit. As of September 30,
2017, the outstanding balance was $101,400. Interest expense of $3,066 and $9,099 was accrued on the line of credit during the
three months and nine months ended September 30, 2017. Interest expense of $3,028 and $5,877 was accrued on the line of credit
during the three months and nine months ended September 30, 2016.
Note
11 – INCOME TAXES
The
Company did not file its tax returns for fiscal years from 2012 through 2016. Management believes that it should not have any
material impact on the Company’s financials because the Company did not have any tax liabilities due to net losses incurred
during these years.
Based
on the available information and other factors, management believes it is more likely than not that the net deferred tax assets
at September 30, 2017 and December 31, 2016 will not be fully realizable. Accordingly, management has recorded a full valuation
allowance against its net deferred tax assets at September 30, 2017 and December 31, 2016. At September 30, 2017 and December
31, 2016, the Company had federal net operating loss carry-forwards of approximately $3,618,000 and $2,800,000, respectively,
expiring beginning in 2032.
Deferred
tax assets consist of the following components:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net
loss carryforward
|
|
$
|
973,000
|
|
|
$
|
780,000
|
|
Valuation
allowance
|
|
|
(973,000
|
)
|
|
|
(780,000
|
)
|
Total
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
12 – PROMISSORY NOTE AND EQUITY PURCHASE AGREEMENT
On
June 24, 2016, the Company issued a $75,000 non-refundable Promissory Note to an investor as a pre- condition to an Equity Purchase
Agreement. The promissory note bears 10% interest per annum with a one year maturity date. The note is recognized as a deferred
finance charge and is being amortized over the contract period.
The
Equity Purchase Agreement allows the Company to issue Put Notices and the right to sell up to $10,000,000 of its no par value
common stock at 88% of its market value. The market value is based on a ten day valuation period immediately preceding the Put
Notice. The right to sell the shares becomes an obligation to sell as of the closing date after the Put Notice has been issued
to the investor. The investor at no time can own more than 9.99% of the Company’s common stock outstanding as of the closing
date.
During
the nine months ended September 30, 2017, the Company issued 1,500,000 shares (See Note 13) to the note holder to convert the
outstanding principal balance of $75,000 and accrued interest of $6,576. As of September 30, 2017, the outstanding balance of
the note was $0.
Note
13 – EQUITY
On
July 24, 2017, our board of directors and the holders of a majority of the voting power of our stockholders have approved the
amendment to our articles of incorporation (the “Amendment”) increasing our authorized shares of Common Stock from
100,000,000 shares to 300,000,000 shares and authorizing 10,000,000 shares of Preferred Stock. The increase in our authorized
shares of Common Stock and the new 10,00,000 shares of Preferred Stock became effective September 8, 2017, upon the filing of
the Amendment with the Secretary of State of the State of California.
During
the nine months ended September 30, 2016, the Company issued 200,000 shares of company’s common stock, valued at $0.1574
per share, to a third party in exchange for consulting and advisory services for a period of six months.
During
the nine months ended September 30, 2017, the Company issued 36,885 shares of company’s common stock, to a third party for
$2,250 cash.
During
the nine months ended September 30, 2017, the Company issued 140,808 shares of company’s common stock, for payment of a
related party accounts payable totaling $8,589, including penalties.
During
the nine months ended September 30, 2017, the Company issued 177,694 shares of company’s common stock in exchange for consulting
and advisory services, valued at $10,839.
During
the nine months ended September 30, 2017, the Company issued 1,500,000 shares of company’s common stock, to convert a non-refundable
promissory note of $75,000 along with interest accrued on the same of $6,576. The shares issued were recorded at the fair market
value of $0.054 on the date of conversion notice.
Note
14 – SUBSEQUENT EVENTS
On
October 13, 2017, the Company issued 1,000,000 shares of common stock for $15,000 cash.
On
October 26, 2017, under the terms of the $58,000 convertible promissory note dated April 21,2017, the Company issued 717,703 shares
of common stock for a debt reduction of $15,000.
On
October 27, 2017, under the terms of the $65,000 convertible promissory note dated October 26, 2016, the Company issued 1,000,000
shares of common stock for a debt reduction of $15,000.
As
of November 13, 2017, the four $10,000 convertible promissory notes with three unrelated parties matured on July 30, 2017 and
are in default. The Company is currently renegotiating the terms of the notes, which include an extension of the maturity date,
with each of the parties.
As
of November 13, 2017, the two $14,100 convertible promissory notes with a related party matured on November 1, 2017 and are in
default. The Company is currently renegotiating the terms of the notes, which include an extension of the maturity date.