Notes
to Consolidated Financial Statements
As
of December 31, 2017 and 2016
Note
1 – Business Organization and Nature of Operations
Balance
Labs, Inc. (“Balance Labs” or the “Company”) was incorporated on June 5, 2014 under the laws of the State
of Delaware. Balance Labs is a consulting firm that provides business development and consulting services to start up and development
stage businesses. The Company offers services to help businesses in various industries improve and fine tune their business models,
sales and marketing plans and internal operations as well as make introductions to professional services such as business plan
writing, accounting firms and legal service providers.
During
the year ending December 31, 2017 and 2016 the Company added the following wholly owned subsidiaries:
BalanceLabs,
LLC., formed October 12, 2015, Balance AgroTech Co., formed July 11, 2016, Advanced AutoTech Co., formed May 10, 2016, Balance
Medical Marijuana Co., formed December 22, 2015, Balance Cannabis Co. formed May 13, 2016 and majority owned
KryptoBank
Co., formed December 27, 2017. All intercompany transactions have been eliminated.
The
Company leverages its knowledge in developing businesses with entrepreneurs and start up companies’ management whereby it
creates a customized plan for them to overcome obstacles so that they can focus on marketing their product(s) and/or service(s)
to their potential customers.
Note
2 – Going Concern
The
consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered
losses from operations and has a cash deficiency that raises substantial doubt about its ability to continue as a going concern.
The Company used $372,332 of cash in operating activities and currently has $7,355 in cash. This will not sustain the Company
without additional funds. Management plans to raise additional capital within the next twelve months that will sustain its operations
for the next year. In addition, the company will begin an active marketing campaign to market its services.
Note
3 – Summary of Significant Accounting Policies
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
At December 31, 2017 and December 31, 2016, the Company has $2,000 in cash equivalents.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to stock-based
compensation, depreciable lives of fixed assets and deferred tax assets. Actual results could materially differ from those estimates.
Concentrations
and Credit Risk
One
customer provided 100% of revenues during the year ended December 31, 2017.
Revenue
Recognition
The
Company recognizes revenue related to its professional services to its customers when (i) persuasive evidence of an arrangement
exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability
is reasonably assured.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included
or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
The
Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.
Management
has evaluated and concluded that there are no material tax positions requiring recognition in the Company’s financial statements
as of December 31, 2017. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months
of the reporting date. The Company’s 2014, 2015, 2016 and 2017 tax returns remain open for audit for Federal and State taxing
authorities.
The
Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general
and administrative expenses in the statement of operations.
Investments
Investments
are recorded at fair value on December 31, 2017 and 2016.
Marketable
Securities
The
Company holds marketable securities including common shares of BANG Holdings, Corp. which is currently trading on the Over-the-Counter
Bulletin Board (OTCBB). The Company classifies all of its marketable securities as investments on the balance sheets because they
are available-for-sale and not available to fund current operations. Marketable securities are stated at fair value with their
unrealized gains and losses included as a component of accumulated other comprehensive income (loss), which is a separate component
of stockholders’ equity, until such gains and losses are realized. If a decline in the fair value is considered other-than-temporary
based on available evidence, the unrealized loss is transferred from other comprehensive income (loss) to the statements of operations.
Realized gains and losses are determined on the specific identification method and are included in investment and other income,
net.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents
and marketable securities. As of December 31, 2017, the carrying value of marketable securities was $80,000, which consist of
common shares held in one (1) investment which currently is trading on the Over-the-Counter Bulletin Board (OTCBB). The
Company has classified this investment as a Level 3 asset on the fair value hierarchy because the investment is valued using unobservable
inputs, due to the fact that observable inputs are not available, or situations in which there is little, if any, market activity
for the asset or liability at the measurement date.
Principles
of Consolidation
The
consolidated financial statements include the Company and its wholly owned corporate subsidiaries (Balance Labs LLC., from
October 12, 2015, Balance AgroTech Co., from July 11, 2016, Advanced Auto Tech Co., from May 10, 2016, Balance Cannabis Co.,
from May 13, 2016, and Balance Medical Marijuana Co from December 22, 2015, and our 91% majority
owned
subsidiary KryptoBank Co., from December 23, 2017. All intercompany transactions are eliminated. The Company's four
subsidiaries, Balance AgroTech Co., Advanced AutoTech Co., Balance Cannabis Co., and Balance Medical Marijuana Co. are
dormant. KryptoBank Co., began operations on December 27, 2017.
Net
Loss Per Common Share
Basic
and diluted loss per common share is computed by dividing net loss by the weighted average number of common shares and warrants
from convertible debentures outstanding during the periods. The effect of 2,920,000 and 2,920,000 warrants and 2,552,137 and 2,331,137
shares from convertible notes payable for the years ended December 31, 2017 and 2016, respectively were anti-dilutive and not
included in loss per share.
Stock-Based
Compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and financial reporting dates until the service period is complete. The fair value amount
is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting
period. Awards granted to directors are treated on the same basis as awards granted to employees.
The
Company has computed the fair value of warrants granted using the Black-Scholes option pricing model. The expected term used for
warrants is the contractual life. Since the Company’s stock has not been publicly traded for a sufficiently long period,
the Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time,
equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry.
The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term
consistent with the expected term of the instrument being valued.
Fair
Value of Financial Instruments
The
Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including
cash, accounts payable, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their
short maturities.
We
adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). This standard defines fair value,
provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value
measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance
does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market
approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach
(cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of
those three levels:
|
●
|
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are
not active.
|
|
|
|
|
●
|
Level
3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed
by us, which reflect those that a market participant would use.
|
The
following table presents certain assets of the Company’s measured and recorded at fair value on the Company’s balance
sheet on a recurring basis and their level within the fair value hierarchy as of December 31, 2017.
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Fair-value
– equity securities
|
|
$
|
80,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,000
|
|
Total
Assets measured at fair value
|
|
$
|
80,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,000
|
|
The
following table presents certain assets of the Company’s measured and recorded at fair value on the Company’s balance
sheet on a recurring basis and their level within the fair value hierarchy as of December 31, 2016.
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Fair-value
– equity securities
|
|
$
|
892,250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
892,250
|
|
Total
Assets measured at fair value
|
|
$
|
892,250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
892,250
|
|
The
following is a reconciliation of the level 3 Assets:
Beginning
Balance as of January 1, 2017
|
|
$
|
892,250
|
|
|
|
|
|
|
Unrealized
loss on (level 3) asset December 31, 2017
|
|
|
(812,250
|
)
|
|
|
|
|
|
Ending
Balance as of December 31, 2017
|
|
$
|
80,000
|
|
Business
Segments
The
Company operates in one segment and therefore segment information is not presented.
Advertising,
Marketing and Promotional Costs
Advertising,
marketing and promotional expenses are expensed as incurred and are included in selling, general and administrative expenses on
the accompanying statement of operations. For the years ended December 31, 2017 and December 31, 2016, advertising, marketing
and promotion expense was $392 in 2017 and $24,503 in 2016, respectively.
Property
and equipment
Property
and equipment consists of furniture and office equipment and is stated at cost less accumulated depreciation. Depreciation is
determined by using the straight-line method for furniture and office equipment, over the estimated useful lives of the related
assets, generally three to five years.
Expenditures
for repairs and maintenance of equipment are charged to expense as incurred. Major replacements and betterments are capitalized
and depreciated over the remaining useful lives of the related assets.
Property
and equipment as of December 31, 2017 and 2016 consisted of the following:
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
2017
|
|
|
2016
|
|
Computer
equipment & Software
|
|
3
yrs SL
|
|
$
|
5,358
|
|
|
$
|
5,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
|
3
yrs SL
|
|
|
4,622
|
|
|
|
4,622
|
|
Total
|
|
|
|
|
9,980
|
|
|
|
9,980
|
|
Less
Accumulated Depreciation
|
|
|
|
|
5,268
|
|
|
|
1,327
|
|
Property
and Equipment, net
|
|
|
|
$
|
4,722
|
|
|
$
|
8,653
|
|
Depreciation
expense for the years ended December 31, 2017 and 2016 totaled $3,931 and $1,327 respectively. Equipment additions during the
years ended December 31, 2017 and 2016 were $0 and $9,980, respectively.
Reclassifications
Certain
2016 amounts have been reclassified for comparative purposes to conform to the fiscal 2017 presentation. These reclassifications
have no impact on the previously reported net loss.
Recently
Issued Accounting Pronouncements
The
Company has evaluated all new accounting standards that are in effect and may impact its consolidated financial statements and
does not believe that there are any other new accounting standards that have been issued that might have a material impact on
its financial position or results of operations.
In
February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize
(i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;
however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard
will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We
are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash
flows or financial condition.
In
March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment
Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the
accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as
either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal
years beginning after December 15, 2016, including interim periods within those fiscal years. We are currently reviewing the provisions
of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying
Performance Obligations and Licensing”. The amendments in this Update do not change the core principle of the guidance in
Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation
guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether
an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property
(which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over
time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the
degree of judgement necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there
will be any impact on our results of operations, cash flows or financial condition.
Note
4 – Stockholders’ Equity
Authorized
Capital
The
Company is authorized to issue 500,000,000 shares of common stock, $0.0001 par value, and 50,000,000 shares of preferred stock,
$0.0001 par value.
Common
Stock
On
April 1, 2016 the company issued 1,000,000 shares to Newell Trading Group LLC., in consideration for an investment agreement with
a fair value of $125,000. (See Note 8.) On December 28, 2017 the company sold a non-controlling interest in its subsidiary,
KryptoBank Co. for $500 equal to 9% of the outstanding shares.
Warrants
On September 17, 2015, the Company issued
an aggregate of 220,000 shares of common stock at $0.50 per unit to investors. In connection with the purchases, the Company issued
three-year warrants to purchase an aggregate of 220,000 shares of common stock at an exercise price of $2.00 per share. The warrants
expire September 17, 2018.
During 2015, the Company issued 100,000
warrants as part of a convertible note offering. The fair value of the warrants was $19,965. The warrants expire December 23,
2020.
In
conjunction with the Newell Investment Agreement (see Note 8), the company issued warrants to purchase 2,000,000 shares of the
Company’s common stock at an exercise price of $3.50 per share expiring on March 23, 2019.
On
September 30, 2016, The Company’s CEO loaned the Company $120,000 in addition to paying interest at 10%, the Company issued
600,000 warrants at an exercise price of $1.00 per share expiring on September 30, 2021.
|
|
2017
|
|
|
2016
|
|
Risk-free
interest rate
|
|
|
-
|
|
|
|
1.14
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected
term (in years)
|
|
|
-
|
|
|
|
2
- 5
|
|
Expected
volatility
|
|
|
-
|
|
|
|
514
|
%
|
The
following table summarizes warrants outstanding as of December 31, 2017 and 2016, and the related changes during
the periods are presented below.
|
|
Weighted
|
|
Number
of
|
|
Average
|
|
Warrants
|
|
Exercise
Price
|
|
Balance
at December 31, 2015
|
|
|
320,000
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,600,000
|
|
|
|
2.77
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
|
|
2,920,000
|
|
|
|
2.62
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
2,920,000
|
|
|
$
|
2.62
|
|
Note
5 Income Taxes
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms
the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains
significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a
flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction
for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case,
for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely);
modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing
expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”;
and repeal of the federal Alternative Minimum Tax (“AMT”).
The
staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in
situations when a registrant does not have the necessary information available, prepared or analyzed (including computations)
in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis
of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are
expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax assets and liabilities
was offset by a change in the valuation allowance.
The
Company is still in the process of analyzing the impact to the Company of the TCJA. Where the Company has been able to make reasonable
estimates of the effects related to which its analysis is not yet complete, the Company has recorded provisional amounts. The
ultimate impact to the Company’s consolidated financial statements of the TCJA may differ from the provisional amounts due
to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory
guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete
when the Company’s 2017 U.S. corporate income tax return is filed in 2018.
The
Company has the following net deferred tax asset:
|
|
As of
December 31, 2017
|
|
|
As of
December 31, 2016
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
434,071
|
|
|
$
|
407,000
|
|
Valuation allowance
|
|
|
(434,071
|
)
|
|
|
(407,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
|
|
For the Year ended
|
|
|
For the Year ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Expected federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State Effect on tax rate, net of federal benefit
|
|
|
(4.0
|
)%
|
|
|
(4.0
|
)%
|
Non Deductible Expense
|
|
|
9
|
%
|
|
|
-
|
|
Change in valuation allowance
|
|
|
29.0
|
%
|
|
|
38.0
|
%
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
0.0
|
|
|
|
0.0
|
|
As
of December 31, 2017, the Company had approximately $1,700,000 of federal and state net operating loss carryovers (“NOLs”).
The valuation allowance increased approximately $26,791 and $170,000 for the years ended December 31, 2017 and 2016, respectively.
The
Company, after considering all available evidence, fully reserved its deferred tax assets since it is more likely than not that
such benefits may be realized in future periods. The Company has not yet established that it can generate taxable income. The
Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization
of their future benefit. If it is determined in future periods that portions of the Company’s deferred tax assets satisfy
the realization standards, the valuation allowance will be reduced accordingly.
The Company does not have any tax positions
for which it is reasonably possible that the total amount of gross unrecognized tax benefits will increase or decrease within
twelve months of December 31, 2017. The unrecognized tax benefits may increase or change during the next year for items that arise
in the ordinary course of business. The Company’s 2014, 2015, 2016 and 2017 Income Tax Returns remain open to audit
by various Federal Tax and State taxing Authority.
Note
6 – Related Party Transactions
The
Company’s CEO earned $10,000 per month. The following compensation was recorded within general and administrative expenses
– related parties on the statements of operations: $120,000 and $120,000 for the years ended December 31, 2017 and 2016,
respectively. As of December 31, 2017, $366,659 of compensation was unpaid and was included in accounts payable – related
parties on the balance sheet.
For
the year ended December 31, 2016, the Company expensed $35,000, for rent and office services which are included in general and
administrative expenses related party to Balance Holdings LLC, an entity controlled by the Company’s CEO. As of December
31, 2017, $5,000 of the rent expense was unpaid and is included in accounts payable-related parties on the balance sheet.
As
of December 31, 2016, the CEO loaned $120,000 as a convertible note payable to the Company at an interest rate of 10%,
due on October 1, 2017. In addition, the Company issued 600,000 warrants at an execution price of $1.00 which expire on October
1, 2019. See Note 8.
As of December 31, 2017, the CEO and Company’s
controlled by the CEO have loaned the Company a total of $377,289 in addition to the convertible note discussed above.
The loans carry an interest rate of 8% and mature one year and one day from the date of the loan. The Company accrued interest
of $16,123 on the loans.
On May 4, 2016, the Company began compensating
Aviv Hillo, a member of the board of directors, $2,500 per month. The expense for the year ended December 31, 2017 was $30,000
compared to $30,000 for the year ended December 31, 2016.
The Company on July 27, 2016 signed
a sublease with entity partially owned by a related party to sub-lease approximately 2200 square feet 1691 Michigan Ave, Miami
Beach, Fl. 33139, beginning August 1, 2016 and ending December 31, 2018 at a monthly base rental of $7,741 per month until July
31, 2017, $7,973 per month from August 1, 2017 to July 31, 2018, and $8,212 from August 1, 2018 to the sublease termination date.
In addition to base rent, the company will have to pay 50% of the CAM charges as additional rent. On or about January 15, 2017,
The Company was made aware that the master lease for the office space was in default. Consequently, the Company ceased payments.
On or about March, 31, 2017, The Company was served with an eviction notice as the Master Lease was still in default. The Company
owes two months’ rent to the master lease holder which has been accrued. The Company has used its security deposit to partially
pay its delinquent rent. On Friday, May 12, 2017 the Company moved its headquarters to 350 Lincoln Road, Miami Beach, FL 33139.
The Company pays $2,248 per month rent and through October 31, 2017. Beginning November 1, 2017, the Company began occupying the
space on a month to month basis. In addition, the company had to pay a security deposit of $7,325. The company is currently looking
for a permanent office space to relocate.
On
December 29, 2017 KryptoBank Co., as part of its initial funding, borrowed $5,000 from a shareholder. The note has a stated
interest rate of 12% compounded annually and is due on demand.
Note
7 – Commitments and Contingencies
Litigation,
Claims and Assessments
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Consulting
Fees
The Company will continue to pay its CEO $10,000
per month as compensation on a month to month basis. In addition, the company pays Aviv Hillo, a member of the board of
directors, $2,500 per month as compensation. They will be recorded in general and administrative expenses-related parties
on the statement of operations.
Rent
The Company has discontinued paying a related
company $5,000 a month as rent on a month to month basis as of July 31, 2016. The company now pays $2,658 rent on a month to month
basis and is obligated until October 2018 in its new location.
Note
8 – Notes Payable
As
of December 31, 2017, the CEO and Company’s controlled by the CEO have loaned the Company a total of $377,289 in addition
to the convertible note discussed below. The loans carry an interest rate of 8% and mature one year and one day from the date
of the loan. The Company accrued interest of $16,123 on the loans.
On
December 29, 2017 KryptoBank Co., as part of its initial funding, borrowed $5,000 from a shareholder. The note has a stated interest
rate of 12% compounded annually and is due on demand.
Convertible
Notes Payable
On
December 23, 2015, the Company issued a secured convertible promissory note in the amount of $25,000. The note carries a rate
of 8% and was due on March 23, 2016. It is secured by all the assets of the Company. The note further contains a provision that
the lender may convert any part of the note, including accrued interest, that is unpaid into the Company’s common stock
at an exercise price of $0.50 per share. The note also contains a five-year warrant to purchase 100,000 shares of common stock
at an exercise price of $0.50 per share until December 23, 2020. As of March 23, 2016, the note is in default. As of December
31, 2017, the accrued interest on the note is $8,488.
On
April 1, 2016, the Company received $500,000 in exchange for a convertible debenture due April 2, 2017 bearing interest at 10%
and convertible into common stock at $.25 per share unless the note is paid by the Company prior to the election of the holder
to convert. The Company recognized a beneficial conversion feature expense of $500,000 that has been fully amortized. As of December
31, 2017, accrued interest on the note is $87,500.
On
April 1, 2016, the Company entered into an investment agreement (the “Investment Agreement”) with Newel Trading Group
LLC, a Delaware limited liability company (“Newel”) whereby Newel is obligated, providing the Company has met certain
conditions including the filing of a Registration Statement for the shares to be acquired, to purchase up to Twenty-Five Million
Dollars ($25,000,000) of the Company’s common stock at the rates set forth in the Investment Agreement. Under the Investment
Agreement, the shares are purchased at the discretion of the Company by issuing a Put Notice when funds are needed. In consideration
for the execution and delivery of the Investment Agreement, Company issued 1,000,000 non-registrable shares of Company’s
common stock with a fair value of $125,000 and three year warrants to purchase 2,000,000 shares of the Company’s common
stock at an exercise price of $3.50 per share, expiring March 23, 2019. The black scholes option pricing model with the following
assumptions were used to value the warrants. Expected volatility of 559%, expected life of 3 years, risk free rate of return of
0.9% and expected dividend yield of 0%. The warrants had a fair value of $250,000. Newell is currently in liquidation.
On
September 30, 2016 the Company’s CEO loaned the Company $120,000 with an interest rate of 10% and is convertible into common
stock at $1.00. In addition, the Company issued the CEO 600,000 warrants and recorded a debt discount of $111,428, which has been
fully amortized. The Company valued the warrants using the Black-Scholes option pricing model with the following assumptions:
Expected volatility of 514%, expected life of five years, risk free rate of return of 1.14% and an expected divided yield of 0%.
The warrants had a fair value of $85,714.
Note
9 - Subsequent Events
From
January 1 to March 31, 2018, entities controlled by the CEO made short term advances to the Company of $107,750.
From
January 1 to March 27, 2018 $95,000 was loaned to the company’s subsidiary, KryptoBank Co. The loans were issued
at a 12% interest rate, compounded annually, and payable on demand.