NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2018 AND 2017
NOTE 1 ORAGNIZATION AND GOING CONCERN
Organization
Force Protection Video Equipment Corp., together with its wholly owned subsidiary, Cobraxtreme HD Corp. (collectively, the Company), is in the business of selling video and audio capture devices and accessories to consumers and law enforcement. Force Protection Video Equipment Corp. was incorporated on March 11, 2011, under the laws of the State of Florida. On February 2, 2015 the Company changed its name to Force Protection Video Equipment Corp.
Going Concern
The Companys consolidated financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the nine months ended January 31, 2018 and year ended April 30, 2017, the Company recognized revenue of $139,182 and $86,075, respectively, and a net operating loss of $343,738 and $770,764, respectively. As of January 31, 2018, the Company had negative working capital of $318,299 and an accumulated deficit of $3,815,263.
In view of these conditions, the ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. Historically, the Company has relied upon funds from the sale of shares of stock, issuance of promissory notes and loans from its shareholders and private investors to finance its operations and growth. Management is planning to raise necessary additional funds for working capital through loans and/or additional sales of its common stock. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all. Should the Company be unable to raise this amount of capital its operating plans will be limited to the amount of capital that it can access. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.
4
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements of Force Protection Video Equipment Corp. as of January 31, 2018, and for the three and nine months ended January 31, 2018 and 2017, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and include the Companys wholly-owned subsidiary, Cobraxtreme HD Corp. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended April 30, 2017, as filed with the Securities and Exchange Commission as part of the Companys Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
Principles of Consolidation
These consolidated financial statements have been prepared in accordance with US GAAP and include the accounts of the Company and its wholly owned subsidiary, Cobraxtreme HD Corp. All significant intercompany transactions and balances have been eliminated. Cobraxtreme HD Corp. was incorporated under the laws of the State of North Carolina on September 19, 2017.
Estimates
The preparation of the Companys consolidated financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by managements application of accounting policies. On an on-going basis, the Company evaluates its estimates. Actual results and outcomes may differ materially from these estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.
Inventory
Our inventory is comprised of finished goods and primarily includes cameras and recording equipment. The Companys inventory is stated at the lower of cost or market and expensed to cost of goods sold upon sale using the average-cost method. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances. The Company does not have a history of significant bad debt and has not recorded any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.
5
Property and Equipment
Fixed assets are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. 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.
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. Depreciation for financial statement purposes is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
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|
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|
|
Estimated
|
|
|
Useful Lives
|
Vehicles
|
|
5 years
|
Office Equipment
|
|
3 - 5 years
|
Furniture & equipment
|
|
5 - 7 years
|
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions, if any, taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.
Revenue Recognition
The Company recognizes revenue when (a) pervasive evidence of an arrangement exists (b) products are delivered or services have been rendered (c) the sales price is fixed or determinable, and (d) collection is reasonably assured.
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred. The Company recognized marketing and advertising costs of $150 and $16,979, during the three months ended January 31, 2018 and 2017, respectively, and $60,355 and $85,854 during the nine months ended January 31, 2018 and 2017, respectively.
Stock Based Compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
6
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs 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.
As of January 31, 2018 and April 30, 2017, the Company did not have any assets or liabilities that were required to be measured at fair value on a recurring basis or on a non-recurring basis.
Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents and accounts payable and accrued expenses. The carrying amounts of the Companys financial instruments approximate fair value because of the short term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect those estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments.
Net Income (Loss) Per Share
The computation of basic earnings per share (EPS) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS, if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
7
Following is the computation of basic and diluted net loss per share for the three and nine months ended January 31, 2018 and 2017:
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
January 31,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
(171,565)
|
|
$
(287,844)
|
|
$
(823,020)
|
|
$
(1,126,983)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
32,194,936
|
|
813,129
|
|
16,007,454
|
|
566,217
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
(0.01)
|
|
$
(0.35)
|
|
$
(0.05)
|
|
$
(1.99)
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
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|
|
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
297,910,788
|
|
405,160
|
|
297,910,788
|
|
405,160
|
Concentrations of risk
During the three months ended January 31, 2018, two customers accounted for 46.2% (32.7% and 13.5%) of sales. During the three months ended January 31, 2017, two customers accounted for 64.0% (50.1% and 13.9%) of sales. During the nine months ended January 31, 2018, two customers accounted for 39.6% (11.9% and 27.7%) of sales. During the nine months ended January 31, 2017, one customer accounted for 28.7% of sales.
The Company relies on third parties for
the supply and manufacture of its capture devices, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. During the three months ended January 31, 2018, two suppliers accounted for 39.9% (27.9% and 12.0%) of our inventory purchases. During the nine months ended January 31, 2018, four suppliers accounted for 64.0% (19.5%, 19.2%, 13.9% and 11.4%) of our inventory purchases. During the three months ended January 31, 2017, three suppliers accounted for 86.3% (60.8%, 15.0% and 10.5%) of our inventory purchases. During the nine months ended January 31, 2017, two suppliers accounted for 82.9% (71.8% and 11.1%) of our inventory purchases.
8
Recent Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).
The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entitys own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, DebtDebt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect adoption of ASU 2017-11 to have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment awards require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The Company does not expect adoption of ASU 2017-09 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued
authoritative guidance under
ASU No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718), which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company does not expect adoption of ASU 2016-09 to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued authoritative guidance under ASU 2016-02, Leases (Topic 842). ASU 2016-02 provides new comprehensive lease accounting guidance that supersedes existing lease guidance. Upon adoption of ASU 2016-02, the Company will be required to recognize leases with terms in excess of twelve months on its balance sheet at the beginning of the earliest comparative period presented with a corresponding adjustment to stockholders equity (deficit). ASU 2016-02 requires the Company to capitalize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating leases. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. The Company is required to adopt this new guidance in the first quarter of fiscal 2020. The Company plans to implement ASU 2016-02 for all new leases.
9
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our consolidated financial statements.
NOTE 3 - FIXED ASSETS
Fixed assets consisted of the following:
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|
|
|
|
|
January 31,
|
|
April 30,
|
|
|
2018
|
|
2017
|
Vehicles
|
|
15,376
|
|
15,376
|
Furniture and fixtures
|
|
10,936
|
|
6,212
|
Computers and office equipment
|
|
4,227
|
|
2,480
|
Leasehold improvements
|
|
1,775
|
|
-
|
Total fixed assets
|
|
32,314
|
|
24,068
|
Accumulated depreciation
|
|
(9,421)
|
|
(5,272)
|
Total fixed assets
|
|
$
22,893
|
|
$
18,796
|
During the three months ended January 31, 2018 and 2017, the Company recognized $1,432 and $1,286, respectively, in depreciation expense. During the nine months ended January 31, 2018 and 2017, the Company recognized $4,149 and $3,510, respectively, in depreciation expense. During the nine months ended January 31, 2018 and 2017, the Company purchased $8,246 and $16,480, respectively, of leasehold improvements and furniture and fixtures.
10
NOTE 4 CONVERTIBLE PROMISSORY NOTES
Following is a summary of our outstanding convertible promissory notes as of January 31, 2018:
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|
|
|
|
|
|
|
|
|
|
Current Balances
|
Lender
|
|
Issue Date
|
|
Maturity
|
|
Principle
|
|
Interest
|
|
Total
|
RDW Capital, LLC Note 3
|
|
3/10/2016
|
|
9/10/16
|
|
$
792
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|
$
-
|
|
$
792
|
RDW Capital, LLC Note 4
|
|
5/13/2016
|
|
11/13/16
|
|
-
|
|
4,540
|
|
4,540
|
RDW Capital, LLC Note 5
|
|
5/20/2016
|
|
11/20/16
|
|
-
|
|
2,742
|
|
2,742
|
RDW Capital, LLC Note 6
|
|
8/22/2016
|
|
2/22/17
|
|
-
|
|
889
|
|
889
|
RDW Capital, LLC Note 7
|
|
9/1/2016
|
|
2/1/18
|
|
25,701
|
|
14,276
|
|
39,977
|
RDW Capital, LLC Note 8
|
|
2/6/2017
|
|
2/1/18
|
|
48,412
|
|
4,633
|
|
53,045
|
RDW Capital, LLC Note 9
|
|
3/30/2017
|
|
2/1/18
|
|
78,750
|
|
5,559
|
|
84,309
|
RDW Capital, LLC Note 10
|
|
4/26/2017
|
|
2/1/18
|
|
77,338
|
|
6,932
|
|
84,270
|
RDW Capital, LLC Note 11
|
|
5/30/2017
|
|
2/1/18
|
|
81,375
|
|
4,572
|
|
85,947
|
RDW Capital, LLC Note 12
|
|
8/7/2017
|
|
2/7/18
|
|
52,500
|
|
2,106
|
|
54,606
|
Power Up Lending Gp Note 1
|
|
10/20/2017
|
|
7/30/18
|
|
70,000
|
|
2,411
|
|
72,411
|
Power Up Lending Gp Note 2
|
|
11/16/2017
|
|
8/30/18
|
|
36,000
|
|
911
|
|
36,911
|
Power Up Lending Gp Note 3
|
|
1/5/2018
|
|
10/10/18
|
|
38,000
|
|
326
|
|
38,326
|
Totals
|
|
|
|
|
|
$
508,868
|
|
$
49,897
|
|
$
558,765
|
Debt discount balance
|
|
|
|
|
|
(85,426)
|
|
|
|
|
Balance sheet balances
|
|
|
|
|
|
$
423,442
|
|
|
|
|
11
Following is a summary of our outstanding convertible promissory notes as of April 30, 2017:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Balances
|
Lender
|
|
Issue Date
|
|
Maturity
|
|
Principle
|
|
Interest
|
|
Total
|
RDW Capital, LLC Note 3
|
|
3/10/2016
|
|
9/10/16
|
|
$
792
|
|
$
-
|
|
$
792
|
RDW Capital, LLC Note 4
|
|
5/13/2016
|
|
11/13/16
|
|
-
|
|
4,540
|
|
4,540
|
RDW Capital, LLC Note 5
|
|
5/20/2016
|
|
11/20/16
|
|
-
|
|
2,742
|
|
2,742
|
RDW Capital, LLC Note 6
|
|
8/22/2016
|
|
2/22/17
|
|
31,674
|
|
8,291
|
|
39,965
|
RDW Capital, LLC Note 7
|
|
9/1/2016
|
|
3/1/17
|
|
157,500
|
|
8,664
|
|
166,164
|
RDW Capital, LLC Note 8
|
|
2/6/2017
|
|
8/5/17
|
|
48,412
|
|
1,477
|
|
49,889
|
RDW Capital, LLC Note 9
|
|
3/30/2017
|
|
9/29/17
|
|
78,750
|
|
544
|
|
79,294
|
RDW Capital, LLC Note 10
|
4/26/2017
|
|
10/26/17
|
|
110,000
|
|
98
|
|
110,098
|
Totals
|
|
|
|
|
|
$
427,128
|
|
$
26,356
|
|
$
453,484
|
Debt discount balance
|
|
|
|
|
|
(286,159)
|
|
|
|
|
Balance sheet balances
|
|
|
|
|
|
$
140,969
|
|
|
|
|
The company determined that each convertible promissory notes conversion feature is indexed to the Companys stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the notes meets the scope exception under FASB Accounting Standards Codification ("ASC") 815-40-15-7 and treatment under ASC 470-20
Debt with Conversion and Other Options
is appropriate.
RDW Capital, LLC
On November 12, 2015, the Company entered into a Securities Purchase Agreement (RDW SPA 1) with RDW Capital, LLC (RDW), a Florida limited liability company. On November 12, 2015, the Company and RDW entered into the First Amended Securities Purchase Agreement. On November 12, 2015, the Company and RDW entered into the Second Amended Securities Purchase Agreement. On February 17, 2016, the Company and RDW entered into the Third Amended Securities Purchase Agreement. On February 17, 2016, the Company and RDW entered into the Fourth Amended Securities Purchase Agreement. On May 9, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 2). On August 22, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 3). On September 1, 2016, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 4). On March 31, 2017, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 5). On August 8, 2017, the Company and RDW entered into a Securities Purchase Agreement (RDW SPA 6). RDW SPA 1, amendments thereto, RDW SPA 2, RDW SPA 3, RDW SPA 4, RDW SPA 5 and RDW SPA 6 may hereinafter be referred to collectively as, the
RDW SPAs
.
RDW Note 3
- In connection with RDW SPA 1 and amendments thereto, on March 10, 2016, the Company issued to RDW a convertible note (RDW Note 3) due on September 10, 2016 in the principal amount of $210,000 of which the Company received proceeds of $180,000 after payment of a $10,000 OID and due diligence fees totaling $20,000.
12
As of April 30, 2016, RDW Note 3 was paid down to a principal balance of $792.
During the three and nine months ended January 31, 2017, the Company recognized $0 and $151,793 of accretion related to the debt discount.
RDW Note 4
- In connection with RDW SPA 2, on May 13, 2016, the Company issued to RDW a convertible note (RDW Note 4) due on November 13, 2016 in the principal amount of $105,000 of which the Company received proceeds of $82,500 after payment of a $5,000 OID, $7,500 of legal fees and $10,000 of due diligence fees.
RDW Note 4 principle was discounted for the value of the OID, legal fees due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $70,000. As this amount resulted in a total debt discount that was less than RDW Note 4 principal, the full $70,000 discount was recognized. The resulting $92,500 discount was accreted over the 6 month term of RDW Note 4 through November 13, 2016.
During the three and nine months ended January 31, 2017, the Company recognized $750 and $4,540, respectively, of interest expense and $6,535 and $92,500, respectively, of accretion related to the debt discount.
RDW Note 5
- In connection with RDW SPA 2, on May 20, 2016, the Company issued to RDW a convertible note (RDW Note 5) due on November 20, 2016 in the principal amount of $52,500 of which the Company received proceeds of $45,000 after payment of a $2,500 OID and $5,000 of due diligence fees.
RDW Note 5 principle was discounted for the value of the OID, due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $35,000. As this amount resulted in a total debt discount that was less than RDW Note 5 principal, the full $35,000 discount was recognized. The resulting $42,500 discount was accreted over the 6 month term of RDW Note 5 through November 20, 2016.
During the three and nine months ended January 31, 2017, the Company recognized $775 and $2,742, respectively, of interest expense and $4,620 and $42,500, respectively, of accretion related to the debt discount.
RDW Note 6
- In connection with RDW SPA 3, on August 22, 2016, the Company issued to RDW a convertible note (RDW Note 6) due on February 22, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000.
RDW Note 6 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $105,000. As this amount resulted in a total debt discount that was less than RDW Note 6 principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6 month term of RDW Note 6 through February 22, 2017.
During the three months ended January 31, 2018 and 2017, the Company recognized -$293 and $3,304, respectively, of interest expense. During the nine months ended January 31, 2018 and 2017, the Company recognized -$186 and $5,773, respectively, of interest expense. During the three months ended January 31, 2018 and 2017, the Company recognized $0 and $66,250, respectively, of accretion related to the debt discount. During the nine months ended January 31, 2018 and 2017, the Company recognized $0 and $132,500, respectively, of accretion related to the debt discount. RDW began converting the RDW Note 6 principal into shares of common stock beginning in March 2017. During the three months ended January 31, 2018, RDW converted $7,216 of unpaid interest into 4,340,000 shares. During the nine months ended January 31, 2018, RDW converted $39,183 into 4,919,733 shares.
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RDW Note 7
In connection with RDW SPA 4 under which RDW agreed to purchase an aggregate of up to $367,500 in principal amount of notes, on September 1, 2016, the Company issued to RDW a convertible note (RDW Note 7) due on March 1, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000. The second tranche for $210,000 will occur on the date that is two trading days from the date a registration statement is declared effective by the SEC. On November 30, 2017, the Company and RDW agreed to amend RDW Note 7 to extend the Maturity Date to February 1, 2018.
RDW Note 7 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $105,000. As this amount resulted in a total debt discount that was less than RDW Note 7 principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6 month term of RDW Note 7 through March 1, 2017.
During the three months ended January 31, 2018 and 2017, the Company recognized $879 and $3,296, respectively, of interest expense. During the nine months ended January 31, 2018 and 2017, the Company recognized $5,612 and $8,664, respectively, of interest expense. During the three and nine months ended January 31, 2017, the Company recognized $67,348 and 111,271, respectively, of accretion related to the debt discount which was fully accreted as of April 30, 2017. RDW began converting the RDW Note 7 principal into shares of common stock beginning in May 2017. During the three and nine months ended January 31, 2018, RDW converted $16,652 into 7,832,000 shares and $131,800 into 24,585,900 shares, respectively.
RDW Note 8
In connection with RDW SPA 4, on February 6, 2017, the Company issued to RDW a convertible note (RDW Note 8) due on August 5, 2017 in the principal amount of $210,000 of which the Company received proceeds of $180,000 after payment of a $10,000 OID and legal and due diligence fees totaling $20,000. On November 30, 2017, the Company and RDW agreed to amend RDW Note 8 to extend the Maturity Date to February 1, 2018.
RDW Note 8 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $217,000. As this amount resulted in a total debt discount that exceeded RDW Note 8 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 8. The resulting $210,000 discount is being accreted over the 6 month term of RDW Note 8 through August 5, 2017.
During the three and nine months ended January 31, 2018, the Company recognized $1,073 and $3,155, respectively, of interest expense and $0 and $113,167, respectively, of accretion related to the debt discount. RDW began converting the RDW Note 8 principal into shares of common stock beginning in February 2017 through year end in April 2017. RDW has not converted any of RDW Note 8 during the nine months ended January 31, 2018.
RDW Note 9
In connection with RDW SPA 5, on March 30, 2017, the Company issued to RDW a convertible note (RDW Note 9) due on September 29, 2017 in the principal amount of $78,750 of which the Company received proceeds of $62,500 after payment of a $3,750 OID and legal and due diligence fees totaling $12,500. On November 30, 2017, the Company and RDW agreed to amend RDW Note 9 to extend the Maturity Date to February 1, 2018.
RDW Note 9 principle was discounted for the value of the OID, fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $72,000. As this amount resulted in a total debt discount that exceeded RDW Note 9 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 9. The resulting $78,750 discount is being accreted over the 6 month term of RDW Note 9 through September 29, 2017.
During the three and nine months ended January 31, 2018, the Company recognized $1,706 and $5,015, respectively, of interest expense and $0 and $65,410, respectively, of accretion related to the debt discount.
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RDW Note 10
In connection with RDW SPA 5, on April 26, 2017, the Company issued to RDW a convertible note (RDW Note 10) due on October 26, 2017 in the principal amount of $110,000 of which the Company received proceeds of $90,000 after payment of a $10,000 OID and legal fees totaling $10,000. On November 30, 2017, the Company and RDW agreed to amend RDW Note 10 to extend the Maturity Date to February 1, 2018.
RDW Note 10 principle was discounted for the value of the OID, fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $134,000. As this amount resulted in a total debt discount that exceeded RDW Note 10 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 10. The resulting $110,000 discount is being accreted over the 6 month term of RDW Note 10 through October 26, 2017.
During the three and nine months ended January 31, 2018, the Company recognized $2,240 and $6,835, respectively, of interest expense and $0 and $107,582, respectively, of accretion related to the debt discount. RDW began converting the RDW Note 10 principal into shares of common stock beginning in December 2017. During the three and nine months ended January 31, 2018, RDW converted $32,662 into 22,630,500 shares.
RDW Note 11
In connection with RDW SPA 5, on May 30, 2017, the Company issued to RDW a convertible note (RDW Note 11) due on November 30, 2017 in the principal amount of $81,375 of which the Company received proceeds of $65,000 after payment of a $3,875 OID and legal and due diligence fees totaling $12,500. On November 30, 2017, the Company and RDW agreed to amend RDW Note 11 to extend the Maturity Date to February 1, 2018.
RDW Note 11 principle was discounted for the value of the OID, fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $102,000. As this amount resulted in a total debt discount that exceeded RDW Note 11 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 11. The resulting $81,375 discount is being accreted over the 6 month term of RDW Note 11 through November 30, 2017.
During the three and nine months ended January 31, 2018, the Company recognized $1,739 and $4,572, respectively, of interest expense and $13,267 and $81,375, respectively, of accretion related to the debt discount.
RDW Note 12
In connection with RDW SPA 6, on August 7, 2017, the Company issued to RDW a convertible note (RDW Note 12) due on February 7, 2018 in the principal amount of $52,500 of which the Company received proceeds of $46,000 after payment of a $2,500 OID and legal and due diligence fees totaling $4,000.
RDW Note 12 principle was discounted for the value of the OID, fees and intrinsic value of the beneficial conversion feature. The calculated intrinsic value was $107,283. As this amount resulted in a total debt discount that exceeded RDW Note 12 principal, the discount recorded for the beneficial conversion feature was limited to the principal amount of RDW Note 12. The resulting $52,500 discount is being accreted over the 6 month term of RDW Note 12 through February 7, 2018.
During the three and nine months ended January 31, 2018, the Company recognized $1,105 and $2,106, respectively, of interest expense and $26,250 and $50,503, respectively, of accretion related to the debt discount.
RDW Note 1 through RDW Note 12 may hereinafter be referred to collectively as, the
“
RDW Notes
”
.
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The RDW Notes have the following terms and conditions:
·
The principal amount outstanding accrues interest at a rate of eight percent (8%) per annum.
·
Interest is due and payable on each conversion date and on the Maturity Date.
·
At any time, at the option of the holder, the RDW notes are convertible, into shares of our common stock at a conversion price equal to sixty percent (60%) of the lowest traded price of our common stock in the twenty (20) days prior to the conversion date, at any time, at the option of the holder (the Conversion Price).
· T
he
RDW Notes are unsecured obligations.
·
We may prepay the RDW Notes in whole or in part at any time with ten (10) days written notice to the holder for the sum of the outstanding principal and interest multiplied by one hundred and thirty percent (130%). RDW may continue to convert the notes from the date of the notice of prepayment until the date of prepayment.
·
Default interest of twenty-four percent (24%) per annum.
·
Interest on overdue accrued and unpaid interest will incur a late fee of the lower of eighteen percent (18%) per annum or the maximum rate permitted by law.
·
Upon an event of default, RDW may accelerate the outstanding principal, plus accrued and unpaid interest, and other amounts owing through the date of acceleration (
“
Acceleration
”
).
·
Upon Acceleration, the amount due will be one hundred thirty percent (130%) of the outstanding principal amount of the Note and accrued and unpaid interest, together with payment of all other amounts, costs, expenses and liquidated damages.
·
In the event of our default, at the request of the holder, we must pay one hundred fifty percent (150%) of the outstanding balance plus accrued interest and default interest.
·
We must reserve three (3) times the amount of shares necessary for the issuance of common stock upon conversion.
·
Conversions of the RDW Notes shall not be permitted if such conversion will result in the holder owning more than four point ninety-nine percent (4.99%) of our common shares outstanding after giving effect to such conversion.
In total, during the three months ended January 31, 2018 and 2017, the Company recognized $8,449 and $7,175, respectively, of interest expense and $39,517 and $144,753, respectively, of accretion related to the debt discount of the RDW Notes. In total, during the nine months ended January 31, 2018 and 2017, the Company recognized $27,109 and $21,307, respectively, of interest expense and $418,037 and $549,914, respectively, of accretion related to the debt discount of the RDW Notes.
In total, during the three months ended January 31, 2018, RDW converted $56,529 of RDW Note principal and interest into 34,802,500 shares of common stock. In total, during the nine months ended January 31, 2018, RDW converted $203,350 of RDW Note principal and interest into 52,136,133 shares of common stock.
Power Up Lending Group Ltd.
Power Up Note 1
On October 20, 2017 the Company sold and Power Up Lending Group, Ltd. (Power Up) purchased a 12% convertible note in the principal amount of $70,000 (the Power Up Note 1) of which the Company received $60,300 after payment of legal fees. The Power Up Note 1 matures on July 30, 2018.
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The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 1 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $44,754. This Power Up Note 1 has been discounted by $44,754 which is being accreted over the 10 month term of the Power Up Note 1.
During the three and nine months ended January 31, 2018, the Company recognized interest expense of $2,157 and $2,411, respectively, and $17,702 and $19,819, respectively, of debt discount accretion.
Power Up Note 2
On November 16, 2017 the Company sold and Power Up purchased a 12% convertible note in the principal amount of $36,000 (the Power Up Note 2) of which the Company received $30,000 after payment of legal fees. The Power Up Note 2 matures on August 30, 2018.
The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 2 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $23,016. This Power Up Note 2 has been discounted by $44,754 which is being accreted over the 10 month term of the Power Up Note.
During the three and nine months ended January 31, 2018, the Company recognized interest expense of $911 and $7,684 of debt discount accretion.
Power Up Note 3
On January 5, 2018 the Company sold and Power Up Lending Group, Ltd. (Power Up) purchased a 12% convertible note in the principal amount of $38,000 (the Power Up Note 3) of which the Company received $32,000 after payment of legal fees. The Power Up Note 3 matures on October 10, 2018.
The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 3 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $24,295. This Power Up Note 3 has been discounted by $30,295 which is being accreted over the 10 month term of the Power Up Note.
During the three and nine months ended January 31, 2018, the Company recognized interest expense of $326 and $2,833 of debt discount accretion.
Power Up Note 1 through Power Up Note 3 may hereinafter be referred to collectively as, the
Power Up Notes
.
The Power Up Notes have identical terms and conditions, including convertibility into common stock, at Power Ups option any time during the period beginning on the date which is one hundred eighty (180) days following the date of the Power Up Note, at a price for each share of common stock equal to 61% of the average of the lowest two (2) trading prices during the twenty (20) trading days immediately preceding the applicable conversion. In no event shall Power Up effect a conversion if such conversion results in Power Up beneficially owning in excess of 4.99% of the outstanding common stock of the Company. The Power Up Notes and accrued interest may be prepaid within the 180 day period following the issuance date at an amount equal to 115% - 140% of the outstanding principle and unpaid interest. After expiration of the 180 days, the Power Up Note may not be prepaid. Any principal and interest unpaid when due shall bear interest at 22%. Upon the occurrence of an event of default the balance of principle and interest shall become immediately due at the default amount which is equal to the sum of the unpaid principal and unpaid interest multiplied by 150%.
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NOTE 5 COMMITMENTS AND CONTINGENCIES
Product Warranties
Our manufacturer(s) provide the Company with a 2 year warranty. The Company products are sold with a 1 year manufacturers warranty. The Company offers a 1 year extended warranty for a fee. The extended warranty expires at the end of the second year from the date of purchase with warranty costs during the two year period being born by the manufacturer. As a result, the Company has no, or limited warranty liability exposure.
Operating Leases
On November 15, 2017, the Company entered into a lease of office space at 1600 Olive Chapel Road, Apex, North Carolina 27502. The lease expires on November 30, 2020 and includes an option to extend the lease an additional term or three years. Rent is $1,650 per month and is increased each anniversary by 3%. The Company paid a $1,650 security deposit. The Company has adopted ASC 2016-2; Leases (Topic 842). As a result, The Company is required to estimate and record the right of use asset (ROU Asset) and lease liability on the face of The Companys balance sheet. The Company determined the ROU Asset and lease liability to be $51,063 which compares to the total payments of the initial three year term of $61,200. The company determined that there was no discount rate implicit in the lease. Thus, the Company used its incremental borrowing rate of 12% to discount the lease payments in the determination of the ROU asset and lease liability.
On March 21, 2015, the Company entered into a lease of office space at 130 Iowa Lane, Suite 102, Carry, North Carolina 27511. During the three months ended January 31, 2018, the Company moved and this lease was terminated with no further obligations
The Company has no other noncancelable operating leases. Future minimum lease payments under this operating lease with an initial term in excess of one year as of January 31, 2018 are as follows:
Fiscal Year
2018
$4,950
2019
$20,048
2020
$20,649
2021
$12,253
Thereafter
$0
During the three months ended January 31, 2018 and 2017, rent expense for office space totaled $4,192 and $3,658, respectively. During the nine months ended January 31, 2018 and 2017, rent expense for office space totaled $11,580 and $11,234, respectively.
NOTE 6 STOCKHOLDER'S EQUITY
As of January 31, 2018 and April 30, 2017, there were 54,035,496 and 1,698,494 shares of common stock outstanding, respectively. As of January 31, 2018 and April 30, 2017 there were 5,000,000 and 1,000,000 shares of Series A Preferred Stock outstanding, respectively.
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On January 19, 2016, we amended our Articles of Incorporation to increase our authorized common stock from 50,000,000 shares to 250,000,000 shares and authorized the creation of 1,000,000 shares of Series A preferred stock with each share being entitled to 200,000 (i.e., 200:1) votes per share and with no right of conversion into shares of common stock.
On September 8, 2016, we amended our Articles of Incorporation to increase our authorized common stock from 250,000,000 shares to 750,000,000 shares and to increase our authorized Series A Preferred Stock from 1,000,000 shares to 5,000,000 shares.
On March 31, 2017, we amended our Articles of Incorporation to effect a 1:250 reverse stock split which became effective on April 24, 2017.
On December 8, 2017, we amended our Articles of Incorporation to increase our authorized common stock from 750,000,000 shares to 2,000,000,000 shares and to increase our authorized Series A Preferred Stock from 5,000,000 shares to 15,000,000 shares.
During the nine months ended
January 31, 2018
, we issued 1) 52,136,133 shares of common stock in exchange for convertible notes totaling $203,350; 2) 100,000 shares in exchange for $600; 3) 100,000 shares in exchange for services valued at $600; and 4) 4,000,000 shares of Series A Preferred Stock to Paul Feldman, CEO in exchange for $4,000. Each Series A preferred share is entitled to 200,000 (i.e., 200:1) votes per share and carries no right of conversion into shares of common stock.
During the year ended
April 30, 2017
, we issued 1,527,931 shares of common stock in exchange for convertible notes totaling $755,401, and issued 8,423 shares of common stock valued at $20,000 as fees related to the issuance of certain RDW Notes.
NOTE 7 SUBSEQUENT EVENTS
Management has reviewed material events subsequent of the quarterly period ended
January 31, 2018
and prior to the filing of financial statements in accordance with FASB ASC 855 Subsequent Events.
Subsequent to
January 31, 2018
and through February 28, 2018, RDW converted $30,490 of convertible note principal into 26,622,700 shares of common stock.
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