Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 1 – Organization and Going Concern
The Company was incorporated under the
laws of the State of Nevada on November 14, 2008. The Company was originally named “Bio-Stuff” and was a designated
shell corporation from inception to the date of acquisition of the 5BARz assets.
In 2010 the Company changed its name to
5BARz International, Inc. and the Company acquired a set of agreements for a 50% interest in certain intellectual property underlying
the 5BARz™ products, and marketing rights. The 5BARz products are highly engineered wireless units referred to as “cellular
network extenders”. The initial 5BARz™ device captures cell signal and provides a smart amplification and resend of
that cell signal giving the user improved cellular reception in their home, office or while mobile. On March 29, 2012, 5BARz International,
Inc. acquired a 60% controlling interest in CelLynx Group, Inc. (the founder of the 5BARz technology) and a 60% interest in the
intellectual property underlying the 5BARz™ cellular network extender products. During 2016, the Company developed a next
generation Wifi router and smart home hub, the ROVR, equipped with the 5BARz Smart Experience connectivity software and applications.
On January 12, 2015, the Company incorporated two new subsidiaries, 5BARz International SA de CV (99%) in Mexico, and 5BARz India
Private Limited (99.9%) in India. On June 27, 2016, the Company incorporated 5BARz Pte. Ltd. in Singapore a 100% owned subsidiary.
On January 18, 2017, the Company incorporated 5BARz Global Technology in Grand Cayman a 100% owned subsidiary.
These consolidated financial statements
reflect the financial position for the Company and its subsidiary companies, CelLynx Group Inc. (60%) and its wholly owned subsidiary
CelLynx Inc. (100%), 5BARz International SA de CV (99%), 5BARz India Private Limited (99.9%), 5BARz Pte. Ltd. (100%) in Singapore
and 5BARz Global Technology in Grand Cayman (100%). Results of operations for subsidiary Companies are reflected only from the
date of acquisition of that subsidiary for the period indicated in the respective statement.
Going concern
These consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. As reflected in our financial statements, the Company has sales of $2,329 for the
year ended December 31, 2017 (2016 - $71,374, 2015 - $2,350). The Company incurred losses of $4,081,129 during the year ended December
31, 2017 (2016 - $4,331,216, 2015 - $10,428,766). Cash used in operating activities was $1,583,955, (2016 - $4,499,689, 2015 -
$4,042,141). The Company has recurring net losses since inception with an accumulated deficit of $33,876,475 as of December 31,
2017. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of
twelve months from the issuance date of this report. The Company is seeking to raise capital through additional debt and/or equity
financings to fund its operations in the future. Management cannot provide assurance that we will ultimately achieve profitable
operations or become cash flow positive or raise additional debt and/or equity capital. Although we have historically raised capital
from sales of common stock, there is no assurance that we will be able to continue to do so. If we are unable to raise additional
capital or secure additional lending in the near future, management expects that we will need to curtail our operations. The Company’s
continued existence is dependent upon adequate additional financing being raised to develop its sales and marketing program for
the sales of 5BARz product, to expand the Company’s product base and commence its planned operations. Our financial statements
do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should we be unable to continue as a going concern.
Management’s assessment of the significant
factors includes several quantitative and qualitative conditions.
|
·
|
Continued ability to generate proceeds from private
placements
– since inception of the business in 2008, the Company has financed operations through private placements
and debt. The Company’s gross proceeds warrants exercise, from private placements and convertible debt for the year
ended December 31, 2017 was $1,444,546 compared to $4,568,083 in 2016 and $5,436,918 in 2015. Further, the availability
of capital markets for the Company have facilitated the Company’s ability to pay for services and settle debt by way of
the issuance of common shares. During 2017 the Company settled debt, paid for services by the issuance of $866,479 in
common shares, compared to $2,411,947 in 2016 and $1,803,173 in 2015.
|
|
|
|
|
·
|
Product Commercialization
–
In August 2015, the Company became an approved vendor and received its first purchase orders for the Company’s patented “Cellular
Network Extender” from a Tier 1 cellular network operator in India. Since that time the Company has received follow on orders
from that customer. In March 2016, the Company became an approved vendor and received its first purchase orders for product from
a second Tier 1 cellular network operator in India for Cellular Network Extenders.
F-6
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Going concern (continued)
·
Broadband Diversification Opportunity
– In conjunction with the work by the Company
with Cellular Network operators in India, the Company has commenced delivery of a new product the 5BARz ROVR, a smart WIFI device,
pursuant to an agreement with a tier one broadband Company in India
.
|
The accompanying consolidated financial
statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts
and classification of liabilities that may result should the Company be unable to continue as a going concern.
Note 2 – Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States
of America and the rules and regulation of the U.S. Securities and Exchange Commission (SEC).
The accompanying consolidated financial
statements include the accounts of 5BARz International Inc., and its subsidiary companies CelLynx Group Inc. (60%) and its wholly
owned subsidiary CelLynx Inc. (100%), 5BARz International SA de CV (99%) in Mexico, 5BARz India Private Limited (99.9%) in India,
5BARz Pte. Limited (100%) in Singapore and 5BARz Global Technology in Grand Cayman. Results of operations for subsidiary companies
are reflected only from the date of acquisition of that subsidiary, for the period indicated in the respective statements. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of these financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant
estimates include impairment analysis for long lived assets, income taxes, litigation, valuation of derivative instruments, stock
based compensation and inventory reserves. Actual results could differ from those estimates.
Research and development costs
Research and development costs are charged
to expense as incurred. The costs of materials and equipment that are acquired or constructed for research and development activities
and have alternative future uses (either in research and development, marketing or production), are classified as property and
equipment and depreciated over their estimated useful lives.
Furniture and equipment
Furniture and equipment is recorded at
historical cost and is depreciated using the straight-line method over their estimated useful lives. The useful life
and depreciation method are reviewed periodically to ensure that the depreciation method and period are consistent with the anticipated
pattern of future economic benefits. Expenditures for maintenance and repairs are charged to operations as incurred while renewals
and betterments are capitalized. Gains and losses on disposals are included in the results of operations. The furniture and equipment
is being depreciated over their estimated useful life of three to seven years.
F-7
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(
continued)
Inventory
Inventories are carried at the lower of
cost and net realizable value. Cost is determined using the FIFO method. As of December 31, 2017, the Company’s component
inventory for production in India had a value of $83,428 (2016 - $97,169, 2015 – Nil). In addition, engineering component
inventory in the US aggregates $6,464, further finished goods in Mexico had a cost basis of $92,383 at December 31, 2016 and net
carry value of Nil at December 31, 2017.
Goodwill and other intangible assets
The Company accounts for goodwill and intangible
assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested
for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased
below its carrying value. The Accounting Standards Codification (“Codification”) requires that goodwill be tested for
impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill
impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting
units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the
fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions.
Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.
When testing goodwill for impairment, the
Company may assess qualitative factors for some or all of its reporting units to determine whether it is more likely than not (that
is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Alternatively, the Company may bypass this qualitative assessment for some or all of our reporting units and perform a detailed
quantitative test of impairment (step 1). If the Company performs the detailed quantitative impairment test and the carrying amount
of the reporting unit exceeds its fair value, the Company would perform an analysis (step 2) to measure such impairment. The Company performed a qualitative assessment to identify and evaluate events and circumstances to conclude whether it is more
likely than not that the fair value of the Company’s reporting unit is less than its carrying amount. Based on the Company’s
qualitative assessments, the Company concluded that a positive assertion can be made from the qualitative assessment that it is
not more likely than not that the fair value of the reporting unit is less than its carrying amount. In accordance with the Codification,
the Company reviews the carrying value of its intangibles and other long-lived assets for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived
assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or
asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset or asset group, if any, exceeds its fair market
value. No impairment was deemed to exist as of December 31, 2017, 2016 and 2015.
Cash held in trust
Cash held in trust is comprised in part
of amounts held in escrow by law firms engaged by the Company for the purpose of attending to financings entered into by the Company.
Pursuant to the terms of the Company’s subscription agreement, those trust funds are non-interest-bearing loans held until
such time as the subscription agreement is completed and the underlying security is issued by the Company. These trust arrangements
are not fixed term but occur from time to time in conjunction with financings in progress by the Company.
In addition, on April 3, 2013, the Company
entered into a Trust Agreement with Next Digital Corporation, a Company controlled by Mr. Daniel Bland, the CEO, CFO and Director
of the Company. Mr. Bland is the designated trustee of the Next Digital Corporation trust account. Trust fund deposits
are made by the Company or investors of the Company to the Next Digital bank account. The Trust funds remain on the books of the
Company as a cash asset, and said funds are utilized solely for operating expenses of the Company. The trust funds are disbursed
solely by the Trustee for expenditures for and on behalf of the Company and are made in compliance with the internal controls and
cash management policies of the Company. In June 2018 that trust account was closed.
Cash held in trust aggregated $376 on December
31, 2017, (2016 - $170,221), (2015 - $193,000).
F-8
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Long-Lived Assets Subject to Amortization
The Company amortizes assets with finite
lives over their estimated useful lives and reviews them for impairment or whenever impairment exists. The Company continually
evaluates whether events or changes in circumstances might indicate that the remaining estimated useful life of long-lived assets
may warrant revision, or that the remaining balance may not be recoverable. When factors indicate that long-lived assets should
be evaluated for possible impairment, the Company uses an estimate of the related undiscounted cash flows in measuring whether
the long-lived asset should be written down to fair value. Further, the Company measures the market cap of the Company, in
relation to the underlying asset value to support the valuation of those assets. Measurement of the amount of impairment
would be based on generally accepted valuation methodologies, as deemed appropriate. The assets are being amortized over their
estimated useful life of seven to ten years.
There were no long-lived assets impairment
charges recorded during the years ended December 31, 2017, 2016 and 2015.
Revenue recognition
The Company's revenue recognition policies
are in compliance with ASC Topic 605, “Revenue Recognition.” Revenue is recognized at the date that each
of the following conditions are met, (i) shipment to customers are complete, (ii) when the price is fixed or determinable, (iii)
the delivery is completed, (iv) no other significant obligations of the Company exist, and (v) collectability is reasonably assured.
Foreign currency translation
Items included in the financial statements are measured using their functional currency, being the currency
of the primary economic environment in which the Company operates. The financial statements are presented in US dollar which is
the Company’s functional and presentation currency. Transactions in foreign currencies have
been translated into US dollars using the current rate method. The functional currency of the Company’s subsidiary 5BARz
International SA de CV, in Mexico is the local currency, the Mexican Peso, and the functional currency in the Company’s subsidiary
5BARz India Private Limited is the functional currency in India, the Indian Rupee. The functional currency in the Company’s
subsidiary 5BARz Pte. Ltd. in Singapore is the Singapore Dollar. The functional currency in the Company’s subsidiary in the
Grand Caymans is the US Dollar which is equivalent to the Cayman Island dollar. Assets and liabilities are translated based on
the exchange rates at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing
during the year. Equity accounts are translated at historical exchange rates. The resulting translated gain and loss adjustments
are accumulated as a component of stockholders’ equity with other comprehensive income.
Concentrations
The Company maintains cash with major
financial institutions. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in Mexico, India and Singapore bank
accounts. There were aggregate uninsured cash balances of $83,784 at December 31, 2017, $44,266 at December 31, 2016 and $13,634
at December 31, 2015, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined
as the change in equity of a business during a period from transactions and other events and circumstances from non-owners’
sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions
to owners. The guidance requires other comprehensive income (loss) to include foreign currency translation adjustments.
Income Taxes
The Company accounts for income taxes under
the liability method, which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences
between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived
from tax loss and tax credit carry forwards. The Company additionally establishes a valuation allowance to reflect the likelihood
of realization of deferred tax assets.
F-9
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Foreign Operations
The following summarizes key financial
metrics associated with the Company’s foreign operations:
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Assets- U.S.
|
|
$
|
3,129,229
|
|
|
$
|
3,826,006
|
|
|
$
|
4,396,990
|
|
Assets- Mexico
|
|
|
3,355
|
|
|
|
94,147
|
|
|
|
172,170
|
|
Assets- India
|
|
|
386,789
|
|
|
|
243,570
|
|
|
|
50,645
|
|
Assets - Singapore
|
|
|
846
|
|
|
|
40,756
|
|
|
|
—
|
|
Assets- Total
|
|
$
|
3,520,219
|
|
|
$
|
4,204,479
|
|
|
$
|
4,619,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities- U.S.
|
|
$
|
9,145,727
|
|
|
$
|
7,106,868
|
|
|
$
|
9,540,657
|
|
Liabilities- Mexico
|
|
|
166,198
|
|
|
|
154,341
|
|
|
|
57,422
|
|
Liabilities- India
|
|
|
1,577,830
|
|
|
|
1,067,090
|
|
|
|
150,842
|
|
Liabilities - Singapore
|
|
|
31,406
|
|
|
|
5,389
|
|
|
|
—
|
|
Liabilities- Total
|
|
$
|
10,921,161
|
|
|
$
|
8,333,688
|
|
|
$
|
9,748,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Revenues- U.S.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Revenues- Mexico
|
|
|
—
|
|
|
|
—
|
|
|
|
2,350
|
|
Revenues- India
|
|
|
2,329
|
|
|
|
71,374
|
|
|
|
—
|
|
Revenues – Singapore
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- Total
|
|
$
|
2,329
|
|
|
$
|
71,374
|
|
|
$
|
2,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss- U.S.
|
|
$
|
2,637,634
|
|
|
$
|
2,464,389
|
|
|
$
|
9,720,192
|
|
Net loss - Mexico
|
|
|
109,215
|
|
|
|
191,376
|
|
|
|
98,301
|
|
Net loss - India
|
|
|
1,276,203
|
|
|
|
1,415,001
|
|
|
|
610,273
|
|
Net loss - Singapore
|
|
|
58,077
|
|
|
|
260,450
|
|
|
|
—
|
|
Net Loss- Total
|
|
$
|
4,081,129
|
|
|
$
|
4,331,216
|
|
|
$
|
10,428,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of financial instruments
The carrying amounts of cash and cash
equivalents, other receivable, accounts payable and accrued expenses, amounts due to related parties, notes payable and other current
liabilities, approximate fair value due to the short-term nature of these instruments.
Fair value is defined as an exit
price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly
transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that
market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs
in measuring fair value as follows:
|
• Level 1.
|
Quoted prices in active markets for identical assets or liabilities.
|
|
• Level 2.
|
Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
|
|
• Level 3.
|
Significant unobservable inputs that cannot
be corroborated by market data.
|
F-10
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Fair value of financial instruments (continued)
The assets or liability’s fair value
measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
The following table provides a summary of the assets that are measured at fair value on a recurring basis:
|
|
Consolidated
Balance Sheet
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
Quoted Prices for Similar Assets or Liabilities in Active Markets
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
826,782
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
826,782
|
|
December 31, 2016
|
|
$
|
1,302,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,302,543
|
|
December 31, 2015
|
|
$
|
1,868,439
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,868,439
|
|
The following table sets forth a summary
of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring
basis:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Beginning balance
|
|
$
|
1,302,543
|
|
|
$
|
1,868,439
|
|
|
$
|
547,940
|
|
Aggregate fair value of conversion feature upon issuance of common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(457,228
|
)
|
Change in fair value of derivative liabilities
|
|
|
(1,144,834
|
)
|
|
|
(3,485,801
|
)
|
|
|
(45,356
|
)
|
Reclassification of warrants to derivative liability
|
|
|
643,085
|
|
|
|
2,785,655
|
|
|
|
1,823,083
|
|
Reclassification of options to derivative liability
|
|
|
25,988
|
|
|
|
134,249
|
|
|
|
—
|
|
Ending balance
|
|
$
|
826,782
|
|
|
$
|
1,302,543
|
|
|
$
|
1,868,439
|
|
The derivative conversion feature liabilities
are measured at fair value using the Black-Scholes pricing model and are classified within Level 3 of the valuation hierarchy.
The significant assumptions and valuation methods that the Company used to determine fair value and the change in fair value of
the Company’s derivative financial instruments are provided below:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Stock price
|
|
$
|
0.042
|
|
|
$
|
0.0513
|
|
|
$
|
0.10
|
|
Volatility
|
|
|
89.33
|
%
|
|
|
104.69
|
%
|
|
|
91.3
|
%
|
Risk-free interest rate
|
|
|
1.39
|
%
|
|
|
0.51
|
%
|
|
|
0.04
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life
|
|
|
1.96 years
|
|
|
|
1.31 years
|
|
|
|
0.01 years
|
|
Both observable and unobservable inputs
may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized
gains and losses for assets within the Level 3 category presented in the tables above may include changes in fair value that were
attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company
data) inputs.
Financial assets are considered Level 3
when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least
one significant model assumption or input is unobservable.
Level 3 financial liabilities consist of
the derivative liabilities for which there is no current market such that the determination of fair value requires significant
judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed
each period based on changes in estimates or assumptions and recorded as appropriate.
F-11
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Derivative instruments
/
The fair value of an embedded conversion
option that is convertible into a variable amount of shares and warrants that include price protection reset provision features
are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative
under ASC 815 “Derivatives and Hedging”. As a result, the conversion feature is marked to market at each reporting
period. The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option
and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet
date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance
sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification
changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
If the Company were to enter into a financial
arrangement through the issuance of convertible debt and or warrants, for which such instruments would contain a variable conversion
feature with an indeterminable number of shares, the Company would apply a sequencing policy in accordance with ASC 815- 40-35-12
whereby such instruments, and all future issuances of financial instruments regardless of conversion terms, would be classified
as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
The Company may also apply sequencing in any circumstance, whereby the Company has entered into financial arrangements for commitments
to issue shares, for which such issuances would exceed the authorized share limit. Upon the issuance of any such instrument, the
excess shares committed to be issued, would also be reclassified as a derivative liability.
The Black-Scholes option valuation model
was used to estimate the fair value of the warrants and conversion options. The model includes subjective input assumptions that
can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period
of time equal to the weighted average life of the warrants or conversion options. Conversion options are recorded as debt discount
and are amortized as interest expense over the life of the underlying debt instrument.
Amortization of Debt Discount
The Company issued various debt with warrants
for which total proceeds were allocated to individual instruments based on the relative fair value of each instrument at the time
of issuance. The value of the debt was recorded as discount on debt and amortized over the term of the respective debt.
Stock Based Compensation
The Company records stock-based compensation
in accordance with ASC Topic 718, “Compensation – Stock Compensation.” ASC 718 requires companies to measure
compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s
requisite service period. Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s
stock. The expected life assumption is primarily based on historical exercise patterns, the option is based on the simplified method
of term, and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant.
F-12
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Stock Based Compensation (continued)
The Company uses the Black-Scholes option-pricing
model which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex
and subjective variables including the expected life of options granted and the Company’s expected stock price volatility
over a period equal to or greater than the expected life of the options.
Although the fair value of employee stock
options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/seller market transaction.
For non-employees, the fair value of
the award is generally re-measured on financial reporting dates and vesting dates until the service period is complete. The fair
value amount is then recognized over the period the services are required to be provided in exchange for the award, usually the
vesting period.
The Company incurred stock based compensation
charges relating to options during the year ended December 31, 2017, 2016 and 2015 as follows:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
General and administrative
|
|
$
|
122,432
|
|
|
$
|
256,466
|
|
|
$
|
146,932
|
|
Research and development
|
|
|
—
|
|
|
|
33,644
|
|
|
|
98,741
|
|
Sales and marketing
|
|
|
—
|
|
|
|
7,007
|
|
|
|
130,024
|
|
Total
|
|
$
|
122,432
|
|
|
$
|
297,117
|
|
|
$
|
375,697
|
|
Net loss per share
The Company reports net loss per share
in accordance with the ASC Topic 260, “Earnings Per Share”, which requires presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying
financial statements, basic earnings per share of common stock is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the period plus the issuance of common shares, if dilutive, that could result from
the exercise of outstanding stock options and warrants and conversion of notes payable. These potentially dilutive securities outstanding
at December 31, 2017, December 31, 2016 and December 31, 2015 respectively of 313,273,100, 235,101,809 and 155,670,170 were not
included in the calculation of loss per common share, because their effect would be anti-dilutive. The break-out of these potentially
dilutive securities is as follows;
Year
|
Options
|
Warrants
|
Convertible notes
|
Total
|
2017
|
22,952,000
|
222,869,429
|
67,451,671
|
313,273,100
|
2016
|
26,345,000
|
188,125,232
|
20,631,577
|
235,101,809
|
2015
|
15,480,000
|
102,188,477
|
38,001,693
|
155,670,170
|
The Company may not have sufficient Common
shares available to issue should all of the above conversions and exercises occur. Accordingly, the Company may have to settle
these contracts in cash if they are not successful in increasing the authorized number of shares. (see Note 10 for derivative liabilities).
The Company applies sequencing with respect
to such commitments and other circumstances as disclosed in its accounting policies for derivatives.
F-13
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Recent Accounting Pronouncements
The FASB issued ASU 2014-09, Revenue
from Contracts with Customers (Topic 606). ASU 2014-09 requires that an entity should recognize revenue to depict the transfer
of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods and services. An entity should disclose sufficient information to enable users of the financial statements
to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new
standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Early application is not permitted for all public business entities. We anticipate that the adoption of this standard will increase
the note disclosures of the nature, amount and timing of revenue and cash flows arising from contracts with customers in our consolidated
financial statements.
In June 2014, the FASB issued ASU No.
2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide
that a Performance Target Could be Achieved after the Requisite Service Period," ("ASU 2014-12"). The amendments
in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic
No. 718, "Compensation - Stock Compensation" as it relates to awards with performance conditions that affect vesting
to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual
periods beginning after December 15, 2015 and was adopted by the Company at that time. Early adoption was permitted. Entities may
apply the amendments in ASU 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b)
retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented
in the financial statements and to all new or modified awards thereafter. The single performance-based award issued by the Company
was not met and the opportunity to meet the award expired during 2016. Accordingly, the adoption of the policy had no effect
on the financial statements of the Company.
In April 2015, the FASB issued ASU
2015-03 on “Simplifying the Presentation of Debt issuance costs” The ASU changes the presentation of debt issue
costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from
the related debt liability. Amortization of the cost is reported as an interest expense. The amendments in this ASU are
effective for public business entities for annual periods ending after December 15, 2015. Early adoption is permitted. The
Company adopted this ASU effective December 31, 2015 upon issuance of its annual audited financial statements. At that time
the Company would apply the new guidance retrospectively to all prior periods. The Company did issue debt, with debt
issue costs in 2015 of $45,000 in aggregate, that expense was recorded when issued. The period of amortization on the
debt instruments issued during the year was six months accordingly under the new policy amortization too place during the
same fiscal year. Accordingly, the adoption of this standard did not have a material impact on our consolidated
financial statements.
In July 2015, the FASB issued ASU No.
2015-11, “Inventory: Simplifying the Measurement of Inventory”, that requires inventory not measured using either the
last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable
value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal
and transportation. The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods
within those fiscal years, and will be applied prospectively. Early adoption is permitted. The Company currently uses lower of
cost or net realizable value. The adoption of the policy in 2017 did not have a material impact on the financial statements.
The FASB issued ASU 2016-02, Leases
(Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee
should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented
using a modified retrospective approach. The new standard will be effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early application is permitted for all public business entities. The Company
has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results
of operations.
F-14
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Recent Accounting Pronouncements
(continued)
The FASB issued ASU 2016-09, Compensation
– Stock Compensation (Topic 718). ASU 2016-09 is a simplification initiative involving several aspects of the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities
and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning
after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any
interim period or annual period. The adoption of this policy for fiscal year 2017 did not have any effect on the financial statements
as the payments were made to independent contractors and were in all cases for services or debt and were reflected as such in the
statement of cash flows. There were no income tax consequences of the awards.
The FASB issued ASU 2016-15, Compensation
– Statement of Cash Flow (Topic 230). ASU 2016-15 provides a classification of how certain cash receipts and payments are
presented and classification in the statement of cash flows. The update addresses eight specific cash flow issues with the
objective of reducing the existing diversity in practice. The amendments in this update are effective for annual periods
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for any entity
in any interim period or annual period. The Company do not anticipate that the adoption of this standard will have a material impact
on our consolidated financial statements.
The FASB issued ASU
2016-18, Statement of Cash Flow (Topic 230). ASU 2016-18 provides a consensus of the Emerging Issue Task Force on the
classification and presentation of changes in restricted cash on the statement of cash flows. This update requires that
a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash or
restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amount shown on the statement of cash flows. The amendments in this update are effective for annual
periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted
for any entity in any interim period or annual period. The adoption of this standard did not have a material impact on our
consolidated financial statements. The company early adopted this standard and the early adoption did not have a material
effect on the financial statements.
In January 2017, the FASB issued ASU
2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the
definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of
assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December
15, 2017, including interim periods within those periods. As the Company has no business combinations after the effective date
of this pronouncement, the Company expects no effect on the consolidated financial statements as a result of adopting this pronouncement.
In January 2017, the FASB issued Accounting
Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update
simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform
procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that
would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments
in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning
after December 15, 2019. The Company does not anticipate that the adoption of this standard will have a material impact on our
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 award require an entity to apply modification
accounting. The amendments in this update are effective for all companies for annual periods beginning after December 15, 2017,
including interim periods within those periods. Early adoption is permitted for public companies for any reporting period for which
financial statements have not been issued. The Company does not anticipate that the adoption of this standard will have a
material impact on our consolidated financial statements.
F-15
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 2 – Summary of significant accounting policies
(continued)
Recent Accounting Pronouncements
(continued)
In July 2017, the FASB issued ASU 2017-11,
Earnings per share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The
amendments in this update address narrow issues identified as a result of the complexity associated with applying generally accepted
accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The amendments apply
to all companies that issue financial instruments (for example, warrants or convertible instruments) that include down round features.
The amendments provide guidance as to whether the instruments should be classified as equity or liabilities, also guidance as to
the calculation of earnings per share which is impacted by that instrument as well as classification as a derivative instrument
and the valuation thereof. The amendments in this update are effective for all companies for annual periods beginning after December
15, 2018, including interim periods within those periods. Early adoption is permitted for public companies. We do not anticipate
that the adoption of this standard will have a material impact on our 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 award require an entity to apply modification
accounting. The amendments in this update are effective for all companies for annual periods beginning after December 15, 2017,
including interim periods within those periods. Early adoption is permitted for public companies for any reporting period for which
financial statements have not been issued. We do not anticipate that the adoption of this standard will have a material impact
on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments
in this update address share-based payment transaction for acquiring goods and services from non-employees. The guidance addresses
the financial disclosures with respect to the measurement, timing, performance conditions and classification of the awards. The
amendments in this update are effective for all companies for annual periods beginning after December 15, 2018, including interim
periods within those periods. Early adoption is permitted. We do not anticipate that the adoption of this standard will have a
material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU
2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the disclosure requirements for fair value
measurement. The amendments in this update effect all entities that are required, under current GAAP, to make disclosures about
recurring or nonrecurring fair value measurements. The amendments modify the disclosure requirements on fair value measurements
based on the concepts in the Concepts Statement, including consideration of costs and benefits. The amendments in this update are
effective for all companies for annual periods beginning after December 15, 2019, including interim periods within those periods.
We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.
FASB, the Emerging Issues Task Force
and the SEC have issued certain other accounting standards, updates, and regulations as of December 31, 2017 that will become effective
in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial
accounting measures or disclosures had they been in effect during 2017 or 2016, and it does not believe that any of those pronouncements
will have a significant impact on our consolidated financial statements at the time they become effective.
Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date up to the date the financial statements are issued. Based upon the evaluation, the Company
did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated
financial statements, except as disclosed in Note 16.
F-16
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 3 – Furniture & equipment
Furniture & Equipment consisted of the following at December
31, 2017, December 31, 2016 and 2015:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31,
2015
|
Furniture and equipment
|
|
$
|
99,797
|
|
|
$
|
172,188
|
|
|
$
|
151,191
|
|
Research and development equipment
|
|
|
78,367
|
|
|
|
78,367
|
|
|
|
13,367
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
62,527
|
|
|
|
56,128
|
|
|
|
|
178,164
|
|
|
|
313,082
|
|
|
|
220,686
|
|
Accumulated amortization & depreciation
|
|
|
(110,341
|
)
|
|
|
(138,220
|
)
|
|
|
(76,719
|
)
|
Furniture & equipment net
|
|
$
|
67,823
|
|
|
$
|
174,862
|
|
|
$
|
143,967
|
|
During the years ended December 31, 2017, 2016 and 2015 the
Company incurred amortization and depreciation expense of $54,018, $61,501 and $72,870 respectfully.
Note 4 – Intangible Assets,
net
Intangible assets which are recorded at cost comprise of:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Technology
|
|
$
|
3,098,391
|
|
|
$
|
3,087,989
|
|
|
$
|
3,077,244
|
|
Marketing and distribution agreement
|
|
|
370,000
|
|
|
|
370,000
|
|
|
|
370,000
|
|
Trademarks
|
|
|
264
|
|
|
|
264
|
|
|
|
264
|
|
License rights
|
|
|
1,348
|
|
|
|
1,348
|
|
|
|
1,348
|
|
|
|
|
3,470,003
|
|
|
|
3,459,601
|
|
|
|
3,448,856
|
|
Accumulated amortization
|
|
|
(1,683,792
|
)
|
|
|
(1,189,124
|
)
|
|
|
(695,271
|
)
|
Technology and other intangibles, net
|
|
$
|
1,786,211
|
|
|
$
|
2,270,477
|
|
|
$
|
2,753,585
|
|
On August 2, 2014, the Company commenced
amortization of technology and other intangibles upon delivery of commercial beta devices for testing to a collaboration partner.
During the year ended December 31, 2017, $494,668 (2016 - $493,853, 2015 - $491,865) was recorded as amortization on technology
and other intangibles. The Company’s estimated technology amortization over the next five years is expected to be $1,786,211.
F-17
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 4 – Intangible Assets, net (continued
)
The estimated amortization of intangible assets for the five
years ended December 31, 2022 is as follows:
For the years ended
December 31,
|
|
Total
|
|
Technology
|
|
Marketing and
distribution agreement
|
2018
|
|
$
|
494,232
|
|
|
$
|
441,375
|
|
|
$
|
52,857
|
|
2019
|
|
|
494,232
|
|
|
|
441,375
|
|
|
|
52,857
|
|
2020
|
|
|
494,232
|
|
|
|
441,375
|
|
|
|
52,857
|
|
2021
|
|
|
303,515
|
|
|
|
272,682
|
|
|
|
30,833
|
|
2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
1,786,211
|
|
|
$
|
1,596,807
|
|
|
$
|
189,404
|
|
Note 5 - Goodwill
The changes in the carrying amount of goodwill for the years
ended December 31, 2017, December 31, 2016 and 2015 is as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Goodwill – beginning of year
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
Goodwill – end of year
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
F-18
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 6 - Income taxes and Tax
Deductions at Source (TDS)
The domestic and foreign components of income (loss) before
income taxes from continuing operations are as follows:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31,
2015
|
Domestic
|
|
$
|
(2,618,595
|
)
|
|
$
|
(2,244,052
|
)
|
|
$
|
(9,713,671
|
)
|
Foreign
|
|
|
(1,462,534
|
)
|
|
|
(2,087,164
|
)
|
|
|
(715,095
|
)
|
Loss from continuing operations before provision for income taxes
|
|
$
|
(4,081,129
|
)
|
|
$
|
(4,331,216
|
)
|
|
$
|
(10,428,766
|
)
|
The income tax provision (benefit) consists of the following:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Foreign
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
(373,577
|
)
|
|
|
(550,276
|
)
|
|
|
(136,663
|
)
|
U.S. federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferred
|
|
|
2,706,079
|
|
|
|
(1,579,127
|
)
|
|
|
(3,268,587
|
)
|
State & local
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferred
|
|
|
(234,098
|
)
|
|
|
(19,698
|
)
|
|
|
(58,656
|
)
|
Total
|
|
|
2,098,404
|
|
|
|
(2,149,101
|
)
|
|
|
(3,463,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(2,098,404
|
)
|
|
|
2,149,101
|
|
|
|
3,463,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The provision (benefit) for income taxes
using the statutory federal tax rate as compared to the Company’s effective tax rate is summarized as follows:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
U.S. federal statutory income tax rate (benefit)
|
|
|
(34.0
|
%)
|
|
|
(34.0
|
%)
|
|
|
(34.0
|
%)
|
State income taxes, net of federal benefit
|
|
|
(2.7
|
%)
|
|
|
(0.4
|
%)
|
|
|
(0.6
|
%)
|
Change in fair value of derivative liability
|
|
|
(10.3
|
%)
|
|
|
(28.5
|
%)
|
|
|
0.1
|
%
|
Permanent differences
|
|
|
0.1
|
%
|
|
|
1.0
|
%
|
|
|
2.5
|
%
|
Foreign Tax Rate Differential
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
|
|
0.2
|
%
|
Research tax credit
|
|
|
0.0
|
%
|
|
|
(1.7
|
%)
|
|
|
(2.3
|
%)
|
Tax reform impact on deferred taxes
|
|
|
97.8
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
1.4
|
%
|
|
|
7.3
|
%
|
|
|
1.8
|
%
|
Change in valuation allowance
|
|
|
(51.4
|
%)
|
|
|
50.8
|
%
|
|
|
33.6
|
%
|
Effective rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
5BARz International,
Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 6 - Income taxes and Tax Deductions
at Source (TDS)
(continued)
The Company’s deferred tax assets
(liabilities) consisted of the effects of temporary differences attributable to the following:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryovers
|
|
$
|
7,335,196
|
|
|
$
|
9,303,936
|
|
|
$
|
7,537,193
|
|
R and D credit
|
|
|
489,351
|
|
|
|
489,351
|
|
|
|
563,641
|
|
Stock-based compensation
|
|
|
709,218
|
|
|
|
902,468
|
|
|
|
491,371
|
|
Derivative liability
|
|
|
59,056
|
|
|
|
83,674
|
|
|
|
84,174
|
|
Intangible asset amortization
|
|
|
89,931
|
|
|
|
66,536
|
|
|
|
6,634
|
|
Total deferred tax assets
|
|
|
8,682,752
|
|
|
|
10,845,965
|
|
|
|
8,683,013
|
|
Valuation allowance
|
|
|
(8,600,408
|
)
|
|
|
(10,730,878
|
)
|
|
|
(8,581,777
|
)
|
Deferred tax asset, net of valuation allowance
|
|
|
82,344
|
|
|
|
115,087
|
|
|
|
101,236
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset depreciation
|
|
|
(23,288
|
)
|
|
|
(31,413
|
)
|
|
|
(17,062
|
)
|
Intangible asset amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Convertible debt
|
|
|
(59,056
|
)
|
|
|
(83,674
|
)
|
|
|
(84,174
|
)
|
Total deferred tax liabilities
|
|
|
(82,344
|
)
|
|
|
(115,087
|
)
|
|
|
(101,236
|
)
|
Net deferred tax asset (liability)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The 2017 Tax Cuts and Jobs Act (the “2017
Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act made a significant number of changes to existing U.S.
Internal Revenue Code, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning
after December 31, 2017, and it also provides for a one-time transition tax on certain unremitted foreign earnings (the “Transition
Tax”). As a result, the Company recorded an income tax of $4.0 million related to the re-measurement of deferred tax assets
and liabilities resulting from the reduction of the federal corporate tax rate. This amount was netted against the valuation allowance
reserve, thus resulting in no impact in the income statement. The Company has performed an analysis of its post-1986 earnings and
profits of its foreign subsidiaries and has estimated an overall accumulated net deficit, therefore no amounts have been recorded
relative to the Transition Tax.
As of December 31, 2017, 2016 and 2015,
the Company had $28,051,471, 24,836,172 and $20,952,494 of U.S. federal and state net operating loss carryovers (“NOL’s”),
respectively, to offset future taxable income. In accordance with section 382 of the Internal Revenue Code, deductibility of the
Company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control.
The Company has not performed a section 382 study and has determined that ownership changes may have occurred, therefore the utilization
of these NOL's may be subject to limitations based on past and future changes in ownership of the Company. Additionally, at
December 31, 2017 and 2016 respectively, the Company had $3,738,577 and $2,498,137 of foreign net operating loss carryforwards.
A significant amount of the foreign net operating losses may be carried forward indefinitely.
The Company did not have any undistributed
earnings in foreign subsidiaries at December 31, 2017 and 2016 respectively. The Company foreign earnings are considered to be
indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon.
F-20
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 6 - Income taxes and Tax Deductions
at Source (TDS) (continued)
In assessing
the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible.
For the years ended
December 31, 2017, December
31,
2016 and December 31,
2015, the changes in the valuation allowance were ($2,098,404), $2,149,101 and $3,463,906, respectively.
The Company evaluated the provisions of
ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC
740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company
has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax
return and the benefit recognized and measured pursuant to the interpretation are referred to as "unrecognized benefits." A
liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for an unrecognized
tax benefit because it represents an enterprise's potential future obligation to the taxing authority for a tax position that was
not recognized as a result of applying the provisions of ASC 740.
Interest costs related to unrecognized
tax benefits are required to be calculated (if applicable) and would be classified as "Interest expense, net" in the
consolidated statements of operation. Penalties would be recognized as a component of "General and administrative expenses."
No interest or penalties were recorded
during the year ended December 31, 2017, December 31, 2016 and December 31, 2015. As of December 31, 2017, December 31, 2016, and
December 31, 2015 no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant
changes in its unrecognized tax benefits in the next year.
Foreign earnings are considered to be indefinitely
reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of earnings,
in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign
tax credits).
In fiscal years ended in December 31,
2017 and 2016 in India the Company has failed to remit Tax Deductions at source (TDS) on a timely basis. The Company has
accrued principal and interest, and a discretionary penalty of $478,284 as payable at December 31, 2017. In 2016 the principal
and interest accrued, and a discretionary penalty was $378,284. The Company recorded the 2017 penalties of $100,000 in the
taxes interest and penalty expense (2016 - $175,000). The balance of the unpaid TDS and interest amounts in 2017 and 2016
is recorded as general and administrative expenses, and sales and marketing related to payroll. In addition to penalties
assessed, officers of the Company can be prosecuted for failure to remit payments on a timely basis. In addition, the Company
has accrued approximately $26,000 for non-filing of annual returns with MCA (Ministry of Corporate Affairs) and not holding Annual
General Meetings in India, which was included in $478,284 as payable at December 31, 2017.
Note 7 – Sales of common stock
On September 8, 2016, the Company convened an annual
general meeting of shareholders and increased the authorized number of shares from 400,000,000 to 600,000,000. However, the Company
will still not have sufficient common shares available to issue if all the conversions and exercises occur.
During the years ended December 31, 2017,
2016 and 2015, the Company has issued shares of common stock as follows:
Shares issued for cash
During the period January 1, 2015 to March
31, 2015, the Company issued 5,022,500 units at a price of $0.05 per unit for aggregate proceeds of $251,125. Each unit is comprised
of one share and one share purchase warrant to acquire a second share at a price of $0.30 per share acquired, with a two-year term
on the attached warrant. The Company also issued 146,667 shares and warrants to acquire a further 146,667 shares at a price of
$0.30, for a period of two years, pursuant to the terms of a share purchase amending agreement. The agreement relates to units
issued pursuant to a private placement at $0.15 per unit on November 14, 2014. Aggregate proceeds paid to the Company were $11,000
and the adjustment changes the issue price to $0.05 per unit.
During the period April 1, 2015 to June
30, 2015, the Company issued 11,869,000 units at a price of $0.05 per unit for aggregate proceeds of $593,450. Each unit is comprised
of one share and one share purchase warrant to acquire a second share at a price of $0.30 per share acquired, with a two-year
term on the attached warrant.
F-21
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 7 – Sales of common stock (continued)
Shares issued for cash (continued)
During the period July 1, 2015 to September
30, 2015, the Company issued 12,395,000 units at a price of $0.05 per unit for aggregate proceeds of $619,750. Each unit is comprised
of one share and one share purchase warrant to acquire a second share at a price of $0.30 per share acquired, with a two-year term
on the attached warrant.
During the period October 1, 2015 to December
31, 2015, the Company issued 21,181,006 units at a price of $0.05 per unit for aggregate proceeds of $1,059,050. Each unit is comprised
of one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant. During the period from December 21, 2015 to December 24, 2015, the Company issued 8,730,000 shares for
the sale of stock at a price of $0.05 per share in lieu of warrants that have expired. The shares have a total value of $436,500.
During the period January 1, 2016 to March
31, 2016, the Company issued 27,820,000 units at a price of $0.05 per unit for proceeds of $1,391,000. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant.
During the period April 1, 2016 to June
30, 2016, the Company issued 20,920,000 units at a price of $0.05 per unit for proceeds of $1,046,000. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant.
During the period July 1, 2016 to September
30, 2016, the Company issued 15,940,000 units at a price of $0.05 per unit for proceeds of $797,000. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant. The Company also issued 12,441,668 shares at a price of $0.05 per share pursuant to the notices of exercise
of warrants for aggregate proceeds of $622,083.
During the period October 1, 2016 to December
23, 2016, the Company issued 3,240,000 units at a price of $0.05 per unit for proceeds of $162,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant. During the period December 19, 2016 to December 22, 2016, the Company issued 11,000,000 units at a price
of $0.05 per unit for proceeds of $550,000. Each unit is comprised of one common share and two share purchase warrant to acquire
two shares at a strike price of $0.20 each for a period of two years from the date of issue.
During the period January 1, 2017 to March
31, 2017, the Company issued 1,100,000 units at a price of $0.05 per unit for proceeds of $55,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant. The Company also issued 1,800,000 units at a price of $0.05 per unit for proceeds of $90,000. Each unit is
comprised of one share and two share purchase warrants to acquire a second share at a price of $0.20 per share acquired, with a
two-year term on the attached warrant.
During the period April 1, 2017 to June
30, 2017, the Company issued 460,000 units at a price of $0.05 per unit for proceeds of $23,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant. The Company also issued 460,000 units at a price of $0.045 per unit for proceeds of $20,700. Each unit is
comprised of one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a
two-year term on the attached warrant. The Company issued 400,000 units at a price of $0.04 per unit for proceeds of $16,000. Each
unit is comprised of one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired,
with a two-year term on the attached warrant. Lastly, the Company issued 210,666 units at a price of $0.03 per unit for proceeds
of $6,320. Each unit is comprised of one share and one share purchase warrant to acquire a second share at a price of $0.20 per
share acquired, with a two-year term on the attached warrant.
During the period July 1, 2017 to September
30, 2017, the Company issued 680,000 units at a price of $0.035 per unit for proceeds of $23,800. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant.
F-22
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 7 – Sales of common stock (continued)
Shares issued for cash (continued)
During the period October 1, 2017 to December
31, 2017, the Company issued 6,446,666 units at a price of $0.03 per unit for proceeds of $193,400. Each unit is comprised of one
share, one share purchase warrant to acquire a second share at a price of $0.20 per share acquired and one share purchase warrant
to acquire a third share at a price of $0.10 per share acquired. Each warrant has a two-year term. The Company also issued 300,000
units at a price of $0.035 per unit for proceeds of $10,500. Each unit is comprised of one share and one share purchase warrant
to acquire a second share at a price of $0.20 per share acquired, with a two-year term on the attached warrant.
Shares issued
for services
During the period January 1, 2015 to March
31, 2015, the Company issued 180,000 shares at a price of $0.05 per share for services valued at $9,000. The Company also issued
75,000 shares at a price of $0.10 per share for services valued at $7,500.
During the period April 1, 2015 to June
30, 2015, the Company issued 640,000 shares at a price of $0.05 per share for services valued at $32,000. The Company also issued
1,394,250 shares at a price of $0.10 per share for services valued at $139,425. The Company also issued 320,000 units at a price
of $0.05 per unit for services with a total value of $16,000. Each unit is comprised of one common share and one share purchase
warrant to acquire a second share at a strike price of $0.30 with a two-year term.
During the period July 1, 2015 to September
30, 2015, the Company issued 2,090,000 shares at a price of $0.05 per share for services valued at $104,500. The Company issued
160,000 units at a price of $0.05 per unit for services with a total value of $8,000. Each unit is comprised of one common share
and one share purchase warrant to acquire a second share at a strike price of $0.30 with a two-year term. The Company issued 180,000
shares for services at a price of $0.16 per share for a total value of $28,800. The Company issued 400,000 shares at a price of
$0.10 per share in settlement of services valued at $40,000. The Company issued 73,970 shares at a price of $0.15 per share in
settlement of services valued at $11,096. The Company issued 1,000,000 shares at a price of $0.12 per share in settlement of services
valued at $120,000.
During the period October 1, 2015 to December
31, 2015, the Company issued 3,624,000 shares at a price of $0.05 per share for services valued at $181,200. The Company issued
3,900,000 shares at a price of $0.10 per share for services valued at $390,000. The Company issued 360,000 shares at a price of
$0.08 per share, for services with a total value of $28,800.
During the period January 1, 2016 to March
31, 2016, the Company issued 715,784 shares at a price of $0.05 per share for services valued at $35,789. The Company issued 225,000
shares at a price of $0.09 per share in settlement of services valued at $20,250. The Company issued 45,455 shares at a price of
$0.11 per share in settlement of services valued at $5,000.
During the period April 1, 2016 to June
30, 2016, the Company issued 2,852,005 shares at a price of $0.05 per share for services valued at $142,600. The Company issued
225,000 shares at a price of $0.06 per share in settlement of services valued at $13,500.
During the period July 1, 2016 to September
30, 2016, the Company issued 629,560 shares at a price of $0.05 per share for services valued at $31,478. The Company issued 318,750
shares at a price of $0.08 per share for services with a total value of $25,500. In addition, the Company issued 510,000 units
at a price of $0.05 per unit for services with a total value of $25,500. Each unit is comprised of one common share and one share
purchase warrant to acquire a second share at a strike price of $0.20 with a two-year term. The Company also issued 450,000 shares
at a price of $0.07 per share in settlement of services valued at $31,500.
During the period October 1, 2016 to December
31, 2016, the Company issued 1,250,000 shares at a price of $0.05 per share for services valued at $62,500. The Company issued
2,000,000 shares at a price of $0.06872 per share for services with a total value of $137,440. During the period, 1,000,000 previously
issued shares at a price of $0.12 per share for services were returned to the Company and cancelled.
During the period January 1, 2017 to March
31, 2017, the Company issued 800,000 shares at a price of $0.05 per share for services valued at $40,000.
During the period April 1, 2017 to June
30, 2017, the Company issued 337,445 shares at a price of $0.045 per share for services valued at $15,185.
F-23
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 7 – Sales of common stock (continued)
Shares issued
for services (continued)
During the period July 1, 2017 to September
30, 2017, the Company issued 2,160,000 shares at a price of $0.05 per share for services valued at $108,000. The Company also issued
1,820,667 shares at a price of $0.07 per share for services with a total value of $127,447.
Shares issued for debt
During the period January 1, 2015 to March
31, 2015, the Company issued 580,000 shares at a price of $0.05 per share in settlement of accrued payables of $29,000.
During the period April 1, 2015 to June
30, 2015, the Company issued 1,600,000 units at a price of $0.05 per unit in settlement of accrued payables with a value of $80,000.
Each unit is comprised of one share and one share purchase warrant to acquire a second share at a strike price of $0.30 for a term
of two years.
During the period April 1, 2016 to June
30, 2016, the Company issued 846,804 shares at a price of $0.06 per share in settlement of debt valued at $50,808 (see litigation
note 14).
During the period July 1, 2016 to September
30, 2016, the Company issued 1,750,000 shares at a price of $0.09 per share in settlement of debt valued at $157,500. The Company
also issued 535,500 shares at a price of $0.08 per share in settlement of contingent liabilities valued at $42,840.
During the period October 1, 2016 to December
31, 2016, the Company issued 400,000 shares at a price of $0.05 per share in settlement of debt valued at $20,000.
During the period January 1, 2017 to March
31, 2017, the Company issued 197,005 shares at a price of $0.05076 per share in settlement of debt valued at $10,000. The Company
issued 600,000 shares at a price of $0.05 per share in settlement of debt valued at $30,000.
During the period April 1, 2017 to June
30, 2017, the Company issued 739,500 shares at a price of $0.05 per share in settlement of debt valued at $36,975.
During the period July 1, 2017 to September
30, 2017, the Company issued 200,000 shares at a price of $0.05 per share in settlement of debt valued at $10,000.
Shares issued
for note payable conversion
During the period January 1, 2015 to March
31, 2015, the Company issued 331,986 shares at a price of $0.06928 per share for the settlement of convertible notes payable with
a total value of $23,000 and the balance of principal and interest due under this convertible note, after this conversion was $74,829.
The Company also issued 400,000 shares at a price of $0.048 per share upon conversion of $19,200 of principal and interest due
under the terms of a convertible promissory note and the balance of principal and interest due under that note after the conversion
was $167,467.
During the period April 1, 2015 to June
30, 2015, the Company issued 450,000 shares at a price of $0.0423 per share upon conversion of $19,035 of convertible notes and
the balance due under the note after conversion was $148,432. The Company also issued 312,500 shares at a price of $0.08 per share
for the settlement of convertible notes payable with a total value of $25,000.
During the period July 1, 2015 to September
30, 2015, the Company issued 53,340 shares at a price of $0.05 per share for conversion of interest in the amount of $2,667, representing
the final interest charges on the convertible notes. The Company also issued 3,926,923 shares at a price of $0.046345 per share
for the settlement of convertible notes payable with a total value of $181,993.
During the period October 1, 2015 to December
31, 2015, the Company issued 416,666 shares pursuant to a notice of conversion of a convertible note at a price of $0.048 per share,
for the conversion of $20,000. The Company also issued 200,000 shares pursuant to a notice of conversion of a convertible note
at a price of $0.041 per share, for the conversion of $8,200.
F-24
5BARz International,
Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 7 – Sales of common stock (continued)
Shares issued
for note payable conversion (continued)
During the period January 1, 2016 to March
31, 2016, the Company issued 1,578,463 shares at a price of $0.04411 per share for the settlement of convertible notes payable
with a total value of $69,626. The Company issued 200,000 shares at a price of $0.06 per share for the partial settlement of convertible
notes payable with a total value of $12,000. See note 8(e). In addition, the Company issued 12,312,650 shares at a price of $0.05
per share for the settlement of convertible notes payable with a total value of $615,633.
During the period April 1, 2016 to June
30, 2016, the Company issued 3,594,200 shares at a price of $0.05 per share for the settlement of convertible notes payable with
a total value of $179,710. The Company issued 1,766,740 shares at a price of $0.06 per share for the settlement of convertible
notes payable with a total value of $106,004. The Company issued 323,200 shares at a price of $0.065 per share for the settlement
of convertible notes payable with a total value of $21,008. Lastly, the Company issued 187,500 shares at a price of $0.08 per share
for the settlement of convertible notes payable with a total value of $15,000.
During the period July 1, 2016 to September
30, 2016, the Company issued 1,599,141 shares at a price of $0.05 per share for the settlement of convertible notes payable with
a total value of $79,957. The Company issued 388,667 shares at a price of $0.066 per share for the settlement of convertible notes
payable with a total value of $25,652. The Company issued 623,762 shares at a price of $0.07 per share for the settlement of convertible
notes payable with a total value of $43,663. The Company issued 750,000 shares at a price of $0.073 per share with a total value
of $54,750 for the settlement of a law suit filed April 22, 2016 (see note 14 – litigation). The litigation and warrant agreement
of issuing warrants to purchase 3,000,000 shares of common stock to which this lawsuit relates will be settled in full upon delivery
of the total 750,000 shares. The Company issued 448,717 shares at a price of $0.078 per share for the settlement of convertible
notes payable with a total value of $35,000. Lastly, the Company issued 333,333 shares at a price of $0.105 per share for the settlement
of convertible notes payable with a total value of $35,000.
During the period October 1, 2016 to December
31, 2016, the Company issued 4,299,689 shares at a price of $0.0312 per share for the settlement of convertible notes payable with
a total value of $134,150 and the balance of principal and interest due under this convertible note was nil. The Company issued
1,840,935 shares at a price of $0.05 per share for the settlement of convertible notes payable with a total value of $92,047. The
Company issued 594,228 shares at a price of $0.0589 per share for the settlement of convertible notes payable with a total value
of $35,000 and the balance of principal and interest due under this convertible note was $13,000. The Company issued 405,259
shares at a price of $0.0675 per share for the settlement of convertible notes payable with a total value of $27,355 and after
this settlement, the balance of principal and interest due under this convertible note was $82,063. The Company issued 976,836
shares at a price of $0.07 per share for the settlement of convertible notes payable with a total value of $68,379. The Company
issued 389,910 shares at a price of $0.077 per share for the settlement of convertible notes payable with a total value of $30,023
and after this settlement, the balance of principal and interest due under this convertible note was $158,476. The Company issued
184,775 shares at a price of $0.08 per share for the settlement of convertible notes payable with a total value of $14,782 and
after this settlement, the balance of principal and interest due under this convertible note was $83,733. The Company issued
416,666 shares at a price of $0.084 per share for the settlement of convertible notes payable with a total value of $35,000 and
after this settlement, the balance of principal and interest due under this convertible note was $48,000.
During the period January 1, 2017 to March
31, 2017, the Company issued 2,831,310 shares at a price of $0.05 per share for the settlement of convertible notes payable with
a total value of $141,566. The Company also issued 1,370,100 shares at a price of $0.052 per share on conversion of convertible
notes payable with a total value of $71,245.
During the period April 1, 2017 to June
30, 2017, the Company issued 902,852 shares at a price of $0.037 per share for the settlement of convertible notes payable with
a total value of $33,333. The Company also issued 3,354,206 shares at a price of $0.045 per share on conversion of convertible
notes payable with a total value of $150,939. Of those shares issued, 1,674,666 have not been released to the holder, and are reflected
on the books at par value of $0.001 per share or $1,675.
During the period July 1, 2017 to September
30, 2017, the Company issued 800,000 shares at a price of $0.03 per share for the settlement of convertible notes payable with
a total value of $24,000. The Company issued 846,015 shares at a price of $0.0394 per share on conversion of convertible notes
payable with a total value of $33,333. The Company issued 178,237 shares at a price of $0.045 per share on conversion of convertible
notes payable with a total value of $8,021. The Company issued 762,019 shares at a price of $0.0461 per share on conversion of
convertible notes payable with a total value of $35,129. Lastly, the Company issued 711,946 shares at a price of $0.04682 per share
on conversion of convertible notes payable with a total value of $33,333.
F-25
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 7 – Sales of common stock (continued)
Shares issued
for note payable conversion (continued)
During the period October 1, 2017 to December
31, 2017, the Company issued 990,412 shares at a price of $0.034 per share for the settlement of convertible notes payable with
a total value of $33,333.
Other
On September 22, 2016 the Company paid
$250,000 as margin money under the terms of a $4 million financing contract in Singapore which did not complete. The Company has
filed a statement of claim for recovery of the amounts paid. The Company recorded loss on investment contract $246,813.
Note 8 – Notes Payable
Promissory Notes
5BARz
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Balance
|
|
International, Inc.
|
|
|
Note Principal
|
|
|
Note
Terms
|
|
|
Unpaid
Interest
|
|
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
Issue Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December, 2012
|
|
$
|
80,000
|
|
|
(a)
|
|
$
|
38,971
|
|
|
$
|
118,971
|
|
|
$
|
109,911
|
|
|
$
|
99,445
|
|
January 8, 2013
|
|
|
86,331
|
|
|
(b)
|
|
|
5,565
|
|
|
|
91,896
|
|
|
|
86,331
|
|
|
|
81,977
|
|
October 6, 2014
|
|
|
250,000
|
|
|
(c)
|
|
|
8,254
|
|
|
|
258,254
|
|
|
|
255,687
|
|
|
|
253,123
|
|
March 6, 2015
|
|
|
—
|
|
|
(d)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
548,283
|
|
May 4, 2015
|
|
|
—
|
|
|
(e)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138,000
|
|
May 21, 2015
|
|
|
—
|
|
|
(f)
|
|
|
—
|
|
|
|
—
|
|
|
|
47,191
|
|
|
|
174,064
|
|
June 15, 2015
|
|
|
—
|
|
|
(g)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
175,000
|
|
June 17, 2015
|
|
|
52,500
|
|
|
(h)
|
|
|
30,302
|
|
|
|
82,802
|
|
|
|
83,733
|
|
|
|
82,217
|
|
June 18, 2015
|
|
|
—
|
|
|
(i)
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
163,956
|
|
June 18, 2015
|
|
|
52,500
|
|
|
(j)
|
|
|
23,116
|
|
|
|
75,616
|
|
|
|
64,609
|
|
|
|
82,193
|
|
June 26, 2015
|
|
|
66,667
|
|
|
(k)
|
|
|
—
|
|
|
|
66,667
|
|
|
|
177,424
|
|
|
|
176,652
|
|
July 17, 2015
|
|
|
—
|
|
|
(l)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,282
|
|
July 30, 2015
|
|
|
61,742
|
|
|
(m)
|
|
|
—
|
|
|
|
61,742
|
|
|
|
158,476
|
|
|
|
172,167
|
|
August 27, 2015
|
|
|
—
|
|
|
(n)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92,195
|
|
August 27, 2015
|
|
|
—
|
|
|
(o)
|
|
|
321,980
|
|
|
|
321,980
|
|
|
|
84,033
|
|
|
|
170,764
|
|
October 9, 2015
|
|
|
—
|
|
|
(p)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,514
|
|
October 28, 2015
|
|
|
—
|
|
|
(q)
|
|
|
—
|
|
|
|
—
|
|
|
|
25,651
|
|
|
|
152,915
|
|
October 30, 2015
|
|
|
—
|
|
|
(r)
|
|
|
—
|
|
|
|
—
|
|
|
|
54,713
|
|
|
|
160,081
|
|
Mar – Dec, 2017
|
|
|
1,005,826
|
|
|
(s)
|
|
|
25,620
|
|
|
|
1,031,446
|
|
|
|
—
|
|
|
|
—
|
|
Sub-total
|
|
$
|
1,655,566
|
|
|
|
|
$
|
453,808
|
|
|
$
|
2,109,374
|
|
|
$
|
1,172,759
|
|
|
$
|
2,915,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cellynx Group, Inc. – Notes Payable
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Balance
|
|
Issue Date
|
|
|
Note Principal
|
|
|
Note Terms
|
|
|
Unpaid Interest
|
|
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 24, 2012
|
|
$
|
15,900
|
|
|
(t)
|
|
$
|
54,764
|
|
|
$
|
70,664
|
|
|
$
|
57,041
|
|
|
$
|
46,018
|
|
September 12, 2012
|
12,500
|
|
|
(u)
|
|
|
38,248
|
|
|
|
50,748
|
|
|
|
40,964
|
|
|
|
33,048
|
|
CelLynx total
|
|
$
|
28,400
|
|
|
|
|
$
|
93,012
|
|
|
$
|
121,412
|
|
|
$
|
98,005
|
|
|
$
|
79,066
|
|
Sub-total
|
|
$
|
1,683,966
|
|
|
|
|
$
|
546,820
|
|
|
$
|
2,230,786
|
|
|
$
|
1,270,764
|
|
|
$
|
2,994,894
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111,630
|
)
|
Notes payable, net
|
$
|
1,683,966
|
|
|
|
|
$
|
546,820
|
|
|
$
|
2,230,786
|
|
|
$
|
1,270,764
|
|
|
$
|
2,883,264
|
|
F-26
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8 – Notes Payable (continued)
|
a)
|
In December 2012, a shareholder purchased 1,600,000
common shares for $80,000. On January 17, 2013, the security was amended to a convertible debenture with an 8% per annum yield
and may be converted into common stock, at the option of the holder, 90 days after the inception of the agreement, at a price which
is a 20% discount to market, but not less than $0.05 per share. During the period from issuance of the convertible debenture
to December 31, 2017, December 31, 2016 and December 31, 2015, interest of $38,97, $29,911 and $19,445 were accrued on the convertible
debenture, respectively, resulting in a total principal and interest due at December 31, 2017 of $118,971 and December 31, 2016
of $109,911 and December 31, 2015 of $99,445. The consolidated financial statements include a derivative liability at December
31, 2017 of $94, December 31, 2016 of $6,219 and December 31, 2015 of $24,861 in connection with this note.
|
|
b)
|
On January 8, 2013, the Company entered into
a convertible debenture agreement with a consultant in settlement of $147,428 payable to that consultant for services rendered.
The convertible debenture yields interest at 8% per annum and may be converted into common stock, at the option of the holder,
90 days after the inception of the agreement, at a price which is a 20% discount to market, but not less than $0.05 per share.
As of December 31, 2017, December 31, 2016 and December 31, 2015, interest of $6,564, $6,355 and $5,431 were accrued on the convertible
debenture, respectively. During the years ended December 31, 2017, December 31,2016 and December 31, 2015, $49,000, $50,000 and
$48,000, respectively, were settled by way of conversion into common stock. During 2017, the agreement was amended to add
additional unpaid consulting fees of $48,000 to the principal of note (2016 - $48,000) (2015 - $28,000). The total principal and
interest due under the note at December 31, 2017 is $91,896 (2016 - $86,331) (2015 - $81,977). On September 20, 2017, the conversion
floor price of $0.05 was amended to the lowest price at which the Company is issuing securities to third parties. The Company reflected
a derivative liability at December 31, 2017 of $36,771 (2016 - $4,885) (2015 - $20,494) in connection with this note. On May 1,
2018 the balance of the note at that time of $110,448 was converted into units at a price of $0.03 per unit. Each unit is comprised
of one common share and a warrant to acquire a second share at $0.20, with a warrant term of two (2) years.
|
|
c)
|
On October 6, 2014 the Company entered into a
Note and Warrant purchase agreement with three parties who have agreed to provide to the Company additional resources to run operations.
The parties have agreed to loan up to $1,500,000 pursuant to the terms of a convertible promissory note and warrant agreement.
On the closing date, October 6, 2014 the Company received $250,000 cash. The purchasers have agreed that at any time on or before
the earlier of (i) the Purchasers’ election, or (ii) the execution of an engagement letter by and between the Company and
an Investment Banking Firm acceptable to the purchaser relating to the provision of financial advisory services by the Investment
Banking Firm to the Company, that the Company will sell Notes representing the balance of the authorized principal amount not sold
at the Closing to the Purchasers. The convertible note accrues interest at a rate of 1% per annum and provides for the conversion
of the principal and accrued interest on the note into common stock at any time, at the election of the holder at a price of $0.15
per share. Further, the number of warrants to be issued will be equal to the proceeds loaned pursuant to the note and warrant purchase
agreement divided by $0.15. The warrant has a term of five (5) years and provides a strike price of $0.20 per share. The fair value
of warrants at the date of issue was $282,767 using the Black-Scholes pricing model. The convertible promissory note and accrued
interest at December 31, 2017 was $258,253, (2016 - $255,687) (2015 - $253,123). During the year ended December 31, 2017, additional
interest of $2,516 (2016 - $2,548), (2015 - $2,516) was accrued to bring the total principal and interest balance to $258,254 at
December 31, 2017, (2016 - $255,687) (2015 - $253,123). The note matured at December 31, 2016. The note was extended for two additional
one-year terms to December 31, 2018. The note is currently payable on demand.
|
|
d)
|
On March 6, 2015 the Company entered into an
agreement with two parties who loaned $400,000 pursuant to the terms of a convertible promissory note. On the closing date, March
6, 2015 the Company received $400,000 cash. The notes matured on September 6, 2015. The loan maturity was extended for an additional
6 months by payment on the original maturity date of unpaid interest, plus a 10% extension fee. The convertible notes accrued interest
at a rate of 15% semi-annually and provided for the conversion of the principal and accrued interest on the note into common stock
at any time, at the election of the holder at a price of $0.05 per share. Further, warrants to acquire up to 12,441,667 shares
which had been issued in conjunction with previous financings from that lender at strike prices ranging from $0.20 to $0.30 per
share are to be re-priced to a strike price of $0.05 per share with the maturity dates changed to March 6, 2016. The Company has
the right to repay the loan by payment of the principal and accrued interest at the date of repayment. On September 6, 2015 the
maturity of the loan was extended for 6 months, with the unpaid interest of $60,000 and $40,000 extension fee being added to the
note payable. At December 31, 2015 unpaid principal and interest on the notes aggregate $548,283. On March 6, 2016 the holders
of the convertible notes provided notice of conversion to settle the unpaid principal and interest under the notes in the aggregate
amount of $575,000 by conversion into common stock at a price of $0.05 per share by issuance of 11,500,000 shares. At December
31, 2016 and 2017, the notes were paid in full.
|
F-27
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
|
e)
|
On May 4, 2015, the Company entered into a convertible
note arrangement with an investment Company, in the principal amount of $250,000 of which $100,000 was advanced to the Company
at the inception of the note. The Company agreed to pay an “original issue discount” in an amount up to 10% of the
loan amount, or $10,000. The interest rate on the note is 12%, with 6% being charged on the Issuance Date to the Original Principal
Amount in the amount of $6,600 and the remaining 6% being charged to the Original Principal Amount on the 61th calendar day after
the issuance date provided the note has not been paid in full. The loan may be repaid at any time during the first 120 days of
the note term. The note is convertible into common stock of the issuer at the lesser of $0.09 or a discount to market of 50%, with
the market defined as the lowest trade price for a period of 25 days prior to the conversion, with a conversion floor price at
no lower than $0.001. On November 3, 2015 an amending agreement was entered into providing for the prepayment of the note at any
time up to 9 months from the loan origination date at a rate of 145% of the then unpaid principal and interest due under the note.
On November 6, 2015 the Company issued 200,000 shares pursuant to a notice of conversion of a convertible note at a price of $0.041
per share, for the conversion of $8,200. On November 22, 2015 the Company became delinquent on its filing requirements with the
Securities and Exchange Commission, triggering a default of the note. Upon the Event of Default, the outstanding balance was increased
to 120%. The note is payable on demand. The principal and interest due under the note at December 31, 2015 was $138,000.
On
January 20, 2016, the Company entered into a settlement agreement to settle the unpaid $138,000 by the issuance of 20,000 shares
on January 20, 2016, and the commitment to make a series of payments over 8 months, ending September 15, 2016 in the aggregate
amount of $120,000. The Company made the payments under the settlement agreement on February 8, 2016 of $7,500, and on March 15,
2016 of $15,000 as required by the agreement. On May 2, 2016 the Company issued 1,375,500 shares at a price of $0.08 per share
for $15,000, and a further issue of 1,375,500 common shares at a price of $0.06 per share for the remaining $82,500 due under the
note settlement agreement. At December 31, 2016 this note was paid in full (December 31, 2015 - $138,000).
|
|
f)
|
On May 21, 2015, the Company entered into a convertible
note arrangement with an investment Company, in the principal amount of $200,000 of which $100,000 was advanced to the Company
at the inception of the note. The Company agreed to pay an “original issue discount” in an amount up to 10% of the
loan amount, or $10,000. The interest rate on the note is 12%. The prepayment penalty of the note is as follows: 5% from day 1
to 90 days, 15% from day 91 to 150 days, 18% from day 151 to 179 days and 25% there- after on buyout of loan. The note is convertible
into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest trade price for a period
of 25 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November 22, 2015 the Company became
delinquent on its filing requirements with the Securities and Exchange Commission, triggering a default of the note. Upon the Event
of Default, the outstanding balance was increased to 118%, in addition to that, a default penalty payment of $1,000 per business
day was added to the outstanding balance. The principal and interest due under the note at December 31, 2015 was $174,064.
On
March 10, 2016, a complaint was filed in relation to the unpaid balance of this note payable. On June 28, 2016, the parties entered
into a settlement agreement in the amount of $153,000 payable in equal payments of $35,000 made in cash or shares issued at market
every 21 days from the date of settlement. On July 14, 2016, 333,333 common shares were issued at a price of $0.105 per share in
lieu of $35,000 cash. On August 4, 2016, an additional 448,717 common shares were issued at a price of $0.078 instead of a $35,000
cash payment. On November 1, 2016, the Company issued 416,446 shares at a price of $0.084 per share for the settlement of convertible
notes payable with a total value of $35,000. On December 5, 2016, the Company issued 594,228 shares at a price of $0.059 per share
for the settlement of a further $35,000. The balance due to the holder at December 31, 2016 was $47,191. On January 6, 2017, the
Company issued a further 673,077 shares at a price of $0.052 per share for a payment of $35,000. On February 6, 2017, the Company
issued a final 234,447 shares at a price of $0.052 for a final settlement amount of $12,191. At December 31, 2017, the balance
due under this note was nil. The lawsuit has been dismissed with prejudice as to defendant.
|
F-28
5BARz International,
Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8 – Notes Payable
(continued)
|
g)
|
On June 15, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $125,000 of which $102,500 was advanced to
the Company at the inception of the note. The Company recorded an interest of $22,500 at inception of the note and issued 250,000
shares at $0.10. The note is convertible into common stock of the issuer at 0.05 if converted within 180 days after the Issuance
Date, or at a discount to market of 35%, with the market defined as the lowest trade price for a period of 20 days prior to the
conversion, with a conversion floor price at no lower than $0.0001, if converted after 180 days. On November 22, 2015, the Company
became delinquent on its filing requirements with the Securities and Exchange Commission, triggering a default of the note. Upon
the Event of Default, the outstanding balance was increased to 140%. The principal and interest due under the note at December
31, 2015 was $175,000. On March 17, 2016, the Company entered into a settlement agreement with the holder providing for a series
of eight monthly payments in the aggregate amount of $175,000, to settle the amount due under the note. On May 3, 2016, the Company
entered into an amended settlement agreement for full settlement of the note for $175,000. The Company issued 1,500,000 common
shares at a price of $0.05 per share in settlement of $75,000 due under the note and agreed to a series of 6 monthly payments each
in the amount of $11,666, commencing May 15, 2016. On May 20, 2016, pursuant to a revised agreement, the settlement was amended
such that the Company issued 1,000,000 common shares at a price of $0.05 per share, for aggregate proceeds of $50,000 to complete
the payments due under the note. At December 31, 2016, the note was paid in full.
|
|
h)
|
On June 17, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $52,500 of which $50,000 was advanced to the
Company at the inception of the note. The Company recorded 5% interest of $2,500 at inception of the note. The interest rate on
the note is 8%. The prepayment penalty of the note is as follows, 15% from day 1 to 60 days, 21% from day 61 to 90 days, 27% from
day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest
trade price for a period of 15 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November
22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the Event of Default the interest rate was increased to 16% per annum. The note is payable upon demand.
On October 27, 2016, the Company and holder entered into a settlement agreement on this note, with issuance of 184,775 common shares
at $.08 due upon signing and an additional 3 payments paid by way of common shares or cash election valued at $27,911 each. On
November 3, 2016, the Company delivered the 184,775 free trading shares at a price of $0.08 per share as payment of $14,782. On
February 6, 2017, the lender filed in the courts of the Eastern District of New York, claiming for preliminary and permanent injunctive
relief, breach of contract and damages, cost and attorney fees. On May 16, 2017, the Company issued three certificates pursuant
to the settlement agreement, each in the amount of 558,222 common shares with a restrictive legend to be removed for trading on
May 31, 2017, June 30, 2017 and July 31, 2017 respectively, for aggregate proceeds of $75,360, reflected as a deposit on the note
payable. That share issuance was rejected by the lender; however, the shares remain outstanding, and available for settlement.
On August 16, 2018, a court order was issued for payment of $58,514, plus interest in settlement of the loan amount. At December
31, 2016, the principal and interest due under the note settlement agreement were $83,733. At December 31, 2017, the balance reflected
in the consolidated financial statements was $82,802. Subsequent to year end the payment of the August 16, 2018 judgment amount
of $58,514 plus interest of $31,077 is being negotiated by the Company and lender.
|
F-29
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8 – Notes Payable
(continued)
|
i)
|
On June 18, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $105,000 of which $100,000 was advanced to
the Company at the inception of the note. The Company agreed to pay an original issue discount of 5% of the loan amount, or $5,000.
The interest rate on the note is 10%. The prepayment penalty of the note is as follows: 15% from day 1 to 60 days, 21% from day
61 to 90 days, 27% from day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be
prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%,
with the market defined as the lowest trade price for a period of 25 days prior to the conversion, with a conversion floor price
at no lower than $0.00001. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and
Exchange Commission, triggering an event of default of the note. Upon the Event of Default, the interest rate was increased to
16%. The note is payable upon demand. On August 8, 2016 the lender filed a law suit for settlement of the note by delivery of 4,299,689
shares of the Company. On October 11, 2016, the Company settled the lawsuit by delivery of 4,299,689 shares at a price of $0.0312
representing aggregate proceeds of $134,150 and an agreement to pay $25,000 in legal fees. At December 31, 2016, the $25,000 remains
payable to the lender (2015 - $163,956). The $25,000 was not paid on a timely basis. On May 9, 2017, the Company was required by
court order to pay legal fees and damages in the aggregate amount of $48,413 and the case was dismissed. On July 26, 2017, a court
ordered receiver was appointed to collect the unpaid balance. On August 23, 2017, the Company paid $63,712 in legal fees and costs
in full and final settlement of the unpaid amounts. The balance due at December 31, 2017 is nil.
|
|
j)
|
On June 18, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $52,500 of which $50,000 was advanced to the
Company at the inception of the note. The Company recorded an interest of $2,500 at inception of the note. The interest rate on
the note is 8%. The prepayment penalty of the note is as follows: 15% from day 1 to 60 days, 21% from day 61 to 90 days, 27% from
day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest
trade price for a period of 15 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November
22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the event of default, the interest rate was increased to 16% per annum. The note is payable upon demand.
On June 8, 2016, the lender filed a complaint claiming 1,699,580 shares in settlement of the principal and interest under the note
and injunctive relief related to terms of the note. On June 24, 2016, the Company has filed an answer and defense in response to
the complaint filed. The principal and interest due under the note at December 31, 2016 were $64,609 (2015 – 82,193). See
litigation note 14. On December 31, 2017, the Company reflected a balance due to the lender of $75,616. On September 6, 2018, an
order was entered which awarded damages of $110,472, plus legal fees. The additional amount of $34,856 has been accrued in the
2018 fiscal year consolidated financial statements. (see subsequent events note 16).
|
|
k)
|
On June 26, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $110,000 of which $104,500 was advanced to
the Company at the inception of the note. The Company agreed to pay an “original issue discount” in an amount of $5,500.
The interest rate on the note is 12%. Upon an Event of Default, the interest rate shall increase to 18%. The prepayment penalty
of the note is as follows: 35% from day 1 to 90 days, 45% from day 91 to 120 days, and 50% there- after on buyout of loan. The
note is convertible into common stock of the issuer at a discount to market of 42%, with the market defined as the lowest trade
price for a period of 20 days prior to the conversion, with a conversion floor price at no lower than $0.0001. On November 22,
2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an Event
of Default of the note. Upon the Event of Default, the interest rate was increased to 18% per annum. On July 6, 2016, a complaint
was filed in the District Court of Dallas County Texas, alleging breach of contract, promissory estoppel as to note, and tortious
interference with Contract (see litigation note 14). On May 31, 2017, the Company and plaintiff entered into a mediation and
settled the law suit by agreement to pay $200,000 in shares at market over six equal monthly payments. The Company paid by way
of shares four payments from June to October 2017 in the aggregate amount of $133,332. The remaining principal and interest due
under the note at December 31, 2017 were $66,667, (2016 – 177,424), (2015 - $176,652). On February 9, 2018, a final judgment
was issued by the Dallas County District court for damages of $92,173.86 plus attorney fees of $15,275. The increase of $25,506,
plus legal fees pursuant to court order was reflected in 2018 as interest and legal fees. On September 7, 2018, the Company paid
$30,000 in cash pursuant to a payment schedule negotiated with the lender for the balance due.
|
F-30
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8 – Notes Payable (continued)
|
l)
|
On July 17, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $66,250 of which $60,000 was advanced to the
Company at the inception of the note. The interest rate on the note is 10%. Upon an Event of Default, the interest rate shall increase
to 24%. The prepayment penalty of the note is as follows: 25% from day 1 to 30 days, 30% from day 31 to 60 days, 35% from day 61
to 90 days, 40% from day 91 to 120 days, 45% from day 121 to 150 days, 50% from day 151 to 180 days. There is no right to prepayment
after 180 days. The note is convertible into common stock of the issuer at a discount to market of 45%, with the market defined
as the lowest trade price for a period of 25 days prior to the conversion, with a conversion floor price at no lower than $0.0001.
On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering
an event of default of the note. Upon the Event of Default, the outstanding balance was increased to 150% and the interest rate
was increased to 24% per annum. The note is payable on demand. On January 19, 2016, the Company settled the convertible debt
in the principal and interest amount of $69,626 by the issuance of 1,578,463 shares, at a price of $0.04411 per share. The settlement
amount does not require the payment of default penalties contemplated in the note agreement. The principal and interest due under
the note at December 31, 2017 and 2016 were nil (2015 - $105,282).
|
|
m)
|
On July 30, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $110,000 of which $100,000 was advanced to
the Company at the inception of the note. The interest rate on the note is 10%. Upon an Event of Default, the interest rate shall
increase to 24%. The prepayment penalty of the note is as follows, 35% from day 1 to 90 days, and 50% there- after on buyout of
loan. The note is convertible into common stock of the issuer at a discount to market of 42%, with the market defined as the lowest
trade price for a period of 25 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November
22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the event of default, the outstanding balance was increased to 150%. The note is payable upon demand.
On August 31, 2016, the Company and lender completed a settlement agreement, to repay $188,500, payable in six monthly payments,
in cash or shares over a six-month period in full settlement of the note. On November 1, 2016, the Company paid $30,023 by delivery
of 389,910 common shares. At December 31, 2016, the balance due under the note agreement was $158,477 (2015 - $172,167). During
2017 the Company made three additional payments by delivery of an aggregate of 1,969,747 shares with a market value of $96,659.
The outstanding balance at December 31, 2017 is $61,818. On June 7, 2018, a complaint was filed in the United States Court, Southern
District of New York against 5BARz International, Inc. by the lender, EMA Financial LLC (see litigation note 14). The complaint
requests specific performance under the agreements, claims breach of contract, injunctive relief, costs and attorney fees. The
Company expects to recommence its payment schedule when the Company’s filings with the SEC are current, and shares will again
be accepted by the lender in settlement of the settlement amount.
|
|
n)
|
On August 27, 2015, the Company entered into
a convertible note arrangement with an investment company, in the principal amount of $59,000 of which $55,000 was advanced to
the Company at the inception of the note. The interest rate on the note is 12%. Upon an Event of Default, the interest rate shall
increase to 24%. The prepayment penalty of the note is 40%. The note is convertible into common stock of the issuer at a discount
to market of 42%, with the market defined as the lowest trade price for a period of 20 days prior to the conversion, with a conversion
floor price at no lower than $0.000058. On November 22, 2015, the Company became delinquent on its filing requirements with the
Securities and Exchange Commission, triggering an event of default of the note. Upon the event of default, the outstanding balance
was increased to 150%. The note is payable upon demand. On February 26, 2016, the Company settled the convertible debt for an aggregate
amount of $83,900. The settlement agreement provides for the issuance of 312,650 common shares at a price of $0.05 per share for
aggregate proceeds of $15,632 issued on February 26, 2016 and the balance to be repaid by a series of monthly payments in the aggregate
amount of $68,268 over a five-month period commencing on April 15, 2016. The Company issued 391,740 common shares at a price of
$0.06 per share on May 15, 2016 for a value of $23,504. On July 15, 2016, the Company issued $22,655 in 323,648 common shares at
a price of $0.07 per share. On November 4, 2016, the Company issued 315,836 shares at a price of $0.07 for a value of $22,109.
The outstanding settlement balance at December 31, 2016 was nil (2015 - $92,195).
|
F-31
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8 – Notes Payable (continued)
|
o)
|
On August 27, 2015, the Company entered into
a convertible note arrangement with an investment company, in the principal amount of $110,000 of which $100,000 was advanced to
the Company at the inception of the note. The Company agreed to pay an “original issue discount” in an amount up to
10% of the loan amount, or $10,000. The interest rate on the note is 10%. The prepayment penalty of the note is as follows, 35%
from day 1 to 90 days, 45% from day 91 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible
into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest trade price for a period
of 20 days prior to the conversion, with a conversion floor price at no lower than $0.0001. On November 22, 2015, the Company became
delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event of default of the note.
Upon the event of default, the outstanding balance was increased to 150% and the interest rate was increased to 24% per annum.
The principal and interest due under the note at December 31, 2015 were $170,764. The note is payable upon demand. On March 10,
2016, the Company entered into a settlement agreement on the convertible debt in the principal and interest amount of $168,065.
The settlement agreement provides for the Company to make eight monthly payments commencing on April 15, 2016, each in the amount
of $21,008, an aggregate amount of $168,065. During the period May to November 3, 2018 the Company paid four payments in the aggregate
amount of $84,032. Upon receipt of the November payment, on November 21, 2016 the lender Blue Citi filed a law suit claiming breach
of contract, requesting specific performance under the original note agreement and in the alternative breach of contract under
the settlement agreement (see litigation note 14). At December 31, 2016, the balance due to the lender was $84,033 (2015 - $170,764).
On August 31, 2017 pursuant to court order, the Company delivered 1,857,777 shares at a price of $0.045 per share in further settlement
of an additional $83,600 and attorney’s fees of $18,988. Accordingly, the Company has paid $167,632 on the $110,000 note.
The Company filed a cross motion to vacate that order and to dismiss the lawsuit on the basis that the Note violates New York’s
laws against criminal usury. On September 19, 2018 the New York District Court denied this cross motion yet pointed out that it
is possible that the New York Court of Appeals will see the issue differently. The District court ordered $180,204 in damages,
$116,950 in prejudgment interest and $5,837 in attorney fees. On October 30, 2018, the Company filed a notice of appeal in the
United States Court of Appeals, Second Circuit, 1:16-cv-09027-VEC, which appeals that decision and order of the District Court,
granting the Petitioners motion and further appealed the denial of the district court to vacate the prior order for the issuance
of 1,857,777 shares and denying the dismissal of the lawsuit on the basis that the note violates New York law on the basis of criminal
usury. On December 31, 2017, the notes payable include a provision for loss on this matter in the amount of $321,980. Should the
Company prevail in the court of appeal, a refund of $83,600 would be required from the plaintiff.
|
|
p)
|
During the period October 7, 2015 to October
10, 2015, the Company entered into four convertible note arrangements with certain investors in the principal amount of $85,000.
Interest is accrued on the notes at a rate of 8% per annum, and the notes mature one year from the date of issue. The notes are
convertible after 183 days by the borrower at a conversion price of the lesser of $0.05 per share or 70% of market, defined as
the lowest trade price for a period 20 days prior to the notice of conversion, if VWAP
of the shares drops below $0.05 with
a 10 day look back
. In no case may the debt be converted at less than $0.01 per share. The Company
may prepay the note principal and interest at a rate of 125% of principal and interest within 90 days of the issue date and at
a rate of 135% after 90 days from the issue date. On November 22, 2015, the Company became delinquent on its filing requirements
with the Securities and Exchange Commission, triggering an event of default of the note. Upon the event of default, the interest
rate was increased to 20% per annum. The notes are payable upon demand. On September 6, 2016, one convertible note principle and
interest of $37,567 was settled for 751,333 common shares at a price of $0.05 per share. Further on September 27, 2016, a second
convertible note principle and interest of $17,390 was settled by the issuance of 347,808 common shares at a price of $0.05 per
share. On November 3, 2016, a third note agreement was settled by the issuance of 116,447 shares at $0.05 for proceeds of $5,822.
On December 12, 2016, the fourth note agreement was settled by the issuance of 656,548 shares at $0.05 per share for aggregate
proceeds of $32,827. The balance due under the four convertible note agreements at December 31, 2016 was nil, (2015 - $87,514).
|
F-32
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
|
q)
|
On October 28th, 2015, the Company entered into
a convertible note arrangement with an investment company, in the principal amount of $100,000. Interest is accrued on the note
at a rate of 12% per annum, and the note matured on July 28, 2016. The note is convertible at any time by the borrower at a conversion
price which is the lesser of closing sale price on the close date of the note or 60% of market, defined as the lowest trade price
for a period 25 days prior to the notice of conversion. The Company may prepay the note principal and interest at rates from 145%
of principal and interest within 180 days from the issue date. After 180 days the note may not be prepaid. On November 22, 2015,
the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event of default
of the note. Upon the event of default, the outstanding balance was increased to 150%. The note is payable upon demand. On May
2, 2016, the Company entered into a settlement agreement, to pay $153,912 by way of six monthly payments, each in the amount of
$25,652, with the first payment due on May 15, 2016. Two of the six payments were completed on May 31, 2016 and June 20, 2016.
On August 15, 2016, the Company issued 388,667 common stock at a price of $0.066 per share in payment of $25,652 under the settlement
agreement. On November 3, 2016, the Company paid an additional $25,262 by the issuance of 360,886 common shares at a price of $0.07
per share. On December 7, 2016, $26,042 was paid by the issuance of 520,840 shares at $0.05 per share. At December 31, 2016, the
balance due under the note agreement was $25,652 (2015 – 153,912). The final payment was made on January 6, 2017 by way of
issuance of 513,040 shares at a price of $0.05 per share for aggregate proceeds of $25,652.
|
|
r)
|
On October 30, 2015, the Company entered into
a convertible note arrangement with an investment company, in the principal amount of $105,000 of which $100,000 was advanced to
the Company at the inception of the note. Interest is accrued on the note at a rate of 8% per annum, and the note matures on October
30, 2016. The note is convertible at any time by the borrower at a conversion price which is the lesser of closing sale price on
the close date of the note or 60% of market, defined as the lowest trade price for a period 10 days prior to the notice of conversion.
The Company may prepay the note principal and interest as follows, 125% from day 1 to 90 days, 140% from day 91 to 180 days, 150%
after 180 days. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange
Commission, triggering an event of default of the note. Upon the Event of Default, the outstanding balance was increased to 150%
and the interest rate was increased to 18% per annum. The note is payable upon demand. On May 31, 2016, the Company entered into
a settlement agreement to make a series of six payments, each in the amount of $27,354, for an aggregate amount of $164,128, in
full settlement of the amounts due under this note agreement. On May 31, 2016, the Company issued 547,100 common stock at a price
of $0.05 per share valued at $27,355. On June 30, 2016, the Company issued another 547,100 common shares at a price of $0.05 valued
at $27,355. On November 8, 2016, the Company issued a further 405,259 shares at a price of $0.0675 per share for proceeds of $27,355.
On December 7, 2016, the Company issued 547,100 shares at a price of $0.05 per share for a payment of $27,355. At December 31,
2016, the balance outstanding on the note was $54,708 (2015 - $160,081). On January 6, 2017, the Company issued an additional 547,080
shares at $0.05 per share for a payment of $27,354. On February 28, 2017, the Company issued 526,038 shares at $0.052 for a final
payment of $27,354. On December 31, 2017 the balance due was nil, (2016 - $54,708), (2015 - $160,081).
|
|
s)
|
During the period March 24, 2017 to December
21, 2017, the Company entered into 43 Unsecured Convertible Promissory Note agreements in Canada, for aggregate proceeds of $1,005,826
USD ($1,276,650 CAD.). The notes provide for interest at a rate of 10% per annum payable on a semi-annual basis. The maturity of
the notes shall occur on the earlier of the date that is 12 months from the effective date of the note, or the completion of an
initial public offering in Canada, at which point the Notes and any accrued interest shall automatically convert into common shares.
The conversion price shall be the Initial Public Offering price, less a 50% discount. At December 31, 2017, the principal and interest
outstanding on the notes was $1,031,446, (2016 – Nil).
|
F-33
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8 – Notes Payable (continued)
t)
On
May 24, 2012, a subsidiary Company, CelLynx Group, Inc., completed a transaction pursuant to a Promissory Note agreement, through
which the Company borrowed $37,500. The Note bears interest at a rate of 8%, and was due on November 24, 2012, (the “Due
Date”). The Company could settle that note within the first 90 days following the issue date by paying to the Lender
140% of the principal amount of the note plus accrued interest. The Company may settle the note during the period which is 91 days
from the issue date of the note to 180 days from the issue date of the note by payment of 150% of the principal amount of the note
plus accrued interest. In the event that the note is not repaid 180 days from the date of issue, the note and accrued interest
are convertible into common stock at a variable conversion price equal to 51% of the average of the three lowest closing bid prices
for CelLynx Group, Inc.’s common stock for a period of 10 days prior to the date of notice of conversion. The Company redeemed
$21,600 payable on that note, by the issuance of CelLynx Group, Inc. common shares. As of December 31, 2017, the note is past due. The
note principal and accrued interest outstanding at December 31, 2017 were $70,664 (2016 - $57,041), (2015 - $46,018).
u) On September 12, 2012, CelLynx Group,
Inc. completed a transaction pursuant to a Promissory Note agreement, through which the Company borrowed $12,500. The Note bears
interest at a rate of 8%, and is due on March 12, 2013, (the “Due Date”). The Company may settle that note
within the first 90 days following the issue date by paying to the Lender 140% of the principal amount of the note plus accrued
interest. The Company may settle the note during the period which is 91 days from the issue date of the note to 180 days from the
issue date of the note by payment of 150% of the principal amount of the note plus accrued interest. In the event that the note
is not repaid 180 days from the date of issue, the note and accrued interest are convertible into common stock at a variable conversion
price equal to 51% of the average of the three lowest closing bid prices for CelLynx Group, Inc’s common stock for a period
of 10 days prior to the date of notice of conversion. As of December 31, 2017, the note is past due. The note principal and interest
outstanding at December 31, 2017 were 50,748 (2016 - $40,964) (2015 - $33,048).
At December 31, 2017, December 31, 2016
and December 31, 2015, all the above debt, was either settled or is in default and is immediately due and payable, with the exception
of the debt referred to in sub-sections (a)(b)(c) & (s) above.
Note 9 – Commitments and Contingencies
Operating Lease Obligation
|
The Company has leased properties in California, and Miami, Florida in the United States. Outside of the United States the Company has leased sites in Bangalore, India. Future minimum lease payments under all noncancelable operating leases with an initial term in excess of one year as of December 31, 2017 are as follows:
|
Fiscal Year
|
|
|
2018
|
|
$
|
104,092
|
|
2019
|
|
|
71,866
|
|
2020
|
|
|
36,809
|
|
2021
|
|
|
—
|
|
2022
|
|
|
—
|
|
Total
|
|
$
|
212,767
|
|
F-34
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 10 – Options and Warrants
Warrants – 5BARz International Inc.
The following table summarizes the warrant
activity from December 31, 2015 to December 31, 2017:
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Life
|
Outstanding at December 31, 2015
|
|
|
102,188,477
|
|
|
$
|
0.25
|
|
|
|
1.20
|
|
Granted
|
|
|
125,483,049
|
|
|
|
0.19
|
|
|
|
1.69
|
|
Exercised
|
|
|
(12,441,667
|
)
|
|
|
0.05
|
|
|
|
—
|
|
Cancelled/ expired
|
|
|
(27,104,627
|
)
|
|
|
0.29
|
|
|
|
—
|
|
Outstanding at December 31, 2016
|
|
|
188,125,232
|
|
|
$
|
0.21
|
|
|
|
1.25
|
|
Exercisable at December 31, 2016
|
|
|
180,125,232
|
|
|
$
|
0.22
|
|
|
|
1.25
|
|
Granted *
|
|
|
99,386,380
|
|
|
|
0.17
|
|
|
|
1.79
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled/ expired
|
|
|
(64,642,183
|
)
|
|
|
0.25
|
|
|
|
—
|
|
Outstanding at December 31, 2017
|
|
|
222,869,429
|
|
|
|
0.18
|
|
|
|
1.29
|
|
Exercisable at December 31, 2017
|
|
|
222,869,429
|
|
|
|
0.18
|
|
|
|
1.29
|
|
* During the year ended
December 31, 2017, the Company granted warrants to purchase 99,386,380 shares of common stock of which 20,100,000 warrants were
issued as part of a private placement of units. In addition, the granted warrants include extension warrants to purchase 8,500,000
shares of common stock, issued as a one year extension of expired warrants, in conjunction with a further placement of common stock
to that warrant holder. The granted warrants also include the issuance of 66,968,268 warrants to acquire common stock issued to
certain Officers and Directors of the Company in conjunction with a debt settlement agreement due to those related parties (see
related party Note 14). In addition, warrants to purchase 3,818,112 shares of common stock were issued as part of a unit for services.
The Company has authorized capital of 600,000,000
shares, and, accordingly, should all options, warrants and potentially convertible securities be exercised, the Company may not
have enough authorized shares to honor its commitments. (see Derivative liabilities balance as of December 31, 2017, 2016 and 2015
and Note 2 – Fair value of Financial Instruments).
Options – 5BARz International Inc.
The following table summarizes the options
from December 31, 2015 to December 31, 2017:
|
|
Number of
Options
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Life
|
Outstanding at December 31, 2015
|
|
|
15,480,000
|
|
|
$
|
0.11
|
|
|
|
5.04
|
|
Granted
|
|
|
11,065,000
|
|
|
|
0.09
|
|
|
|
9.03
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(200,000
|
)
|
|
|
0.15
|
|
|
|
2.30
|
|
Outstanding at December 31, 2016
|
|
|
26,345,000
|
|
|
$
|
0.10
|
|
|
|
5.90
|
|
Exercisable at December 31, 2016
|
|
|
15,080,027
|
|
|
$
|
0.12
|
|
|
|
2.12
|
|
Granted
|
|
|
2,112,000
|
|
|
|
0.05
|
|
|
|
4.97
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(5,505,000
|
)
|
|
|
0.12
|
|
|
|
3.34
|
|
Outstanding at December 31, 2017
|
|
|
22,952,000
|
|
|
$
|
0.09
|
|
|
|
5.46
|
|
Exercisable at December 31, 2017
|
|
|
13,952,000
|
|
|
$
|
0.09
|
|
|
|
2.78
|
|
F-35
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 10 – Options and Warrants (continued)
Options – 5BARz International Inc. (continued)
During the year ended December
31, 2017, the Company issued 2,112,000 stock options at a strike price ranging from $0.048 to $0.05 per share. The Company reports
stock-based compensation under ASC 718 “Compensation – Stock Compensation”. ASC 718 requires all share-based
payments to employees, including grants of employee stock options, warrants to be recognized in the consolidated financial statements
based on their fair values. The Company amortizes the fair value of employee stock options on a straight-line basis over the requisite
service period of the awards. The Company accounts for stock options issued and vesting to non-employees in accordance with
ASC Topic 505-50 “Equity -Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees
is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the
date at which the necessary performance to earn the equity instruments is complete. Accordingly, the fair value of these options
is being “marked to market” until the measurement date is determined or the date the options are vested.
As of December 31, 2017, total
unamortized compensation expenses related to unvested stock options were $327,861 (2016 - $91,093, (2015 – $297,674). This
amount is expected to be recognized over a weighted average period of 12 months. The Black-Scholes option valuation model is used
to estimate the fair value of the options granted. The Company measured the stock options issued at fair value using the Black-Scholes
pricing model and are classified within Level 3 of the valuation hierarchy. The significant assumptions and valuation methods that
the Company used to determine fair value and the change in fair value of the Company’s derivative financial instruments are
provided below:
|
|
Dec 31, 2017
|
|
Dec 31, 2016
|
|
Jan 22, 2016
|
|
Feb 29, 2016
|
|
March 31, 2016
|
|
June 14, 2016
|
|
June 30, 2016
|
|
Sept 30, 2016
|
Stock price
|
|
$
|
0.042
|
|
|
$
|
0.0513
|
|
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.095
|
|
|
$
|
0.084
|
|
Volatility
|
|
|
89
|
%
|
|
|
105
|
%
|
|
|
92
|
%
|
|
|
92
|
%
|
|
|
94
|
%
|
|
|
106
|
%
|
|
|
106
|
%
|
|
|
106
|
%
|
Risk free interest rate
|
|
|
1.98
|
%
|
|
|
1.93
|
%
|
|
|
1.2
|
%
|
|
|
1.7
|
%
|
|
|
1.2
|
%
|
|
|
1.0
|
%
|
|
|
1.2
|
%
|
|
|
1.4
|
%
|
Expected life
|
|
|
3 years
|
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
6 years
|
|
The fair value of the options was determined to be
as follows based upon the assumptions provided above:
Valuation date
|
|
Number of options
|
|
Fair value
|
January 22, 2016
|
|
|
240,000
|
|
|
$
|
19,922
|
|
February 29, 2016
|
|
|
100,000
|
|
|
|
7,758
|
|
March 31, 2016
|
|
|
1,076,370
|
|
|
|
47,603
|
|
June 14, 2016
|
|
|
1,000,000
|
|
|
|
81,492
|
|
June 30, 2016
|
|
|
951,370
|
|
|
|
61,551
|
|
September 30, 2016
|
|
|
787,516
|
|
|
|
45,772
|
|
December 31, 2016
|
|
|
812,828
|
|
|
|
33,019
|
|
December 31, 2017
|
|
|
2,218,096
|
|
|
|
122,432
|
|
The
option valuations are being amortized over vesting terms ranging from immediate to 3 years. For the year ended December 31, 2017,
$122,432 and 2016 - $297,117 (2015 –$375,697) were amortized to expense.
F-36
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 10 – Options and Warrants (continued)
Options – CelLynx Group, Inc.
The number and weighted average exercise
prices of all Cellynx Group, Inc. options and warrants exercisable as of December 31, 2017, December 31, 2016 and December 31,
2015 are as follows:
|
|
Options
|
|
Weighted average
exercise price
|
|
Weighted average remaining contract life
|
Opening at December 31, 2015
|
|
|
69,000,000
|
|
|
$
|
0.0002
|
|
|
|
2.27
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(4,000,000)
|
|
|
|
0.0003
|
|
|
|
—
|
|
Outstanding at December 31, 2016
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
1.18
|
|
Exercisable at December 31, 2016
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
1.18
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.18
|
|
Exercisable at December 31, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.18
|
|
Note 11 - Related party transactions
During the year ended December 31, 2017
and 2016, the Company engaged an engineering company in Bangalore, India to perform engineering services, product development and
manufacturing services for the Company in the aggregate amount of $358,512 and $1,329,126, respectively. The Director and the CEO
of 5BARz India Private Limited owns a 30% interest in that engineering firm, and the Executive Director of the engineering company
is the spouse of the Director and the CEO of 5BARz India Private Limited. The amount due to Aseema Softnet Technologies Inc. at
December 31, 2017 and 2016 was $1,574,019 and $1,406,429 respectively. During the year ended December 31, 2017 and 2016 there were
$358,512 and $1,329,126 in billings and $190,922 and $528,000 in payments to Aseema Softnet Technologies Inc., resulting in an
amount due of $1,574,019 and $1,406,429 at December 31, 2017 and 2016, respectively. Subsequent to December 31, 2017, there have
been no further billings and the Company has negotiated a write down of amounts due in the aggregate amount of $1,285,633. Subsequent
payments aggregate to $219,000, resulting in a balance of $69,385.
On June 14, 2016, the Board of Directors
approved the issuance of warrants to acquire 8,000,000 shares to each of the CEO and Chairman of the Board, at a price of $0.09
per share. The warrants have a term of five (5) years and vest as to 50% immediately and 50% on June 14, 2017. In addition, the
Directors approved the issuance of 10,000,000 stock options, issued to the CEO of 5BARz India Private Limited, to acquire common
stock of the Company at a price of $0.09 per share. The options have a 5-year term, and vest as to 10% immediately, 40% upon the
closing of a minimum of $13 million USD financing of 5BARz India Private Limited at a $100 million valuation and 50% one year from
the closing of said financing. The fair value of those warrants when vested are charged to expense as follows - $715,232 and $175,203
at June 30, 2016 and June 14, 2017, respectively. The fair value of the 10,000,000 options was $80,679 with respect to the
1,000,000 options that vested immediately, June 14, 2016 and $726,109 as to the options that were to vest based upon the performance
criteria discussed above. The performance criteria were not achieved.
On December 31, 2017, the Company settled
certain unpaid liabilities comprised of unpaid consulting fees and expenses for each of the CEO of 5BARz International, Inc. of
$350,000, the Chairman of 5BARz International Inc. of $350,000 and the CEO of 5BARz India Private Limited of $304,524. The
amounts were settled by the issuance of convertible notes, which bear interest at a rate of 8% per annum and are convertible on
demand at a price of $0.03 per share. Each convertible note is provided along with a warrant to acquire an equal number of
the conversion shares at a price of $0.20 per share and a similar issue of warrants at $0.10 per share. Accordingly warrants
to acquire an aggregate of 33,484,134 at a strike price of $0.20 and warrants were issued to acquire the same number of shares
at a strike price of $0.10 (see warrants Note 10). The warrants have a term of 2 years. The convertible notes of $1,004,524
remain a part of due to related parties at the balance sheet date, December 31, 2017.
On April 3, 2013, the Company entered into
a Trust Agreement with a US corporation controlled by Mr. Daniel Bland, the CEO, CFO and Director of the Company. From time
to time trust funds are paid by direct deposit by the Company or investors of the Company to the trust account. The trust agent
shall hold the trust deposits in the account of the trustee, and such account is not utilized for any purposes other than the business
of the Company. In June 2018 the trust account was closed.
F-37
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 11 - Related party
transactions (continued)
As December 31, 2017, 2016 and 2015 the amount due to
related parties is as follows:
Name of Related Party
|
|
Relationship
|
|
Description
|
|
2017
|
|
2016
|
|
2015
|
Aseema Softnet Technology
|
|
Managing Director spouse of CEO and Director of subsidiary
|
|
Engineering
Services
|
|
$
|
1,574,019
|
|
|
$
|
1,406,429
|
|
|
$
|
605,302
|
|
Daniel Bland
|
|
CEO, CFO, Director
|
|
Unpaid fees and expenses
|
|
|
353,611
|
|
|
|
194,724
|
|
|
|
103,590
|
|
Gil Amelio
|
|
Chairman of the Board
|
|
Unpaid fees and expenses
|
|
|
796,645
|
|
|
|
534,030
|
|
|
|
343,716
|
|
Samartha Nagabhushanam
|
|
CEO & Director of subsidiary
|
|
Unpaid fees and expenses
|
|
|
460,708
|
|
|
|
125,950
|
|
|
|
3,232
|
|
Garnel Bland
|
|
Spouse of the CEO
|
|
Loan
|
|
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
3,196,983
|
|
|
$
|
2,261,133
|
|
|
$
|
1,055,840
|
|
Amount due to related party include both accounts payable
and the convertible notes payable addressed above.
In each of fiscal year 2017, 2016 and 2015 the Company
paid $30,000 to the daughter of the CEO, CFO and Director of the Company, Mr. Daniel Bland, for administrative services.
Note 12 – Investment in
CelLynx Group, Inc.
On January 7, 2011 the Company entered
into a stock purchase agreement with two founding shareholders of CelLynx Group, Inc. to acquire in aggregate 63,412,638 shares
of the capital stock of CelLynx Group, Inc. for total proceeds of $634,126. At that date the Company had paid $170,000 as a deposit
made under that agreement. On March 29, 2012, the Company entered into a securities exchange agreement and settlement agreement
with each of the two founding shareholders of CelLynx Group, Inc. whereby in addition to the $170,000 paid, the Company issued
1,250,000 shares of its common stock in exchange for the 63,412,638 shares of CelLynx Group, Inc. and mutual releases were signed
between the parties releasing each from any further obligation.
On March 29, 2012, the Company acquired
a further interest in CelLynx Group, Inc. by conversion of $73,500 of convertible debt in CelLynx Group, Inc. for the issuance
of 350,000,000 shares in the capital stock of CelLynx Group, Inc.. As a result, in combination with the shares acquired from existing
shareholders referred to above, the registrant acquired a 60% controlling interest in CelLynx Group, Inc. and has accounted for
that acquisition as a consolidated subsidiary of the registrant effective March 29, 2012.
Subsequent to that acquisition, the Company has converted amounts
due, pursuant to the convertible line of credit agreement between the Company and CelLynx Group Inc., as follows:
Date
|
|
Amount converted
|
|
Shares issued
|
April 13, 2012
|
|
$
|
7,700
|
|
|
|
51,333,333
|
|
May 15, 2012
|
|
$
|
58,500
|
|
|
|
390,000,000
|
|
May 21, 2013
|
|
$
|
9,375
|
|
|
|
375,000,000
|
|
March 31, 2014
|
|
$
|
26,250
|
|
|
|
105,000,000
|
|
July 10, 2014
|
|
$
|
31,620
|
|
|
|
155,000,000
|
|
Each of the conversions reflected in the
preceding schedule increased the percentage ownership that the Company holds in CelLynx Group, Inc. to a 60% interest, subsequent
to dilution arising from the acquisition of stock by others. At December 31, 2017, the Company had a 60% equity ownership in CelLynx
Group, Inc. with the holding of 1,489,745,971
common shares.
F-38
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 13 – Asset Acquisition
Agreement
On
March 29, 2012, the Company and CelLynx Group Inc. entered into an agreement which provided several amendments to the agreement
referred to above. As a result of those amendments, the following arrangements between the Companies were established:
|
i.
5BARz International, Inc. acquired a 60% interest in the patents and trademarks held by CelLynx Group Inc., referred to as the “5BARz™” technology. That interest in the technology was acquired for proceeds comprised of 9,000,000 shares of the common stock of the Company, valued at the date of acquisition at $0.20 per share or $1,800,000 USD. The acquisition agreement also clarified that the ownership interest in the intellectual property does represent that proportionate interest in income earned from the intellectual property.
|
|
ii.
The Company had agreed to make available to CelLynx Group, Inc a revolving line of credit facility as amended in the amount of $2.2 million dollars on October 5, 2010. Pursuant to this revolving line of credit facility, which was scheduled to expire on October 5, 2013, the Company advanced $2,394,643 to the date of expiry. At September 30, 2013, the Company agreed to extend the term of the line of credit facility to CelLynx Group, Inc., for the lesser of one year, or the time that CelLynx Group, Inc. becomes self-sustaining from royalty income. Under the amended terms of the line of credit facility, the Company has the right to convert amounts due under the facility into common stock of CelLynx, at a conversion rate which is calculated at 51% of the average lowest three closing bid prices of the CelLynx Group, Inc. common stock for a period which is ten (10) days prior to the date of conversion. This conversion rate was established previously by other parties that have funded CelLynx and is being matched by 5BARz. At December 31, 2016, the Company holds 1,489,745,971 shares of the capital stock of CelLynx Group, Inc. and has a balance of $4,037,994 principle and interest due under the line of credit facility from Cellynx Group, Inc. On September 30, 2014, the Line of Credit agreement between the parties matured. CelLynx is a consolidated subsidiary of 5BARz International Inc., since March 29, 2012, therefore, amounts eliminate in consolidation.
|
|
iii.
Pursuant to the Master Global Marketing and Distribution agreement between 5BARz International,
Inc. and CelLynx Group, Inc., the registrant was obligated to pay to CelLynx Group, Inc. a royalty fee amounting to 50% of the
Company’s Net Earnings, from products or license arrangements related to the 5BARz™ technology, in a ratio equal to
the CelLynx proportionate interest in the underlying technology. Subsequent to the acquisition by 5BARz of a 60% interest in the
intellectual property from Cellynx, that Royalty was reduced to an effective Royalty amount of 20% of net earnings from products
or license arrangements related to the 5BARz technology. That fee would be paid on a quarterly basis, payable in cash or immediately
available funds and shall be due and payable not later than 45 days following the end of each calendar quarter of the year. The
asset acquisition agreement amendment referred to herein specified that the royalties would be paid in relation to the ownership
of the intellectual property. In addition, as a result of the acquisition of a 60% interest in CelLynx Group, Inc. by the registrant,
this royalty item is an intercompany transaction which in the future will be eliminated upon consolidation in financial reporting
of the consolidated financial results of 5BARz International Inc. and subsidiaries.
Write off of debt – Cellynx, Inc.
At the date of acquisition of Cellyx,
Inc, in 2012, certain debts existed on the books of that entity which have not been paid, pursued by the creditor,
nor have any formal or informal demands been made by the creditor. The debts are resident in the State of California
which has a four (4) year statute of limitations. During the year ended December 31, 2016 the Company write off
$579,395 of payables based on the statute of limitations that the liability can be extinguished.
|
F-39
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 14 – Litigation
Management is not aware of any legal proceedings contemplated
by any governmental authority or any other party involving us or our properties, other than those listed below. As of the date
of this Annual Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse
interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened
against us or our properties.
Prior
to the Company’s investment in CelLynx Inc., on July 19, 2010 certain claims for unpaid wages were filed against CelLynx,
Inc.. Judgments were obtained commencing in August 2011
for back wages by some of its former employees.
Some of
those claims have been partially
paid and others were expected
to be
paid
in the
normal course of
business
or
were to be otherwise
defended.
Those claims have now been incorporated
into California Labor Commission
awards in favor of
those former employees. Those
awards
total approximately $263,000 depending on
interest charges. As of December 31, 2017, and 2016, the Company has accrued $263,000 in its consolidated financial statements
associated to these awards.
On May 7, 2015, the Company’s registered
records office in Nevada received a complaint filed in the Los Angeles Superior Court against 5BARz International, Inc. by IRTH
Communications LLC claiming breach of contract and claiming unpaid fees, interest and expense claims in the amount of $82,040.
IRTH Communications LLC vs 5BARz International, Inc. SCI124140 (County of Los Angeles – West Judicial District).
On
August 5, 2015, the Company received a default judgment in the amount of $84,947 including costs and interest. On August 19, 2015,
the Company paid $5,000 related to the judgment. On December 30, 2015, the Company partially settled the amount due by delivery
of 500,000 shares of common stock with a value at the date of issue of $70,000. However, the value of that stock was $45,000 at
the date six months from the date of issue. At December 31, 2016 and 2017, the company’s consolidated financial statements
reflect a balance of $35,000 due under this judgment. The Company is negotiating a settlement of this remaining amount.
On May 13, 2015, the Company received a complaint filed in the Superior Court of the State of California,
County of San Diego against 5BARz International Inc, and Daniel Bland, by Assured Wireless International Corp. claiming breach
of contract and claiming unpaid fees and interest of $171,159, plus penalties.
Assured Wireless vs. 5BARz International Inc,
and Daniel Bland 37-2015-00012766-CU-BC-CTL (County of San Diego).
On June 29, 2016, the parties entered into a settlement
agreement for the payment of $170,000, of which $40,000 was paid at the settlement date. At that date, Daniel Bland was released
as a defendant in the action. At December 31, 2016, $130,000 remains unpaid and a stipulated judgement was issued under the settlement
agreement which is accrued as payable in the consolidated financial statements. The said stipulated judgement has been transferred
to a third party Ramona Featherby dba California Judicial Recovery Specialists. On October 18, 2018, the Company entered into a
settlement agreement to settle the judgment by way of payment of $105,000, paid over a period of five months. On October 19, 2018,
the Company paid $25,000 and has 4 monthly installments due of $20,000 each. At each of December 31, 2016 and 2017, the balance
reflected in the consolidated financial statements of the Company was $130,000 (see subsequent events note 16 to the December 31,
2017 consolidated financial statements included in this document).
On March 10,
2016, a complaint was filed in the Eleventh Judicial Circuit Court in Miami-Dade County, Florida, against 5BARz International,
Inc. and certain officers and employees of the Company by Group 10 Holdings, LLC, a lender by way of convertible debenture, claiming
breach of contract, fraud, negligent misrepresentation and unjust enrichment, claiming $110,000 plus interest at 12%.
Group
10 Holdings vs 5BARz International, Inc. et all 2016-005597 CA 01
. On July 12, 2016, the Company entered into a settlement
agreement with the plaintiff for the settlement of the claim for an aggregate of $153,000. The balance is to be paid by way of
a series of payments, commencing 7 days from the settlement date, each in the amount of $35,000. At each payment date the Company
has the option of paying the amount due in cash, or in common stock at the then market value of the stock. The holder is restricted
on a daily basis to a maximum sale of up to 15% of daily volume. On July 14, 2016, 333,333 of common shares were issued at a price
of $0.105 per share in lieu of $35,000 cash. On August 4, 2016, an additional 448,717 common shares were issued at a price of $0.078,
on November 1, 2016, the Company made an additional payment of $35,000 comprised of 416,666 shares at a price of $0.084 per share
and on December 7, 2016, the Company made a further payment of 594,228 shares at a price of $.0589 per share and on December 29,
2016 a further 673,077 at $0.052 was issued. At December 31, 2016, an unpaid balance of $13,289 was reflected as payable in the
consolidated financial statements as a result of a true up provision based upon actual sales proceeds. On February 6, 2017 the
Company issued a final 234,447 shares at $0.052 for aggregate proceeds of $12,191 to settle the note payable in full and dismissal
of the lawsuit with prejudice. At December 31, 2017 the balance due was nil.
F-40
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 14 – Litigation (continued)
On April 11, 2016, a complaint was filed in the Supreme Court of the State of New York, County of New York,
against 5BARz International Inc. and Daniel Bland by R Squared Partners LLC., a lender by way of convertible note. The complaint
alleges breach of contract, requests injunctive relief and tortious interference with Contract. The Company had borrowed $100,000
on June 2, 2015, pursuant to a Securities Purchase Agreement which included a convertible note agreement and the issuance of a
warrant to acquire 3,000,000 shares at a price of $0.05 per share, with a cashless exercise. The Company repaid interest on the
note on July 1, 2015 of $933 as required and repaid the loan principal of $100,000 on August 13, 2015 by wire transfer. Further,
on September 1, 2015, the Company issued 29,340 shares as final payout of the note via conversion into shares pursuant to the note
terms. Upon payout, R Squared refused to cancel the note payable and return the cancelled note to the Company as required by the
contract. On March 15, 2016, R Squared issued a cashless exercise notice of the warrant for 1,903,021 common shares. Further, R
Squared indicated that a further $100,000 was due under the note which is disputed by the Company. At December 31, 2016 and 2017,
the Company has no amount due as payable to R Squared. The Company reflects the 3,000,000 warrants in the name of R Squared issued
and outstanding in the consolidated financial statements December 31, 2016 and 2017. The warrants expire May 15, 2020. On January
8, 2019 a summary judgment was issued in the R Squared Partners, LLC vs 5BARz International, Inc., and Daniel Bland law suit. The
summary judgment was awarded without opposition as the parties were actively engaged in settlement negotiations. Accordingly,
the Company is filing a motion to vacate the order and or granting a motion to renew. The judgment awarded an interim order for
breach of contract in the sum of $380,571 plus late fees in the amount of $2,987 accruing daily from March 16, 2016. The Company’s
advisors hold that the judgment is based upon an agreement that charges interest
at usury rates,
illegal in the State of New York
(see subsequent events note 16 to the December 31, 2017 consolidated financial statements included in this document).
On April 22, 2016, a complaint was filed
in the Supreme Court of the State of New York, County of New York, against 5BARz International Inc. by Firstfire Global Opportunity
Fund, a lender by way of convertible note. The complaint alleges breach of contract, requests injunctive relief and tortious interference
with Contract. The Company had borrowed $100,000 on June 2, 2015. The Company repaid interest on the note on July 1, 2015 of $1,167
and repaid the loan principal of $100,000 on August 5, 2015 by wire transfer. Further, on August 5, 2015 the Company issued 24,000
shares as final payout of the note interest via conversion into shares pursuant to the note terms. First Fire Global Opportunity
Fund has made demand on the Company for an additional amount of $100,000 due under the note and exercise of warrants. The Company
disputes the claims for additional amounts due, the Company filed an answer to the complaint on May 31, 2016. On August 11, 2016,
the Company entered into a settlement agreement with the plaintiff and issued 750,000 common shares in settlement with restrictive
legend on the shares to be released, 250,000 shares each of August, September and October 2016. On December 31, 2016 and 2017,
the balance due under the note and warrant agreement was nil.
On May 31, 2016, a complaint was filed
in the United States District Court, Eastern District of New York, against 5BARz International, Inc. by LG Capital Funding, LLC,
a lender by way of convertible note issued on June 18, 2015, in the principal amount of $52,500. The complaint alleges that the
Company failed to deliver 1,699,580 shares pursuant to a notice of conversion, and seeks preliminary and permanent injunctive relief,
damages and attorney fees. The Company has responded with an initial Memorandum of Law on June 24, 2016, in opposition to the Plaintiffs
motion for permanent injunctive relief. The Company has accrued an amount of $64,609 due to the lender pursuant to the terms of
the convertible note agreement at December 31, 2016. On December 31, 2017, the Company reflected a balance due to the lender of
$75,616. On September 6, 2018, an order was entered which awarded damages of $110,472, plus legal fees. The additional amount of
$34,856 has been accrued in the 2018 fiscal year.
On July 6, 2016, a complaint was filed
in the District Court of Dallas County Texas, (DC-16-08001), against 5BARz International, Inc., and certain officers of the Company
by JSJ Investments, Inc, a lender by way of convertible note in the principal amount of $104,500. The complaint alleged breach
of contract, promissory estoppel as to note, and tortious interference with contract. On May 31, 2017, the Company and plaintiff
entered into a mediation and settled the law suit by agreement to pay $200,000 in shares at market over six equal monthly payments.
The Company paid by way of shares four payments from June to October 2017 in the aggregate amount of $133,332.
On February 9, 2018 a final judgment was
issued by the Dallas County District court for damages of $92,174 plus attorney fees of $15,275. At December 31, 2016, the balance
reflected as payable in the consolidated financial statements of the Company was $177,424, and on December 31, 2017 that balance
after the payments addressed above was $66,668. The increase of $25,506, plus legal fees pursuant to court order was reflected
in 2018. On September 7, 2018, the Company paid an additional $30,000 pursuant to a payment schedule negotiated with the lender
for the balance due.
F-41
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 14 – Litigation (continued)
On August 4, 2016, a complaint was filed
in the United States District Court, Southern District of New York, against 5BARz International, Inc. by Union Capital LLC, a lender
by way of convertible note in the principal amount of $100,000. The complaint alleged that the Company failed to deliver 4,299,689
shares pursuant to a notice of conversion, and seeks an order for specific performance, breach of contract, damages and attorney
fees. On October 5, 2016, the Company issued 4,299,689 shares in full settlement of the note. On November 5, 2016, the parties
entered into a settlement agreement providing mutual releases. The settlement agreement provides for an additional $25,000 payment
to be made by November 22, 2016. At December 31, 2016, the balance of $25,000 remained unpaid and is accrued as a liability in
the consolidated financial statements. On May 9, 2017, the Company was required by court order to pay legal fees and damages in
the aggregate amount of $48,414 and the case was dismissed. On July 26, 2017, a court ordered receiver was appointed to collect
the unpaid balance. On August 23, 2017, the Company paid $63,712 in legal fees and costs in full and final settlement of the unpaid
amounts. The balance due at December 31, 2017 is nil.
On August 5, 2016, a complaint was filed
in the United States District Court, Southern District of New York, against 5BARz International, Inc. by Adar Bays LLC, a lender
by way of convertible note in the principal amount of $52,500. The complaint alleged that the Company failed to deliver 184,775
shares pursuant to a notice of conversion, and seeks an order for injunctive relief, damages and attorney fees. On October 27,
2016, the Company and plaintiff negotiated a settlement agreement for payment of $83,733 in cash or shares over four months as
well as a payment of 184,775 shares issued upon signing of the agreement. On November 3, 2016, the company delivered the 184,775
shares pursuant to the settlement agreement, valued at $5,000. On December 6, 2016, having filed a 10Q, the Company sought permission
from plaintiff to commence payments in shares under the settlement agreement and issued the remaining shares. Plaintiff refused
receipt of settlement shares pursuant to the settlement agreement and has sought summary judgement pursuant to the terms of the
note. At December 31, 2016, the Company has reflected a principal and interest amount of $83,733. On May 16, 2017, the Company
issued 1,674,666 shares to be available for trading over three months. The plaintiff refused to accept the shares in settlement
of the debt. On August 16, 2018, a court order was issued for the settlement of the claims by petitioner in the amount of $58,514
plus interest, calculated to the date of order. On December 31, 2017, the principal and interest due pursuant to the court order
is $82,803, which is reflected in the consolidated financial statements. The additional interest accrued in 2018 to the date of
the court order was $7,220, which is reflected in the 2018 interest expense.
On September 19, 2016, a complaint was
filed in the Superior Court of the State of California, for the County of San Diego against 5BARz International, Inc. by Richard
Rajabi claiming $163,637 for breach of contract. The Company has filed an answer and counter claim in this matter. On December
31, 2016, the consolidated financial statements reflect an unpaid balance of $148,037. On October 18, 2017, a settlement agreement
and stipulation for entry of judgment was entered into by the parties for full settlement of the claims by payment by the Company
of $25,850. The settlement provided for payments on October 18, 2017 of $5,000, on November 16, 2017 a payment of $10,000 and a
final payment of $10,850 on December 16, 2016. At December 31, 2017, the consolidated financial statements reflect an unpaid balance
of $10,850 which was paid on January 12, 2018.
On December 1, 2016, a complaint was filed
in the United States District Court, Southern District of New York, against 5BARz International, Inc., by Blue Citi LLC, a lender
by way of convertible note in the principal amount of $110,000, entered into on August 26, 2015. On March 10, 2016, the Company
and Blue Citi entered into a settlement agreement for the payment of $168,065 in eight monthly payments for settlement of the note.
The Company paid four payments in the aggregate amount of $84,032 to Blue Citi LLC. Upon receipt of the fourth payment, Blue Citi
filed a law suit claiming breach of contract, requesting specific performance under the original note agreement and in the alternative
breach of contract under the settlement agreement. At December 31, 2016, the Company reflected a balance due of $84,033. On August
31, 2017, pursuant to court order, the Company delivered 1,857,777 shares at a price of $0.045 per share in further settlement
of an additional $83,600 and attorney’s fees of $18,988. Accordingly, the Company has paid $167,632 on the $110,000 note.
In response, the Company filed a cross motion to vacate that order and to dismiss the lawsuit on the basis that the Note violates
New York’s laws against criminal usury. On September 19, 2018, the New York District Court denied this cross motion yet pointed
out that it is possible that the New York Court of Appeals will see the issue differently. The District court ordered $180,204
in damages, $116,950 in prejudgment interest and $5,837 in attorney fees. On October 30, 2018, the Company filed a notice of appeal
in the United States Court of Appeals, Second Circuit, 1:16-cv-09027-VEC, which appeals that decision and order of the District
Court, granting the Petitioners motion and further appealed the denial of the district court to vacate the prior order for the
issuance of 1,857,777 shares and denying the dismissal of the lawsuit on the basis that the note violates New York law on the basis
of criminal usury. On December 31, 2017, the financial statement reflects a provision for loss on this matter in the amount of
$321,979. Should the Company prevail in the court of appeal, a refund of $83,600 would be required from the plaintiff.
F-42
,
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 14 – Litigation (continued)
On March 16, 2017, Alta Sorrento Office
Center, LLC filed a complaint in the Superior Court of California, County of San Diego, central division, Alta Sorrento Office
Center vs. 5BARz International, Inc. case number 37-2017-00009385-CU-UD-CTL. The complaint alleges that unpaid rent, interest and
common area fees in the amount of $48,951 are due and payable by the plaintiff and seeks prejudgment right to possession, of the
premises at suites 140 and 200, 9444 Waples Street, in San Diego, California. At December 31, 2016, unpaid rent of $24,422 has
been accrued as payable in these consolidated financial statements. On January 4, 2017, the Company paid for December 31, 2016
rent $24,073. The Company has filed an answer to the complaint on April 9, 2017 and entered into a stipulated amount due to be
paid to June 30, 2017 in the amount of $195,245. That amount is not paid, and the offices were surrendered to the landlord. At
December 31, 2017, the Company reflects a provision for loss on this matter in the amount of $295,595.
In addition to the above, the Company may
become involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes
are not predictable with assurance.
Note 15 – Accounts payable and accrued liabilities
Accounts payable and accrued expenses are comprised of the following:
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Product development costs
|
|
$
|
660,689
|
|
|
$
|
448,596
|
|
|
$
|
991,799
|
|
Consulting and wages
|
|
|
2,755,374
|
|
|
|
2,265,825
|
|
|
|
1,082,889
|
|
Legal and administrative
|
|
|
315,588
|
|
|
|
26,438
|
|
|
|
498,704
|
|
Acquired liabilities – CelLynx - 2012
|
|
|
364,116
|
|
|
|
360,716
|
|
|
|
1,118,495
|
|
Other
|
|
|
92,559
|
|
|
|
19,389
|
|
|
|
249,491
|
|
Total
|
|
$
|
4,188,326
|
|
|
$
|
3,120,964
|
|
|
$
|
3,941,378
|
|
F-43
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 16 – Subsequent events
Sales of Common Stock
Shares issued for cash
During the period January 1, 2018 to March
31, 2018, the Company issued 2,998,800 units at a price of $0.03 per unit for proceeds of $89,964. Each unit is comprised of one
share, one share purchase warrant to acquire a second share at a price of $0.20 per share acquired and one share purchase warrant
to acquire a third share at a price of $0.10 per share acquired. Each warrant has a two-year term.
During the period April 1, 2018 to June
30, 2018, the Company issued 666,666 units at a price of $0.03 per unit for proceeds of $20,000. Each unit is comprised of one
share, one share purchase warrant to acquire a second share at a price of $0.20 per share acquired and one share purchase warrant
to acquire a third share at a price of $0.10 per share acquired. Each warrant has a two-year term. The Company also issued 3,100,000
units at a price of $0.03 per unit for proceeds of $93,000. Each unit is comprised of one share and one share purchase warrant
to acquire a second share at a price of $0.20 per share acquired, with a two-year term on the attached warrant.
During the period July 1, 2018 to September
30, 2018, the Company issued 37,325,335 units at a price of $0.03 per unit for proceeds of $1,119,760. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant.
During the period October 1, 2018 to December
31, 2018, the Company issued 13,225,900 units at a price of $0.03 per unit for proceeds of $396,777. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant.
During the period January 1, 2019 to February
14, 2019, the Company issued 9,733,333 units at a price of $0.03 per unit for proceeds of $292,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant.
Shares issued
for services
During the period January 1, 2018 to March
31, 2018, the Company issued 567,867
shares at a price of $0.03 per share for services valued at $17,036. The Company also issued
750,000 shares at a price of $0.0325 per share for services valued at $24,375.
During the period April 1, 2018 to June
30, 2018, the Company issued 350,000 shares at a price of $0.029 per share for services valued at $10,150. The Company also issued
8,526,033 shares at a price of $0.03 per share for debt and services valued at $255,781.
During the period July 1, 2018 to September
30, 2018, the Company issued 750,000 shares at a price of $0.03 per share for services valued at $22,500.
During the period October 1, 2018 to December
31, 2018, the Company issued 308,840 shares at a price of $0.05 per share for services valued at $15,442. The Company also issued
333,334 shares at a price of $0.03 per share for services valued at $10,000.
Shares issued
for note and interest payable conversions
During the period July 1, 2018 to September
30, 2018, the Company issued 1,802,882 shares at a price of $0.03 per share for the settlement of interest payable with a total
value of $54,086. The Company also issued 2,917,649 shares at a price of $0.03 per share upon conversion of $87,529 of principal
and interest due under the terms of a convertible promissory note and the balance of principal and interest due under that note
after the conversion was nil.
During the period October 1, 2018 to December
31, 2018, the Company issued 506,056 shares at a price of $0.03 per share for the settlement of interest payable with a total value
of $15,182. The Company also issued 843,419 shares at a price of $0.03 per share upon conversion of $25,303 of principal and interest
due under the terms of a convertible promissory note and the balance of principal and interest due under that note after the conversion
was nil.
During the period January 1, 2019 to
February 14, 2019, the Company issued 8,083,557 shares at a price of $0.03 per share upon conversion of $242,507 of principal
and interest due under the terms of a convertible promissory note and the balance of principal and interest due under that
note after the conversion was nil.
F-44
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 16 – Subsequent events (continued)
Related Party Transactions –
Convertible Promissory Notes
On June 30, 2018, the Company settled certain
unpaid liabilities comprised of unpaid consulting fees and expenses for each of the CEO of 5BARz International, Inc. of $110,000,
the Chairman of 5BARz International Inc. of $110,000 and the CEO of 5BARz India Private Limited of $110,000. The amounts were settled
by the issuance of convertible notes, which bear interest at a rate of 8% per annum and are convertible on demand at a price of
$0.03 per share. Each convertible note is provided along with a warrant to acquire an equal number of the conversion shares at
a strike price of $0.20 per share and a similar issue of warrants at a strike price of $0.10 per share. Accordingly warrants to
acquire an aggregate of 11,000,000 shares at a strike price of $0.20 and warrants were issued to acquire the same number of shares
at a strike price of $0.10 were issued. The warrants have a term of 2 years.
Settlement of Convertible Promissory
Notes
During the period subsequent to December 31, 2017 several convertible
promissory notes were settled by way of litigation or settlement agreement as follows;
Note Reference
|
|
Balance
12/31/17
|
|
Settlement
Date
|
|
Settlement
Amount
|
|
Terms of Settlement
|
Note 8(b)
|
|
$
|
91,896
|
|
|
May 1, 2018
|
|
$
|
110,448
|
|
|
Settlement of 3,681,600 shares and warrants at $0.20
|
Note 8(h)
|
|
$
|
82,802
|
|
|
August 16, 2018
|
|
$
|
89,590
|
|
|
Litigation order, payment negotiation ongoing
|
Note 8(j)
|
|
$
|
75,616
|
|
|
Sept. 6, 2018
|
|
$
|
110,472
|
|
|
Litigation order, payment negotiation ongoing.
|
Note 8(k)
|
|
$
|
66,667
|
|
|
February 9, 2018
|
|
$
|
107,449
|
|
|
Litigation order, paid $30,000 Sept 7, 2018, balance due.
|
Note 8(O)
|
|
$
|
321,979
|
|
|
Sept 19, 2018
|
|
$
|
321,979
|
|
|
Litigation order, Appealed - United States District Court
|
Each of the settlements and judgments reflected above terminate
the note holders right to convert amounts due into common stock of the Company.
Other Litigation - Settlement
On October 19, 2018 the Company paid $25,000
as an initial payment in settlement of a stipulated judgment in favor of Ramona Featherby dba California Recovery Specialists.
The stipulated judgment was in the amount of $130,000 and the settlement agreement provided for $105,000 to be paid in four monthly
payments in full settlement of which $25,000 was paid, October 19, 2018. The balance due pursuant to the settlement agreement subsequent
to the payment is $80,000.
Litigation
On June 7, 2018, a complaint was
filed in the United States Court, Southern District of New York against 5BARz International, Inc. by EMA Financial LLC, a
lender by way of convertible note in the principal amount of $110,000. The Note was entered into on July 30, 2015, see Note
8(m). The complaint requests specific performance under the agreements, claims breach of contract, injunctive relief, costs
and attorney fees. On August 31, 2016, the Company had entered into a settlement agreement, which provided for a series of
six (6) monthly settlement payments, in the aggregate amount of $188,500 in full settlement of the above referenced note.
During the year to December 31, 2016, the Company paid $30,023 by way of the issuance of 389,910 shares. The balance
reflected in the consolidated financial statements at December 31, 2016 was $158,477. During 2017, the Company remitted a
further $96,659 in payments pursuant to the settlement agreement by way of three issuance of shares aggregating 1,431,447
common shares. At December 31, 2017, the balance due of $61,818 under the settlement agreement was reflected in the
consolidated financial statements.
On January 8, 2019 a summary judgment was
issued in the R Squared Partners, LLC vs 5BARz International, Inc., and Daniel Bland law suit. The summary judgment was awarded
without opposition as the parties were actively engaged in settlement negotiations. Accordingly, the Company is filing a
motion vacate the order and or granting a motion to renew. The judgment awarded an interim order for breach of contract in the
sum of $380,571 plus late fees in the amount of $2,987 accruing daily from March 16, 2016. The Company’s advisors hold that
the judgment is based upon an agreement that charges interest at usury rates, illegal in the State of New York.
F-45
5BARz International, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 16 – Subsequent events (continued)
Incorporation of 5BARz Technologies Pte. Ltd.
On October 23, 2018 the Company incorporated
a wholly owned subsidiary 5BARz Technologies Pte. Ltd., in Singapore, with the stated objective of the development of software
and programming activities related to the Companies developing Big Data business.
F-46
5BARz International Inc.
Form 10-Q
TABLE OF CONTENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016
|
|
F-48
|
|
|
|
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016
|
|
F-49
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016
|
|
F-50
|
|
|
|
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016
|
|
F-51
|
|
|
|
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016
|
|
F-52
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016
|
|
F-53
|
|
|
|
Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016
|
|
F-54
|
|
|
|
Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016
|
|
F-55
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016
|
|
F-56
|
|
|
|
Condensed Consolidated Statement of Stockholders’ Deficit for the nine months ended September 30, 2017
|
|
F-57
|
|
|
|
Notes to Condensed Consolidated Financial Statements
|
|
F-58
|
|
|
|
F-47
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,021
|
|
|
$
|
57,830
|
|
Cash held in trust
|
|
|
2,733
|
|
|
|
170,221
|
|
Inventories
|
|
|
176,672
|
|
|
|
195,523
|
|
Prepaid expenses and deposits
|
|
|
287,539
|
|
|
|
175,962
|
|
Other receivables
|
|
|
—
|
|
|
|
19,358
|
|
TOTAL CURRENT ASSETS
|
|
|
473,965
|
|
|
|
618,894
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS:
|
|
|
|
|
|
|
|
|
Furniture and equipment, net
|
|
|
76,193
|
|
|
|
174,862
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
1,903,425
|
|
|
|
2,270,477
|
|
Goodwill
|
|
|
1,140,246
|
|
|
|
1,140,246
|
|
TOTAL OTHER ASSETS
|
|
|
3,043,671
|
|
|
|
3,410,723
|
|
TOTAL ASSETS
|
|
$
|
3,593,829
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,173,170
|
|
|
$
|
3,120,964
|
|
Due to related parties
|
|
|
2,976,724
|
|
|
|
2,261,133
|
|
Taxes, interest and penalties
|
|
|
378,284
|
|
|
|
378,284
|
|
Derivative liabilities
|
|
|
108,742
|
|
|
|
1,302,543
|
|
Notes payable, net of debt discount
|
|
|
1,503,006
|
|
|
|
1,270,764
|
|
TOTAL CURRENT LIABILITIES
|
|
|
9,139,926
|
|
|
|
8,333,688
|
|
TOTAL LIABILITIES
|
|
|
9,139,926
|
|
|
|
8,333,688
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 600,000,000 shares authorized; 458,149,500 and 434,427,532 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively
|
|
|
458,151
|
|
|
|
434,428
|
|
Capital in excess of par value
|
|
|
25,592,465
|
|
|
|
24,395,983
|
|
Accumulated deficit
|
|
|
(32,388,036
|
)
|
|
|
(29,810,180
|
)
|
Accumulated other comprehensive income
|
|
|
45,753
|
|
|
|
94,301
|
|
TOTAL 5BARz STOCKHOLDERS’ DEFICIT
|
|
|
(6,291,667
|
)
|
|
|
(4,885,468
|
)
|
Non-controlling interest
|
|
|
745,570
|
|
|
|
756,259
|
|
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(5,546,097
|
)
|
|
|
(4,129,209
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
3,593,829
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-48
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
|
|
3 Months Ended
|
|
9 Months Ended
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
September 30, 2017
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
17
|
|
|
$
|
19,543
|
|
|
$
|
2,325
|
|
|
$
|
56,071
|
|
Cost of Sales
|
|
|
(387
|
)
|
|
|
(64,881
|
)
|
|
|
(5,837
|
)
|
|
|
(284,073
|
)
|
Gross loss
|
|
|
(370
|
)
|
|
|
(45,338
|
)
|
|
|
(3,512
|
)
|
|
|
(228,002
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
133,997
|
|
|
|
138,966
|
|
|
|
415,230
|
|
|
|
413,602
|
|
Sales and marketing expenses
|
|
|
176,431
|
|
|
|
224,948
|
|
|
|
373,427
|
|
|
|
875,737
|
|
Research & development
|
|
|
382,007
|
|
|
|
564,043
|
|
|
|
1,204,029
|
|
|
|
2,096,025
|
|
General and administrative expenses
|
|
|
614,422
|
|
|
|
918,748
|
|
|
|
1,948,677
|
|
|
|
2,895,185
|
|
Total operating expenses
|
|
|
1,306,857
|
|
|
|
1,846,705
|
|
|
|
3,941,363
|
|
|
|
6,280,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,307,227
|
)
|
|
|
(1,892,043
|
)
|
|
|
(3,944,875
|
)
|
|
|
(6,508,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
283,299
|
|
|
|
637,978
|
|
|
|
1,260,069
|
|
|
|
1,310,777
|
|
Gain (loss) on settlement of debt
|
|
|
—
|
|
|
|
(48,133
|
)
|
|
|
122,187
|
|
|
|
486,490
|
|
Interest expense
|
|
|
(33,297
|
)
|
|
|
(4,877
|
)
|
|
|
(108,200
|
)
|
|
|
(13,789
|
)
|
Interest expense – amortization debt discount
|
|
|
—
|
|
|
|
(27,922
|
)
|
|
|
—
|
|
|
|
(83,767
|
)
|
Interest expense – notes payable
|
|
|
—
|
|
|
|
(34,783
|
)
|
|
|
—
|
|
|
|
(99,397
|
)
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
82,274
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
250,002
|
|
|
|
522,263
|
|
|
|
1,356,330
|
|
|
|
1,600,314
|
|
Net loss
|
|
|
(1,057,225
|
)
|
|
|
(1,369,780
|
)
|
|
|
(2,588,545
|
)
|
|
|
(4,908,237
|
)
|
Less: Non-controlling interest share of net loss
|
|
|
3,419
|
|
|
|
3,262
|
|
|
|
10,689
|
|
|
|
9,853
|
|
Net loss, controlling interest
|
|
$
|
(1,053,806
|
)
|
|
$
|
(1,366,518
|
)
|
|
$
|
(2,577,856
|
)
|
|
$
|
(4,898,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per common share
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Weighted average number of shares outstanding
|
|
|
444,897,712
|
|
|
|
378,548,235
|
|
|
|
437,364,674
|
|
|
|
340,714,369
|
|
Net loss, controlling interest
|
|
|
(1,053,806
|
)
|
|
|
(1,366,518
|
)
|
|
|
(2,577,856
|
)
|
|
|
(4,898,384
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
(27,733
|
)
|
|
|
1,735
|
|
|
|
48,547
|
|
|
|
4,950
|
|
Other comprehensive income (loss)
|
|
|
(27,733
|
)
|
|
|
1,735
|
|
|
|
48,547
|
|
|
|
4,950
|
|
Total comprehensive loss
|
|
$
|
(1,081,539
|
)
|
|
$
|
(1,364,783
|
)
|
|
$
|
(2,529,309
|
)
|
|
$
|
(4,893,434
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
F-49
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
|
|
Nine Months Ended
|
|
|
September 30, 2017
|
|
September 30, 2016
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
Net loss
|
|
$
|
(2,588,545
|
)
|
|
$
|
(4,908,237
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
415,230
|
|
|
|
413,602
|
|
Stock based compensation
|
|
|
41,629
|
|
|
|
264,097
|
|
Warrants issued for services
|
|
|
175,203
|
|
|
|
751,936
|
|
Change in fair value of derivative liability
|
|
|
(1,260,069
|
)
|
|
|
(1,310,777
|
)
|
Common shares issued for services
|
|
|
290,632
|
|
|
|
331,118
|
|
Interest expense – debt discount
|
|
|
—
|
|
|
|
83,767
|
|
Inventory reserve expense
|
|
|
—
|
|
|
|
54,923
|
|
Gain on settlement of debt
|
|
|
(122,187
|
)
|
|
|
(486,490
|
)
|
Other income
|
|
|
(82,274
|
)
|
|
|
—
|
|
Deferred tax expense
|
|
|
|
|
|
|
—
|
|
Loss on disposition of assets
|
|
|
46,161
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in inventories
|
|
|
18,851
|
|
|
|
(28,153
|
)
|
Change in other receivable
|
|
|
19,358
|
|
|
|
(265,666
|
)
|
Change in accounts payable and accrued expenses
|
|
|
2,002,364
|
|
|
|
1,312,307
|
|
Change in prepaid expenses and deposits
|
|
|
(111,577
|
)
|
|
|
(92,117
|
)
|
Change in unpaid interest and penalties on notes payable
|
|
|
71,967
|
|
|
|
82,146
|
|
Net cash (used) in operating activities
|
|
|
(1,083,257
|
)
|
|
|
(3,797,544
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition (disposition) of intangible assets
|
|
|
—
|
|
|
|
(6,390
|
)
|
Purchase of furniture and equipment assets
|
|
|
—
|
|
|
|
(81,093
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(87,483
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
614,271
|
|
|
|
—
|
|
Proceeds used to settle notes payable
|
|
|
(32,678
|
)
|
|
|
(94,812
|
)
|
Proceeds from exercise of warrants
|
|
|
—
|
|
|
|
622,083
|
|
Proceeds from issuance of common stock
|
|
|
234,820
|
|
|
|
3,234,000
|
|
Principal payments of capital leases
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
816,413
|
|
|
|
3,761,271
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange on cash
|
|
|
48,547
|
|
|
|
(4,950
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(218,297
|
)
|
|
|
(128,706
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH HELD IN TRUST, BEGINNING OF YEAR
|
|
|
228,051
|
|
|
|
294,561
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH HELD IN TRUST, END OF PERIOD
|
|
$
|
9,754
|
|
|
$
|
165,855
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
|
|
$
|
31,041
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of shares in settlement of notes payable
|
|
$
|
—
|
|
|
$
|
1,293,003
|
|
Settlement of accounts payable with common stock
|
|
$
|
86,975
|
|
|
$
|
251,148
|
|
Issuance of shares for services
|
|
$
|
290,632
|
|
|
$
|
331,118
|
|
Settlement of notes payable and accrued expenses with common stock
|
|
$
|
455,539
|
|
|
$
|
—
|
|
Reclassification of derivative liability from equity
|
|
$
|
—
|
|
|
$
|
2,596,406
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
F-50
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2017 AND DECEMBER 31, 2016
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash
|
|
$
|
1,850
|
|
|
$
|
57,830
|
|
Cash held in trust
|
|
|
76,246
|
|
|
|
170,221
|
|
Inventories
|
|
|
177,733
|
|
|
|
195,523
|
|
Prepaid expenses and deposits
|
|
|
277,860
|
|
|
|
175,962
|
|
Other receivables
|
|
|
—
|
|
|
|
19,358
|
|
TOTAL CURRENT ASSETS
|
|
|
533,689
|
|
|
|
618,894
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS:
|
|
|
|
|
|
|
|
|
Furniture and equipment, net
|
|
|
125,776
|
|
|
|
174,862
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
2,026,405
|
|
|
|
2,270,477
|
|
Goodwill
|
|
|
1,140,246
|
|
|
|
1,140,246
|
|
TOTAL OTHER ASSETS
|
|
|
3,166,651
|
|
|
|
3,410,723
|
|
TOTAL ASSETS
|
|
$
|
3,826,116
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
3,897,513
|
|
|
$
|
3,120,964
|
|
Due to related parties
|
|
|
2,938,819
|
|
|
|
2,261,133
|
|
Taxes, interest and penalties
|
|
|
378,284
|
|
|
|
378,284
|
|
Derivative liabilities
|
|
|
381,396
|
|
|
|
1,302,543
|
|
Notes payable, net of debt discount
|
|
|
1,150,979
|
|
|
|
1,270,764
|
|
TOTAL CURRENT LIABILITIES
|
|
|
8,746,991
|
|
|
|
8,333,688
|
|
TOTAL LIABILITIES
|
|
|
8,746,991
|
|
|
|
8,333,688
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 600,000,000 shares authorized; 449,990,616 and 434,427,532 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
449,992
|
|
|
|
434,428
|
|
Capital in excess of par value
|
|
|
25,196,355
|
|
|
|
24,395,983
|
|
Accumulated deficit
|
|
|
(31,334,231
|
)
|
|
|
(29,810,180
|
)
|
Accumulated other comprehensive income
|
|
|
18,020
|
|
|
|
94,301
|
|
TOTAL 5BARz STOCKHOLDERS’ DEFICIT
|
|
|
(5,669,864
|
)
|
|
|
(4,885,468
|
)
|
Non-controlling interest
|
|
|
748,989
|
|
|
|
756,259
|
|
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(4,920,875
|
)
|
|
|
(4,129,209
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
3,826,116
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-51
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended
|
|
6 Months Ended
|
|
|
June 30,
2017
|
|
June 30, 2016
|
|
June 30,
2017
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,308
|
|
|
$
|
16,969
|
|
|
$
|
2,308
|
|
|
$
|
36,528
|
|
Cost of Sales
|
|
|
(5,450
|
)
|
|
|
(126,155
|
)
|
|
|
(5,450
|
)
|
|
|
(219,192
|
)
|
Gross loss
|
|
|
(3,142
|
)
|
|
|
(109,186
|
)
|
|
|
(3,142
|
)
|
|
|
(182,664
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
140,205
|
|
|
|
139,326
|
|
|
|
281,232
|
|
|
|
274,636
|
|
Sales and marketing expenses
|
|
|
81,969
|
|
|
|
393,745
|
|
|
|
196,995
|
|
|
|
650,789
|
|
Research & development
|
|
|
187,195
|
|
|
|
597,196
|
|
|
|
822,025
|
|
|
|
1,531,982
|
|
General and administrative expenses
|
|
|
701,638
|
|
|
|
1,556,387
|
|
|
|
1,334,254
|
|
|
|
1,976,436
|
|
Total operating expenses
|
|
|
1,111,007
|
|
|
|
2,686,654
|
|
|
|
2,634,506
|
|
|
|
4,433,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,114,149
|
)
|
|
|
(2,795,840
|
)
|
|
|
(2,637,648
|
)
|
|
|
(4,616,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
212,885
|
|
|
|
(1,037,049
|
)
|
|
|
976,770
|
|
|
|
672,799
|
|
Gain on settlement of debt
|
|
|
122,187
|
|
|
|
534,623
|
|
|
|
122,187
|
|
|
|
534,623
|
|
Interest expense
|
|
|
(63,396
|
)
|
|
|
(77,127
|
)
|
|
|
(74,903
|
)
|
|
|
(73,526
|
)
|
Interest expense – debt discount
|
|
|
—
|
|
|
|
(27,923
|
)
|
|
|
—
|
|
|
|
(55,845
|
)
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
82,274
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
271,676
|
|
|
|
(607,476
|
)
|
|
|
1,106,328
|
|
|
|
1,078,051
|
|
Net loss
|
|
|
(842,473
|
)
|
|
|
(3,403,316
|
)
|
|
|
(1,531,320
|
)
|
|
|
(3,538,456
|
)
|
Less: Non-controlling interest share of net loss (income)
|
|
|
3,381
|
|
|
|
(21,218
|
)
|
|
|
7,270
|
|
|
|
6,591
|
|
Net loss, controlling interest
|
|
$
|
(839,092
|
)
|
|
$
|
(3,424,534
|
)
|
|
$
|
(1,524,050
|
)
|
|
$
|
(3,531,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per common share
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
Weighted average number of shares outstanding
|
|
|
437,120,678
|
|
|
|
342,972,127
|
|
|
|
433,535,727
|
|
|
|
321,589,557
|
|
Net loss, controlling interest
|
|
|
(839,092
|
)
|
|
|
(3,424,534
|
)
|
|
|
(1,524,050
|
)
|
|
|
(3,531,865
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
19,423
|
|
|
|
(6,133
|
)
|
|
|
76,281
|
|
|
|
3,215
|
|
Other comprehensive income (loss)
|
|
|
19,423
|
|
|
|
(6,133
|
)
|
|
|
76,821
|
|
|
|
3,215
|
|
Total comprehensive loss
|
|
$
|
(819,669
|
)
|
|
$
|
(3,430,667
|
)
|
|
$
|
(1,447,770
|
)
|
|
$
|
(3,528,650
|
)
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-52
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
|
|
|
Six Months Ended
|
|
|
June 30, 2017
|
|
June 30, 2016
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net loss
|
|
$
|
(1,531,320
|
)
|
|
$
|
(3,538,456
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
281,232
|
|
|
|
274,636
|
|
Stock based compensation
|
|
|
29,778
|
|
|
|
218,325
|
|
Warrants issued for services
|
|
|
175,203
|
|
|
|
751,936
|
|
Change in fair value of derivative liability
|
|
|
(976,770
|
)
|
|
|
(672,799
|
)
|
Common shares issued for services
|
|
|
55,185
|
|
|
|
217,140
|
|
Interest expense – debt discount
|
|
|
—
|
|
|
|
55,844
|
|
Inventory reserve expense
|
|
|
—
|
|
|
|
34,266
|
|
Gain on settlement of debt
|
|
|
(122,187
|
)
|
|
|
(534,623
|
)
|
Other income
|
|
|
(82,274
|
)
|
|
|
—
|
|
Loss on disposition of assets
|
|
|
6,380
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in inventories
|
|
|
17,790
|
|
|
|
32,769
|
|
Change in other receivable
|
|
|
19,358
|
|
|
|
(28,257
|
)
|
Change in accounts payable and accrued expenses
|
|
|
1,612,982
|
|
|
|
725,505
|
|
Change in prepaid expenses and deposits
|
|
|
(101,898
|
)
|
|
|
(41,750
|
)
|
Change in unpaid interest and penalties on notes payable
|
|
|
49,843
|
|
|
|
49,673
|
|
Net cash used in operating activities
|
|
|
(566,698
|
)
|
|
|
(2,455,791
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition (disposition) of intangible assets
|
|
|
—
|
|
|
|
(3,915
|
)
|
Purchase of furniture and equipment assets
|
|
|
—
|
|
|
|
(85,232
|
)
|
Net cash (used in) investing activities
|
|
|
—
|
|
|
|
(89,147
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
129,442
|
|
|
|
—
|
|
Proceeds used to settle notes payable
|
|
|
—
|
|
|
|
(94,812
|
)
|
Proceeds from exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
Proceeds from issuance of common stock
|
|
|
211,020
|
|
|
|
2,437,000
|
|
Principal payments of capital leases
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
340,462
|
|
|
|
2,342,188
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange on cash
|
|
|
76,281
|
|
|
|
(3,215
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(149,955
|
)
|
|
|
(205,965
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH HELD IN TRUST, BEGINNING OF YEAR
|
|
|
228,051
|
|
|
|
294,561
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH HELD IN TRUST, END OF PERIOD
|
|
$
|
78,096
|
|
|
$
|
88,596
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
77,648
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of shares in settlement of notes payable
|
|
$
|
—
|
|
|
$
|
1,018,981
|
|
Settlement of accounts payable with common stock
|
|
$
|
76,975
|
|
|
$
|
—
|
|
Settlement of notes payable and accrued expenses with common stock
|
|
$
|
321,723
|
|
|
$
|
—
|
|
Reclassification of derivative liability from equity
|
|
$
|
—
|
|
|
$
|
1,989,653
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-53
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash
|
|
$
|
5,558
|
|
|
$
|
57,830
|
|
Cash held in trust
|
|
|
34,480
|
|
|
|
170,221
|
|
Inventories
|
|
|
178,683
|
|
|
|
195,523
|
|
Prepaid expenses and deposits
|
|
|
299,422
|
|
|
|
175,962
|
|
Other receivables
|
|
|
—
|
|
|
|
19,358
|
|
TOTAL CURRENT ASSETS
|
|
|
518,143
|
|
|
|
618,894
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS:
|
|
|
|
|
|
|
|
|
Furniture and equipment, net
|
|
|
142,023
|
|
|
|
174,862
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
2,148,955
|
|
|
|
2,270,477
|
|
Goodwill
|
|
|
1,140,246
|
|
|
|
1,140,246
|
|
TOTAL OTHER ASSETS
|
|
|
3,289,201
|
|
|
|
3,410,723
|
|
TOTAL ASSETS
|
|
$
|
3,949,367
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
3,558,985
|
|
|
$
|
3,120,964
|
|
Due to related parties
|
|
|
2,773,356
|
|
|
|
2,261,133
|
|
Taxes, interest and penalties
|
|
|
378,284
|
|
|
|
378,284
|
|
Derivative liabilities
|
|
|
577,241
|
|
|
|
1,302,543
|
|
Notes payable, net of debt discount
|
|
|
1,121,302
|
|
|
|
1,270,764
|
|
TOTAL CURRENT LIABILITIES
|
|
|
8,409,168
|
|
|
|
8,333,688
|
|
TOTAL LIABILITIES
|
|
|
8,409,168
|
|
|
|
8,333,688
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 600,000,000 shares authorized; 443,125,946 and 434,427,531 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
|
|
|
443,127
|
|
|
|
434,428
|
|
Capital in excess of par value
|
|
|
24,802,397
|
|
|
|
24,395,983
|
|
Accumulated deficit
|
|
|
(30,495,138
|
)
|
|
|
(29,810,180
|
)
|
Accumulated other comprehensive income
|
|
|
37,443
|
|
|
|
94,301
|
|
TOTAL 5BARz STOCKHOLDERS’ DEFICIT
|
|
|
(5,212,171
|
)
|
|
|
(4,885,468
|
)
|
Non-controlling interest
|
|
|
752,370
|
|
|
|
756,259
|
|
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(4,459,801
|
)
|
|
|
(4,129,209
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
3,949,367
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these consolidated financial statements.
F-54
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
|
|
|
3 Months Ended
|
|
|
March 31, 2017
|
|
March 31, 2016
|
Income Statement
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
—
|
|
|
$
|
19,559
|
|
Cost of Sales
|
|
|
—
|
|
|
|
(93,037
|
)
|
Gross loss
|
|
|
—
|
|
|
|
(73,478
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
141,028
|
|
|
|
135,310
|
|
Sales and marketing expenses
|
|
|
115,026
|
|
|
|
257,044
|
|
Research & development
|
|
|
634,829
|
|
|
|
934,786
|
|
General and administrative expenses
|
|
|
632,616
|
|
|
|
420,049
|
|
Total operating expenses
|
|
|
1,523,499
|
|
|
|
1,747,189
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,523,499
|
)
|
|
|
(1,820,667
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
763,885
|
|
|
|
1,709,848
|
|
Gain (loss) on settlement of debt
|
|
|
—
|
|
|
|
—
|
|
Interest expense
|
|
|
(11,507
|
)
|
|
|
3,601
|
|
Interest expense - debt discount
|
|
|
—
|
|
|
|
(27,922
|
)
|
Other income
|
|
|
82,274
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
834,652
|
|
|
|
1,685,527
|
|
Net loss
|
|
|
(688,847
|
)
|
|
|
(135,140
|
)
|
Less: Non-controlling interest share of net loss
|
|
|
3,889
|
|
|
|
27,809
|
|
Net loss, controlling interest
|
|
$
|
(684,958
|
)
|
|
$
|
(107,331
|
)
|
|
|
|
|
|
|
|
|
|
Basic (loss) per common share
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
Weighted average number of shares outstanding
|
|
|
429,747,053
|
|
|
|
300,206,988
|
|
Net loss, controlling interest
|
|
|
(684,958
|
)
|
|
|
(107,331
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
56,858
|
|
|
|
9,348
|
|
Other comprehensive income (loss)
|
|
|
56,858
|
|
|
|
9,348
|
|
Total comprehensive loss
|
|
$
|
(628,100
|
)
|
|
$
|
(97,983
|
)
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-55
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
|
|
|
Three Months Ended
|
|
|
March 31, 2017
|
|
March 31, 2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net loss
|
|
$
|
(688,847)
|
|
|
$
|
(135,140)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
141,028
|
|
|
|
135,310
|
|
Stock based compensation
|
|
|
15,886
|
|
|
|
55,362
|
|
Change in fair value of derivative liability
|
|
|
(763,885)
|
|
|
|
(1,709,848)
|
|
Common shares issued for services
|
|
|
40,000
|
|
|
|
35,455
|
|
Interest expense – debt discount
|
|
|
-
|
|
|
|
27,922
|
|
Inventory reserve expense
|
|
|
-
|
|
|
|
17,133
|
|
Other income
|
|
|
(82,274)
|
|
|
|
-
|
|
Gain on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
Loss on disposition of assets
|
|
|
6,258
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in inventories
|
|
|
16,840
|
|
|
|
12,293
|
|
Change in other receivable
|
|
|
19,358
|
|
|
|
(23,708)
|
|
Change in accounts payable and accrued expenses
|
|
|
976,529
|
|
|
|
240,926
|
|
Change in prepaid expenses and deposits
|
|
|
(123,460)
|
|
|
|
(18,624)
|
|
Change in unpaid interest and penalties on notes payable
|
|
|
2,735
|
|
|
|
(11,040)
|
|
Net cash used in operating activities
|
|
|
(439,832)
|
|
|
|
(1,373,959)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition (disposition) of intangible assets
|
|
|
-
|
|
|
|
(599)
|
|
Purchase of furniture and equipment assets
|
|
|
-
|
|
|
|
(2,198)
|
|
Net cash (used in) investing activities
|
|
|
-
|
|
|
|
(2,797)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
49,961
|
|
|
|
-
|
|
Proceeds used to settle notes payable
|
|
|
-
|
|
|
|
(22,500)
|
|
Proceeds from exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
Proceeds from issuance of common stock
|
|
|
145,000
|
|
|
|
1,391,000
|
|
Net cash provided by financing activities
|
|
|
194,961
|
|
|
|
1,368,500
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange
|
|
|
56,858
|
|
|
|
9,348
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE (INCREASE) IN CASH
|
|
|
(188,013)
|
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH HELD IN TRUST, BEGINNING OF YEAR
|
|
|
228,051
|
|
|
|
294,561
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH HELD IN TRUST, END OF PERIOD
|
|
$
|
40,038
|
|
|
$
|
295,653
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
14,741
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Settlement of accounts payable with common stock
|
|
$
|
40,000
|
|
|
$
|
25,584
|
|
Settlement of notes payable with common stock
|
|
$
|
212,811
|
|
|
$
|
697,259
|
|
Reclassification of warrants and options to derivative liabilities from equity
|
|
$
|
-
|
|
|
$
|
504,352
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
F-56
5BARz INTERNATIONAL INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
Accumulated
|
|
Accumulated Other Comprehensive
|
|
Non- Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
Par Value
|
|
Deficit
|
|
Income
|
|
Interest
|
|
Total
|
Balances, January 1, 2017
|
|
|
434,427,531
|
|
|
|
434,428
|
|
|
|
24,395,983
|
|
|
|
(29,810,180)
|
|
|
|
94,301
|
|
|
|
756,259
|
|
|
|
(4,129,209)
|
|
Shares issued for cash
|
|
|
2,900,000
|
|
|
|
2,900
|
|
|
|
142,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,000
|
|
Shares issued for service
|
|
|
800,000
|
|
|
|
800
|
|
|
|
39,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Shares issued for debt
|
|
|
797,005
|
|
|
|
797
|
|
|
|
39,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Shares on settlement of notes
|
|
|
4,201,410
|
|
|
|
4,201
|
|
|
|
208,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,811
|
|
Reclassification options/warrants
|
|
|
|
|
|
|
|
|
|
|
(38,584)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,584)
|
|
Stock options expense
|
|
|
|
|
|
|
|
|
|
|
15,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,886
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(684,958)
|
|
|
|
|
|
|
|
(3,889)
|
|
|
|
(688,847)
|
|
Foreign currency loss - AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,858)
|
|
|
|
|
|
|
|
(56,858)
|
|
Balances, March 31, 2017
|
|
|
443,125,946
|
|
|
|
443,127
|
|
|
|
24,802,397
|
|
|
|
(30,495,138)
|
|
|
|
37,443
|
|
|
|
752,370
|
|
|
|
(4,459,801)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
1,530,666
|
|
|
|
1,531
|
|
|
|
64,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,020
|
|
Shares issued for service
|
|
|
337,445
|
|
|
|
337
|
|
|
|
14,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,185
|
|
Shares issued for debt
|
|
|
739,500
|
|
|
|
740
|
|
|
|
36,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,975
|
|
Shares on settlement of notes
|
|
|
2,582,392
|
|
|
|
2,582
|
|
|
|
106,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,913
|
|
Reclassification options/warrants
|
|
|
|
|
|
|
|
|
|
|
(17,040)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,040)
|
|
Shares issued and unreleased
|
|
|
1,674,666
|
|
|
|
1,675
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,675
|
|
Warrants issued for services
|
|
|
|
|
|
|
|
|
|
|
175,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,203
|
|
Stock options expense
|
|
|
|
|
|
|
|
|
|
|
13,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,892
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(839,093)
|
|
|
|
|
|
|
|
(3,381)
|
|
|
|
(842,474)
|
|
Foreign currency loss - AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,423)
|
|
|
|
|
|
|
|
(19,423)
|
|
Balances, June 30, 2017
|
|
|
449,990,615
|
|
|
|
449,992
|
|
|
|
25,196,355
|
|
|
|
(31,334,231)
|
|
|
|
18,020
|
|
|
|
748,989
|
|
|
|
(4,920,875)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
680,000
|
|
|
|
680
|
|
|
|
23,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,800
|
|
Shares issued for service
|
|
|
3,980,667
|
|
|
|
3,981
|
|
|
|
231,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,447
|
|
Shares issued for debt
|
|
|
200,000
|
|
|
|
200
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Shares on settlement of notes
|
|
|
3,298,217
|
|
|
|
3,298
|
|
|
|
130,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,816
|
|
Reclassification options/warrants
|
|
|
|
|
|
|
|
|
|
|
(10,645)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,645)
|
|
Stock options expense
|
|
|
|
|
|
|
|
|
|
|
11,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,851
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,053,805)
|
|
|
|
|
|
|
|
(3,419)
|
|
|
|
(1,057,224)
|
|
Foreign currency gain - AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,733
|
|
|
|
|
|
|
|
27,733
|
|
Balances, September 30, 2017
|
|
|
458,149,499
|
|
|
|
458,151
|
|
|
|
25,592,465
|
|
|
|
(32,388,036)
|
|
|
|
45,753
|
|
|
|
745,570
|
|
|
|
(5,546,097)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
5BARz International, Inc.
Notes
to Condensed Consolidated Financial Statements
Note 1 – Organization and Going Concern
The Company was incorporated under the
laws of the State of Nevada on November 14, 2008. The Company was originally named “Bio-Stuff” and was a designated
shell corporation from inception to the date of acquisition of the 5BARz assets.
In 2010, the Company changed its name to
5BARz International, Inc. and the Company acquired a set of agreements for a 50% interest in certain intellectual property underlying
the 5BARz™ products, and marketing rights. The 5BARz products are highly engineered wireless units referred to as “cellular
network extenders”. The initial 5BARz™ device captures cell signal and provides a smart amplification and resend of
that cell signal giving the user improved cellular reception in their home, office or while mobile. On March 29, 2012, 5BARz International,
Inc. acquired a 60% controlling interest in CelLynx Group, Inc. (the founder of the 5BARz technology) and a 60% interest in the
intellectual property underlying the 5BARz™ cellular network extender products. During 2016, the Company developed a next
generation Wifi router and smart home hub, the ROVR, equipped with the 5BARz Smart Experience connectivity software and applications.
On January 12, 2015, the Company incorporated two new subsidiaries, 5BARz International SA de CV (99%) in Mexico, and 5BARz India
Private Limited (99.9%) in India. On June 27, 2016, the Company incorporated 5BARz Pte. Ltd. in Singapore a 100% owned subsidiary.
On January 18, 2017, the Company incorporated 5BARz Global Technology in Grand Cayman a 100% owned subsidiary.
These condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and related disclosures of the Company included
in the Company’s Annual Report on Form 10-K for the years ended December 31, 2017, 2016 and 2015, included elsewhere in this
filing. The Company’s accounting policies are more fully described in the Notes to the consolidated financial statements
in its Annual Report on Form 10-K for the years ended December 31, 2017, 2016 and 2015. These condensed consolidated financial
statements reflect the financial position for the Company and its subsidiary companies, CelLynx Group Inc. (60%) and its wholly
owned subsidiary CelLynx Inc. (100%), 5BARz International SA de CV (99%), 5BARz India Private Limited (99.9%) and 5BARz Pte. Ltd.
(100%) in Singapore. Results of operations for subsidiary Companies are reflected only from the date of acquisition of that subsidiary
for the period indicated in the respective statement.
Going concern
The accompanying
condensed consolidated financial statements been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. The Company has sales of $2,325 and $56,071
for the nine months ended September 30, 2017 and September 30, 2016, respectively. The Company incurred losses of $2,588,545 and
$4,908,237 during the nine months ended September 30, 2017 and 2016, respectively. Cash used in operating activities was $1,083,257
and $3,797,544 for the nine months ended September 30, 2017 and 2016, respectively. The
Company is seeking additional sources of equity or debt financing, and there is no assurance these activities will be successful.
These factors raise substantial doubt about the Company’s ability to continue as a going concern and the Company’s
continued existence is dependent upon adequate additional financing being raised to develop its sales and marketing program for
the sales of 5BARz product, to expand the Company’s product base and commence its planned operations.
These
conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months
from the issuance date of this report. The Company is seeking to raise capital through additional debt and/or equity financings
to fund its operations in the future. Management cannot provide assurance that we will ultimately achieve profitable operations
or become cash flow positive or raise additional debt and/or equity capital. Although we have historically raised capital from
sales of common stock, there is no assurance that we will be able to continue to do so. If we are unable to raise additional capital
or secure additional lending in the near future, management expects that we will need to curtail our operations. The Company’s
continued existence is dependent upon adequate additional financing being raised to develop its sales and marketing program for
the sales of 5BARz product, to expand the Company’s product base and commence its planned operations. Our condensed financial
statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should we be unable to continue as a going concern.
Management’s assessment of the significant
factors includes several quantitative and qualitative conditions.
|
·
|
Continued ability to generate proceeds from
private placements
– since inception of the business in 2008, the Company has financed operations through private placements
and debt. The Company’s gross proceeds from warrants exercise and private placements for the nine months ended September
30, 2017 was $849,091 compared to $3,856,083 in 2016. Further, the availability of capital markets for the Company have facilitated
the Company’s ability to pay for services and settle debt by way of the issuance of common shares. During the nine months
ended September 30, 2017, the Company settled debt and paid for services by the issuance of $833,146 in common shares, compared
to $1,875,269 during the nine months ended September 30, 2016.
|
F-58
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 1 – Organization and Going Concern (continued)
Going concern (continued)
·
Product Commercialization
– In August 2015, the Company became an approved vendor and received its first purchase orders for the Company’s patented “Cellular Network Extender” from a Tier 1 cellular network operator in India. Since that time the Company has received follow on orders from that customer. In March 2016, the Company became an approved vendor and received its first purchase orders for product from a second Tier 1 cellular network operator in India for Cellular Network Extenders.
|
|
·
|
Broadband Diversification Opportunity
- In conjunction with the work by the Company with Cellular Network operators in India, the Company has commenced delivery of a
new product the 5BARz ROVR, a smart WIFI device, pursuant to an agreement with a tier one broadband Company in India.
|
The accompanying consolidated financial
statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts
and classification of liabilities that may result should the Company be unable to continue as a going concern.
Note 2 – Summary of significant accounting policies
Basis of presentation
The accompanying condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United
States of America.
The accompanying condensed consolidated
financial statements include the accounts of 5BARz International Inc., and its subsidiary companies CelLynx Group Inc. (60%) and
its wholly owned subsidiary CelLynx Inc. (100%), 5BARz International SA de CV (99%) in Mexico, and 5BARz India Private Limited
(99.9%) in India. Results of operations for subsidiary Companies are reflected only from the date of acquisition of that subsidiary,
for the period indicated in the respective statements. All intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of these condensed consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include impairment analysis for long lived assets, income taxes, litigation
and valuation of derivative instruments. Actual results could differ from those estimates.
Research and development costs
Research and development costs are charged
to expense as incurred. The costs of materials and equipment that are acquired or constructed for research and development activities
and have alternative future uses (either in research and development, marketing or production), are classified as property and
equipment and depreciated over their estimated useful lives.
F-59
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
(continued)
Furniture and equipment
Furniture and equipment is recorded at
historical cost and is depreciated using the straight-line method over their estimated useful lives. The useful life and depreciation
method are reviewed periodically to ensure that the depreciation method and period are consistent with the anticipated pattern
of future economic benefits. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and
betterments are capitalized. Gains and losses on disposals are included in the results of operations. The furniture and equipment
is being depreciated over their estimated useful life of three to seven years.
Inventory
Inventories are carried at the lower of
cost and net realizable value. Cost is determined using the FIFO method. The aggregate inventory as of September 30, 2017 was $176,672,
June 30, 2017 was $177,733 and March 31, 2017 was $178,683.
Goodwill and other intangible assets
The Company accounts for goodwill and intangible
assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested
for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased
below its carrying value. The Accounting Standards Codification (“Codification”) requires that goodwill be tested for
impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill
impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting
units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the
fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions.
Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.
When testing goodwill for impairment, the
Company may assess qualitative factors for some or all of its reporting units to determine whether it is more likely than not (that
is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Alternatively, the Company may bypass this qualitative assessment for some or all of our reporting units and perform a detailed
quantitative test of impairment (step 1). If the Company performs the detailed quantitative impairment test and the carrying amount
of the reporting unit exceeds its fair value, the Company would perform an analysis (step 2) to measure such impairment. The Company
performed a qualitative assessment to identify and evaluate events and circumstances to conclude whether it is more likely than
not that the fair value of the Company’s reporting unit is less than its carrying amount. Based on the Company’s qualitative
assessments, the Company concluded that a positive assertion can be made from the qualitative assessment that it is not more likely
than not that the fair value of the reporting unit is less than its carrying amount. In accordance with the Codification, the Company
reviews the carrying value of its intangibles and other long-lived assets for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets
is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset
group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset or asset group, if any, exceeds its fair market
value. No impairment was deemed to exist as of September 30, 2017, June 30, 2017, March 31, 2017.
Cash Held in Trust
Cash held in trust is comprised in part
of amounts held in escrow by law firms engaged by the Company for the purpose of attending to financings entered into by the Company.
Pursuant to the terms of the Company’s subscription agreement, those trust funds are non-interest-bearing loans held until
such time as the subscription agreement is completed and the underlying security is issued by the Company. These trust arrangements
are not fixed term but occur from time to time in conjunction with financings in progress by the Company.
In addition, on April 3, 2013, the Company
entered into a Trust Agreement with Next Digital Corporation, a Company controlled by Mr. Daniel Bland, the CEO, CFO and Director
of the Company. Mr. Bland is the designated trustee of the Next Digital Corporation trust account. Trust fund deposits
are made by the Company or investors of the Company to the Next Digital bank account. The Trust funds remain on the books of the
Company as a cash asset, and said funds are utilized solely for operating expenses of the Company. The trust funds are disbursed
solely by the Trustee for expenditures for and on behalf of the Company and are made in compliance with the internal controls and
cash management policies of the Company. In June 2018 that trust account was closed.
Cash held in trust aggregated $2,773 on
September 30, 2017, $76,246 on June 30, 2017 and $34,480 on March 31,2017.
F-60
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
(continued)
Long-Lived Assets Subject to Amortization
The Company amortizes assets with finite
lives over their estimated useful lives and reviews them for impairment or whenever impairment exists. The Company continually
evaluates whether events or changes in circumstances might indicate that the remaining estimated useful life of long-lived assets
may warrant revision, or that the remaining balance may not be recoverable. When factors indicate that long-lived assets should
be evaluated for possible impairment, the Company uses an estimate of the related undiscounted cash flows in measuring whether
the long-lived asset should be written down to fair value. Further, the Company measures the market cap of the Company, in
relation to the underlying asset value to support the valuation of those assets. Measurement of the amount of impairment would
be based on generally accepted valuation methodologies, as deemed appropriate. The assets are being amortized over their estimated
useful life of seven to ten years.
There were no long-lived assets impairment
charges recorded as of September 30, 2017, June 30, 2017 and March 31, 2017.
Revenue recognition
The Company's revenue recognition policies
are in compliance with ASC Topic 605, “Revenue Recognition.” Revenue is recognized at the date that each
of the following conditions are met, (i) shipment to customers are complete, (ii) when the price is fixed or determinable, (iii)
the delivery is completed, (iv) no other significant obligations of the Company exist, and (v) collectability is reasonably assured.
Foreign currency translation
Items included in the financial statements are measured using their functional currency, being the currency
of the primary economic environment in which the Company operates. The financial statements are presented in US dollar which is
the Company’s functional and presentation currency. Transactions in foreign currencies have
been translated into US dollars using the current rate method. The functional currency of the Company’s subsidiary 5BARz
International SA de CV, in Mexico is the local currency, the Mexican Peso, and the functional currency in the Company’s subsidiary
5BARz India Private Limited is the functional currency in India, the Indian Rupee. The functional currency in the Company’s
subsidiary 5BARz Pte. Ltd. in Singapore is the Singapore Dollar. The functional currency in the Company’s subsidiary in the
Grand Caymans is the US Dollar which is equivalent to the Cayman Island dollar. Assets and liabilities are translated based on
the exchange rates at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing
during the year. Equity accounts are translated at historical exchange rates. The resulting translated gain and loss adjustments
are accumulated as a component of stockholders’ equity with other comprehensive income.
Concentrations
The Company maintains cash with major
financial institutions. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in Mexico, India and Singapore bank
accounts. There were aggregate uninsured cash balances of $6,774 at September 30, 2017, $ 2,835 at June 30, 2017 and $3,129 at
March 31, 2017, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined
as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources.
It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
The guidance requires other comprehensive income (loss) to include foreign currency translation adjustments.
F-61
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
– continued
Foreign Operations
The following summarizes key financial
metrics associated with the Company’s foreign operations:
|
|
September 30, 2017
|
|
June 30, 2017
|
|
March 31, 2017
|
|
December 31, 2016
|
Assets- U.S.
|
|
$
|
3,173,599
|
|
|
$
|
3,419,382
|
|
|
$
|
3,544,230
|
|
|
$
|
3,826,006
|
|
Assets- Mexico
|
|
|
74,648
|
|
|
|
69,565
|
|
|
|
70,156
|
|
|
|
94,147
|
|
Assets- India
|
|
|
344,547
|
|
|
|
335,924
|
|
|
|
333,543
|
|
|
|
243,570
|
|
Assets - Singapore
|
|
|
1,035
|
|
|
|
1,245
|
|
|
|
1,438
|
|
|
|
40,756
|
|
Assets- Total
|
|
$
|
3,593,829
|
|
|
$
|
3,826,116
|
|
|
$
|
3,949,367
|
|
|
$
|
4,204,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities- U.S.
|
|
$
|
7,436,598
|
|
|
$
|
7,276,959
|
|
|
$
|
7,215,005
|
|
|
$
|
7,106,868
|
|
Liabilities- Mexico
|
|
|
175,281
|
|
|
|
177,041
|
|
|
|
169,831
|
|
|
|
154,341
|
|
Liabilities- India
|
|
|
1,522,920
|
|
|
|
1,287,906
|
|
|
|
1,020,754
|
|
|
|
1,067,090
|
|
Liabilities - Singapore
|
|
|
5,127
|
|
|
|
5,085
|
|
|
|
3,579
|
|
|
|
5,389
|
|
Liabilities- Total
|
|
$
|
9,139,926
|
|
|
$
|
8,746,991
|
|
|
$
|
8,409,169
|
|
|
$
|
8,333,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the three months ended
|
|
For the three months ended
|
|
|
September 30,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
March 31,
|
|
March 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues- U.S.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Revenues- Mexico
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- India
|
|
|
17
|
|
|
|
19,543
|
|
|
|
2,308
|
|
|
|
16,969
|
|
|
|
—
|
|
|
|
19,559
|
|
Revenues- Singapore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- Total
|
|
$
|
17
|
|
|
$
|
19,543
|
|
|
$
|
2,308
|
|
|
$
|
16,969
|
|
|
$
|
—
|
|
|
$
|
19,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss- U.S.
|
|
$
|
659,291
|
|
|
$
|
1,014,831
|
|
|
$
|
523,802
|
|
|
$
|
2,967,092
|
|
|
$
|
514,918
|
|
|
$
|
(193,308
|
)
|
Net (income) loss- Mexico
|
|
|
(343
|
)
|
|
|
43,473
|
|
|
|
7,801
|
|
|
|
46,398
|
|
|
|
39,549
|
|
|
|
57,188
|
|
Net loss- India
|
|
|
395,743
|
|
|
|
310,103
|
|
|
|
305,114
|
|
|
|
379,709
|
|
|
|
116,952
|
|
|
|
271,260
|
|
Net loss- Singapore
|
|
|
2,534
|
|
|
|
1,373
|
|
|
|
5,756
|
|
|
|
10,117
|
|
|
|
17,428
|
|
|
|
—
|
|
Net Loss- Total
|
|
$
|
1,057,225
|
|
|
$
|
1,369,780
|
|
|
$
|
842,473
|
|
|
$
|
3,403,316
|
|
|
$
|
688,847
|
|
|
$
|
135,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
|
|
For the six months ended
|
|
|
September 30,
|
|
September 30,
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues- U.S.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Revenues- Mexico
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- India
|
|
|
2,325
|
|
|
|
56,071
|
|
|
|
2,308
|
|
|
|
36,528
|
|
Revenues – Singapore
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Revenues- Total
|
|
$
|
2,325
|
|
|
$
|
56,071
|
|
|
$
|
2,308
|
|
|
$
|
36,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss- U.S.
|
|
$
|
1,698,011
|
|
|
$
|
3,788,616
|
|
|
$
|
1,038,720
|
|
|
$
|
2,773,784
|
|
Net loss- Mexico
|
|
|
47,007
|
|
|
|
147,059
|
|
|
|
47,350
|
|
|
|
103,586
|
|
Net loss- India
|
|
|
817,809
|
|
|
|
961,072
|
|
|
|
422,066
|
|
|
|
650,969
|
|
Net loss - Singapore
|
|
|
25,718
|
|
|
|
11,490
|
|
|
|
23,184
|
|
|
|
10,117
|
|
Net Loss- Total
|
|
$
|
2,588,545
|
|
|
$
|
4,908,237
|
|
|
$
|
1,531,320
|
|
|
$
|
3,538,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
(continued)
Fair value of financial instruments
The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, amounts due to related parties, notes payable and other
current liabilities, approximate fair value due to the short-term nature of these instruments.
Fair value is defined as an exit price,
representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction
between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants
would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair
value as follows:
|
• Level 1.
|
Quoted prices in active markets for identical assets or liabilities.
|
|
• Level 2.
|
Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
|
|
• Level 3.
|
Significant unobservable inputs that cannot be corroborated by market data.
|
The assets or liability’s fair value
measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
The following table provides a summary of the assets that are measured at fair value on a recurring basis:
|
|
Consolidated
Balance Sheet
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
Quoted Prices for Similar Assets or Liabilities in Active Markets
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
$
|
108,742
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
108,742
|
|
June 30, 2017
|
|
$
|
381,396
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
381,396
|
|
March 31, 2017
|
|
$
|
577,241
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
577,241
|
|
December 31, 2016
|
|
$
|
1,302,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,302,543
|
|
The following table sets forth a summary
of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring
basis:
|
|
September 30, 2017
|
|
June 30,
2017
|
|
March 31, 2017
|
|
December 31, 2016
|
Beginning balance
|
|
$
|
381,396
|
|
|
$
|
577,241
|
|
|
$
|
1,302,543
|
|
|
$
|
1,868,439
|
|
Aggregate fair value of conversion feature upon issuance of common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Change in fair value of derivative liabilities
|
|
|
(283,299
|
)
|
|
|
(212,886
|
)
|
|
|
(763,885
|
)
|
|
|
(3,485,801
|
)
|
Reclassification of warrants to derivative liability
|
|
|
6,462
|
|
|
|
9,968
|
|
|
|
30,095
|
|
|
|
2,785,655
|
|
Reclassification of options to derivative liability
|
|
|
4,183
|
|
|
|
7,073
|
|
|
|
8,488
|
|
|
|
134,249
|
|
Ending balance
|
|
$
|
108,742
|
|
|
$
|
381,396
|
|
|
$
|
577,241
|
|
|
$
|
1,302,543
|
|
F-63
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
(continued)
Fair value of financial instruments (continued)
The derivative conversion feature liabilities
are measured at fair value using the Black-Scholes pricing model and are classified within Level 3 of the valuation hierarchy.
The significant assumptions and valuation methods that the Company used to determine fair value and the change in fair value of
the Company’s derivative financial instruments are provided below:
|
|
September 30, 2017
|
|
June 30,
2017
|
|
March 31,
2017
|
|
December 31, 2016
|
Stock price
|
|
$
|
0.031
|
|
|
$
|
0.041
|
|
|
$
|
0.046
|
|
|
$
|
0.0513
|
|
Volatility
|
|
|
89.65
|
%
|
|
|
94.91
|
%
|
|
|
94.99
|
%
|
|
|
104.69
|
%
|
Risk-free interest rate
|
|
|
1.06
|
%
|
|
|
1.03
|
%
|
|
|
0.76
|
%
|
|
|
0.51
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life
|
|
|
1.70 years
|
|
|
|
1.26 years
|
|
|
|
1.89 years
|
|
|
|
1.31 years
|
|
Both observable and unobservable inputs
may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized
gains and losses for assets within the Level 3 category presented in the tables above may include changes in fair value that were
attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company
data) inputs.
Financial assets are considered Level 3
when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least
one significant model assumption or input is unobservable.
Level 3 financial liabilities consist of
the derivative liabilities for which there is no current market such that the determination of fair value requires significant
judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed
each period based on changes in estimates or assumptions and recorded as appropriate.
Derivative instruments
The fair value of an embedded
conversion option that is convertible into a variable amount of shares and warrants that include price protection reset
provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for
treatment as a derivative under ASC 815 “Derivatives and Hedging”. As a result, the conversion feature is marked
to market at each reporting period. The accounting treatment of derivative financial instruments requires that the Company
record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair
value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or
expense for each reporting period at each balance sheet date. The Company re assesses the classification of its derivative
instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract
is reclassified as of the date of the event that caused the reclassification.
If the Company were to enter into a financial arrangement through the issuance of convertible debt and or warrants, for which
such instruments would contain a variable conversion feature with an indeterminable number of shares, the Company would apply
a sequencing policy in accordance with ASC 815- 40-35-12 whereby such instruments, and all future issuances of financial instruments
regardless of conversion terms, would be classified as a derivative liability with the exception of instruments related to
share-based compensation issued to employees or directors. The Company may also apply sequencing in any circumstance, whereby
the Company has entered into financial arrangements for commitments to issue shares, for which such issuances would exceed
the authorized share limit. Upon the issuance of any such instrument, the excess shares committed to be issued, would also
be reclassified as a derivative liability.
The Black-Scholes option valuation model
was used to estimate the fair value of the warrants and conversion options. The model includes subjective input assumptions that
can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period
of time equal to the weighted average life of the warrants or conversion options. Conversion options are recorded as debt discount
and are amortized as interest expense over the life of the underlying debt instrument.
F-64
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
(continued)
Amortization of Debt Discount
The Company issued various debt with warrants
for which total proceeds were allocated to individual instruments based on the relative fair value of the each instrument at the
time of issuance. The value of the debt was recorded as discount on debt and amortized over the term of the respective debt.
Stock Based Compensation
The Company records stock-based compensation
in accordance with ASC Topic 718, “Compensation – Stock Compensation.” ASC 718 requires companies to measure
compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s
requisite service period. Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s
stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns
and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
The Company uses the Black-Scholes option-pricing
model which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex
and subjective variables including the expected life of options granted and the Company’s expected stock price volatility
over a period equal to or greater than the expected life of the options.
Although the fair value of employee stock
options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/seller market transaction.
For non-employees, the fair value of
the award is generally re-measured on financial reporting dates and vesting dates until the service period is complete. The fair
value amount is then recognized over the period the services are required to be provided in exchange for the award, usually the
vesting period.
The Company incurred stock based compensation
charges relating to options during the three, six and nine-months period ended March 31, 2017 and 2016, June 30, 2017 and 2016,
September 30, 2017 and 2016 as follows:
|
|
For the Nine Months Ended
|
|
For the Six Months Ended
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
|
September 30,
2016
|
|
|
|
June 30,
2017
|
|
|
|
June 30, 2016
|
|
|
|
March 31,
2017
|
|
|
|
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
41,629
|
|
|
$
|
223,447
|
|
|
$
|
29,788
|
|
|
$
|
177,675
|
|
|
$
|
15,886
|
|
|
$
|
14,711
|
|
Research and development
|
|
|
—
|
|
|
|
33,644
|
|
|
|
—
|
|
|
|
33,644
|
|
|
|
—
|
|
|
|
33,644
|
|
Sales and marketing
|
|
|
—
|
|
|
|
7,007
|
|
|
|
—
|
|
|
|
7,007
|
|
|
|
—
|
|
|
|
7,007
|
|
Total
|
|
$
|
41,629
|
|
|
$
|
264,098
|
|
|
$
|
29,788
|
|
|
$
|
218,326
|
|
|
$
|
15,886
|
|
|
$
|
55,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 2 – Summary of significant accounting policies
(continued)
Net loss per share
The Company reports net loss per share
in accordance with the ASC Topic 260, “Earnings Per Share”, which requires presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying
condensed consolidated financial statements, basic earnings per share of common stock is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period plus the issuance of common shares, if dilutive, that could
result from the exercise of outstanding stock options and warrants and conversion of notes payable. These potentially dilutive
securities outstanding at September 30, 2017, June 30, 2017 and March 31, 2017, respectively, of 235,512,048, 243,743,847 and 251,254,051
were not included in the calculation of loss per common share, because their effect would be anti-dilutive.
The Company may not have sufficient Common
shares available to issue should all of the above conversions and exercises occur. Accordingly, the Company may have to settle
these contracts in cash if they are not successful in increasing the authorized number of shares. (see Note 10 for derivative liabilities).
The Company applies sequencing with respect
to such commitments and other circumstances as disclosed in its accounting policies for derivatives.
Reclassifications
Certain prior year balances have
been reclassified in order to conform to current year presentation. These reclassifications have no effect on previously reported
results of operations or loss per share.
Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date up to the date the financial statements are issued. Based upon the evaluation, the Company
did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed
consolidated financial statements, except as disclosed in Note 16 to the December 31, 2017 financial statements included in this
document.
Note 3 – Furniture & equipment
Furniture & Equipment consisted of the following at March
31, 2017, June 30, 2017, September 30, 2017 and December 31, 2016:
|
|
September 30, 2017
|
|
June 30,
2017
|
|
March 31,
2017
|
|
December 31,
2016
|
Furniture and equipment
|
|
$
|
97,845
|
|
|
$
|
162,258
|
|
|
$
|
162,226
|
|
|
$
|
172,188
|
|
Research and development equipment
|
|
|
78,367
|
|
|
|
78,367
|
|
|
|
78,367
|
|
|
|
78,367
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
56,128
|
|
|
|
56,128
|
|
|
|
62,527
|
|
|
|
|
176,212
|
|
|
|
296,753
|
|
|
|
296,721
|
|
|
|
313,082
|
|
Accumulated amortization & depreciation
|
|
|
(100,019
|
)
|
|
|
(170,977
|
)
|
|
|
(154,698
|
)
|
|
|
(138,220
|
)
|
Furniture & equipment net
|
|
$
|
76,193
|
|
|
$
|
125,776
|
|
|
$
|
142,023
|
|
|
$
|
174,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three, six and nine-months ended
March 31, 2017, June 30, 2017 and September 30, 2017 the Company incurred amortization and depreciation expense of $17,388, $33,661
and $16,478 respectively.
F-66
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 4 – Intangible Assets,
net
Intangible assets which are recorded at cost comprise of:
|
|
September 30, 2017
|
|
June 30,
2017
|
|
March 31, 2017
|
|
December 31,
2016
|
Technology
|
|
$
|
3,091,615
|
|
|
$
|
3,090,787
|
|
|
$
|
3,089,539
|
|
|
$
|
3,087,989
|
|
Marketing and distribution agreement
|
|
|
370,000
|
|
|
|
370,000
|
|
|
|
370,000
|
|
|
|
370,000
|
|
Trademarks
|
|
|
264
|
|
|
|
264
|
|
|
|
264
|
|
|
|
264
|
|
License rights
|
|
|
1,348
|
|
|
|
1,348
|
|
|
|
1,348
|
|
|
|
1,348
|
|
|
|
|
3,463,227
|
|
|
|
3,462,398
|
|
|
|
3,461,151
|
|
|
|
3,459,601
|
|
Accumulated amortization
|
|
|
(1,559,802
|
)
|
|
|
(1,435,994
|
)
|
|
|
(1,312,196
|
)
|
|
|
(1,189,124
|
)
|
Technology and other intangibles, net
|
|
$
|
1,903,425
|
|
|
$
|
2,026,405
|
|
|
$
|
2,148,955
|
|
|
$
|
2,270,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 2, 2014, the Company commenced
amortization of technology and other intangibles upon delivery of commercial beta devices for testing to a collaboration partner.
During the three, six and nine-months period ended March 31, 2017, $123,072 (2016 - $123,558), June 30, 2017, $246,870 (2016-$246,576)
and September 30, 2017, $370,678 (2016-$369,312) were recorded as amortization on technology and other intangibles, respectively.
Note 5 - Goodwill
The changes in the carrying amount of goodwill
for the three, six and nine-months period ended March 31, 2017, June 30, 2017, September 30, 2017 and the year ended December 31,
2016 is as follows:
|
|
September 30, 2017
|
|
June 30,
2017
|
|
March 31, 2017
|
|
December 31, 2016
|
Goodwill – beginning of period
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
Goodwill – end of period
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
|
$
|
1,140,246
|
|
Note 6 – Sales of common stock
During the nine months ended September
30, 2017, the Company has issued shares of common stock as follows:
Shares issued for cash
During the period January 1, 2017 to March
31, 2017, the Company issued 1,100,000 units at a price of $0.05 per unit for proceeds of $55,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant. The Company also issued 1,800,000 units at a price of $0.05 per unit for proceeds of $90,000. Each unit is
comprised of one share and two share purchase warrants to acquire a second share at a price of $0.20 per share acquired, with a
two-year term on the attached warrant.
During the period April 1, 2017 to June
30, 2017, the Company issued 460,000 units at a price of $0.05 per unit for proceeds of $23,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant. The Company also issued 460,000 units at a price of $0.045 per unit for proceeds of $20,700. Each unit is
comprised of one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a
two-year term on the attached warrant. The Company issued 400,000 units at a price of $0.04 per unit for proceeds of $16,000. Each
unit is comprised of one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired,
with a two-year term on the attached warrant. Lastly, the Company issued 210,666 units at a price of $0.03 per unit for proceeds
of $6,320. Each unit is comprised of one share and one share purchase warrant to acquire a second share at a price of $0.20 per
share acquired, with a two-year term on the attached warrant.
F-67
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 6 – Sales of common stock (continued)
Shares issued for cash (continued)
During the period July 1, 2017 to September
30, 2017, the Company issued 680,000 units at a price of $0.035 per unit for proceeds of $23,800. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant.
Shares issued
for services
During the period January 1, 2017 to March
31, 2017, the Company issued 800,000 shares at a price of $0.05 per share for services valued at $40,000.
During the period April 1, 2017 to June
30, 2017, the Company issued 337,445 shares at a price of $0.045 per share for services valued at $15,185.
During the period July 1, 2017 to September
30, 2017, the Company issued 2,160,000 shares at a price of $0.05 per share for services valued at $108,000. The Company also issued
1,820,667 shares at a price of $0.07 per share for services with a total value of $127,447.
Shares issued for debt
During the period January 1, 2017 to March
31, 2017, the Company issued 197,005 shares at a price of $0.05076 per share in settlement of debt valued at $10,000. The Company
issued 600,000 shares at a price of $0.05 per share in settlement of debt valued at $30,000.
During the period April 1, 2017 to June
30, 2017, the Company issued 739,500 shares at a price of $0.05 per share in settlement of debt valued at $36,975.
During the period July 1, 2017 to September
30, 2017, the Company issued 200,000 shares at a price of $0.05 per share in settlement of debt valued at $10,000.
Shares issued
for note payable conversion
During the period January 1, 2017 to March
31, 2017, the Company issued 2,831,310 shares at a price of $0.05 per share for the settlement of convertible notes payable with
a total value of $141,566. The Company also issued 1,370,100 shares at a price of $0.052 per share on conversion of convertible
notes payable with a total value of $71,245.
During the period April 1, 2017 to June
30, 2017, the Company issued 902,852 shares at a price of $0.037 per share for the settlement of convertible notes payable with
a total value of $33,333. The Company also issued 3,354,206 shares at a price of $0.045 per share on conversion of convertible
notes payable with a total value of $150,939. Of those shares issued, 1,674,666 have not been released to the holder, and are reflected
on the books at par value of $0.001 per share or $1,675.
During the period July 1, 2017 to September
30, 2017, the Company issued 800,000 shares at a price of $0.03 per share for the settlement of convertible notes payable with
a total value of $24,000. The Company issued 846,015 shares at a price of $0.0394 per share on conversion of convertible notes
payable with a total value of $33,333. The Company issued 178,237 shares at a price of $0.045 per share on conversion of convertible
notes payable with a total value of $8,021. The Company issued 762,019 shares at a price of $0.0461 per share on conversion of
convertible notes payable with a total value of $35,129. Lastly, the Company issued 711,946 shares at a price of $0.04682 per share
on conversion of convertible notes payable with a total value of $33,333.
F-68
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 7 – Notes Payable
Promissory Notes
5BARz International, Inc.
|
|
Note
|
|
Balance
|
|
Balance
|
|
Balance
|
|
Balance
|
|
|
Terms
|
|
September 30, 2017
|
|
June 30, 2017
|
|
March 31, 2017
|
|
December 31, 2016
|
Issue Date
|
|
|
|
|
|
|
|
|
December 17, 2012
|
|
(a)
|
|
$
|
116,620
|
|
|
$
|
114,314
|
|
|
$
|
112,079
|
|
|
$
|
109,911
|
|
January 8, 2013
|
|
(b)
|
|
|
78,316
|
|
|
|
88,531
|
|
|
|
75,034
|
|
|
|
86,331
|
|
October 6, 2014
|
|
(c)
|
|
|
257,604
|
|
|
|
256,956
|
|
|
|
256,317
|
|
|
|
255,687
|
|
May 21, 2015
|
|
(d)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,191
|
|
June 17, 2015
|
|
(e)
|
|
|
79,889
|
|
|
|
76,976
|
|
|
|
74,094
|
|
|
|
83,733
|
|
June 18, 2015
|
|
(f)
|
|
|
—
|
|
|
|
32,678
|
|
|
|
25,000
|
|
|
|
25,000
|
|
June 18, 2015
|
|
(g)
|
|
|
72,677
|
|
|
|
69,852
|
|
|
|
67,165
|
|
|
|
64,609
|
|
June 26, 2015
|
|
(h)
|
|
|
100,000
|
|
|
|
166,667
|
|
|
|
177,424
|
|
|
|
177,424
|
|
July 30, 2015
|
|
(i)
|
|
|
61,742
|
|
|
|
96,871
|
|
|
|
96,871
|
|
|
|
158,476
|
|
August 27, 2015
|
|
(j)
|
|
|
—
|
|
|
|
8,454
|
|
|
|
84,033
|
|
|
|
84,033
|
|
October 28, 2015
|
|
(k)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,651
|
|
October 30, 2015
|
|
(l)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,713
|
|
Mar – Dec, 2017
|
|
(m)
|
|
|
621,124
|
|
|
|
130,690
|
|
|
|
49,961
|
|
|
|
—
|
|
5BARz International Inc.
|
|
|
|
$
|
1,387,972
|
|
|
$
|
1,041,990
|
|
|
$
|
1,017,980
|
|
|
$
|
1,172,759
|
|
CelLynx Group, Inc. – Notes Payable
Issue Date
|
|
|
|
Balance
|
|
Balance
|
|
Balance
|
|
Balance
|
|
|
Note Terms
|
|
September 30,
2017
|
|
June 30,
2017
|
|
March 31,
2017
|
|
December 31,
2016
|
May 24, 2012
|
|
(n)
|
|
$
|
66,952
|
|
|
$
|
63,434
|
|
|
$
|
60,135
|
|
|
$
|
57,041
|
|
September 12, 2012
|
|
(o)
|
|
|
48,082
|
|
|
|
45,555
|
|
|
|
43,186
|
|
|
|
40,964
|
|
Cellynx total
|
|
|
|
$
|
115,034
|
|
|
$
|
108,989
|
|
|
$
|
103,322
|
|
|
$
|
98,005
|
|
Sub-total
|
|
|
|
$
|
1,503,006
|
|
|
$
|
1,050,979
|
|
|
$
|
1,121,302
|
|
|
$
|
1,270,764
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
|
|
$
|
1,503,006
|
|
|
$
|
1,050,979
|
|
|
$
|
1,121,302
|
|
|
$
|
1,270,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-69
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 7 – Notes Payable (continued)
|
a)
|
In December 2012, a shareholder purchased 1,600,000
common shares for $80,000. On January 17, 2013, the security was amended to a convertible debenture with an 8% per annum yield
and may be converted into common stock, at the option of the holder, 90 days after the inception of the agreement, at a price which
is a 20% discount to market, but not less than $0.05 per share. During the period from issuance of the convertible debenture
to September 30, 2017, interest of $36,620 June 30, 2017, interest of $34,314, March 31, 2017, interest of $32,079 and December
31, 2016, interest of $29,911 was accrued on the convertible debenture, resulting in a total principal and interest due at September
30, 2017 of $116,620, June 30, 2017 of $114,314, March 31, 2017 of $112,079 and December 31, 2016 of $109,911. The condensed
consolidated financial statements include a derivative liability at September 30, 2017 of Nil, June 30, 2017 of $65, March 31,
2017 of $4,248 and December 31, 2016 of $6,219 in connection with this note.
|
|
b)
|
On January 8, 2013, the Company entered into
a convertible debenture agreement with a consultant in settlement of $147,428 payable to that consultant for services rendered.
The convertible debenture yields interest at 8% per annum and may be converted into common stock, at the option of the holder,
90 days after the inception of the agreement, at a price which is a 20% discount to market, but not less than $0.05 per share.
During the nine months ended September 30, 2017, interest of $4,985, during the six months ended June 30, 2017, interest of $3,199
and during the three months ended March 31, 2017, interest of $1,703 (December 31, 2016 - $6,355) was accrued on the convertible
debenture. During the nine months ended September 30, 2017, $49,000, during the three months ended September 30, 2017, $24,000
and during the three months ended March 31, 2017, $25,000 (December 31, 2016 - $50,000) was settled by way of conversion into common
stock. During the nine months ended September 30, 2017, the agreement was amended to add additional unpaid consulting fees
of $36,000 to the principal of note (December 31, 2016 - $48,000). The total principal and interest due under the note at September
30, 2017 is $78,316, June 30, 2017 is $88,531 and March 31, 2017 - $75,034 (December 31, 2016 - $86,331). On September 20, 2017,
the conversion floor price of $0.05 was amended to the lowest price at which the Company is issuing securities to third parties.
The Company reflected a derivative liability at September 30, 2017 of $4,345, June 30, 2017 of $ 51 and March 31, 2017 of $2,844
(December 31, 2016 - $4,885) (2015 - $20,494) in connection with this note. On May 1, 2018 the balance of the note at that time
of $110,448 was converted into units at a price of $0.03 per unit. Each unit is comprised of one common share and a warrant to
acquire a second share at $0.20, with a warrant term of two (2) years.
|
|
c)
|
On October 6, 2014, the Company entered into
a Note and Warrant purchase agreement with three parties who have agreed to provide to the Company additional resources to run
operations. The parties have agreed to loan up to $1,500,000 pursuant to the terms of a convertible promissory note and warrant
agreement. On the closing date, October 6, 2014 the Company received $250,000 cash. The purchasers have agreed that at any time
on or before the earlier of (i) the Purchasers’ election, or (ii) the execution of an engagement letter by and between the
Company and an Investment Banking Firm acceptable to the purchaser relating to the provision of financial advisory services by
the Investment Banking Firm to the Company, that the Company will sell Notes representing the balance of the authorized principal
amount not sold at the Closing to the Purchasers. The convertible note accrues interest at a rate of 1% per annum and provides
for the conversion of the principal and accrued interest on the note into common stock at any time, at the election of the holder
at a price of $0.15 per share. Further, the number of warrants to be issued will be equal to the proceeds loaned pursuant to the
note and warrant purchase agreement divided by $0.15. The warrant has a term of five (5) years and provides a strike price of $0.20
per share. The fair value of warrants at the date of issue was $282,767 using the Black-Scholes pricing model. The convertible
promissory note and accrued interest at September 30, 2017 was $257,604, June 30, 2017 - $256,956, March 31, 2017 - $256,317 (December
31, 2016 - $255,687). During the nine months ended September 30, 2017, additional interest of $1,917 (December 31, 2016 - $2,548),
was accrued to bring the total principal and interest balance to $257,604 at September 30, 2017, (December 31, 2016 - $255,687).
The note matured at December 31, 2016. The note may be extended for two additional one-year terms at the sole discretion of the
lender.
|
F-70
5BARz International, Inc.
Notes to
Condensed
Consolidated Financial Statements
Note 7 – Notes Payable (continued)
|
d)
|
On May 21, 2015, the Company entered into a convertible
note arrangement with an investment Company, in the principal amount of $200,000 of which $100,000 was advanced to the Company
at the inception of the note. The Company agreed to pay an “original issue discount” in an amount up to 10% of the
loan amount, or $10,000. The interest rate on the note is 12%. The prepayment penalty of the note is as follows: 5% from day 1
to 90 days, 15% from day 91 to 150 days, 18% from day 151 to 179 days and 25% there- after on buyout of loan. The note is convertible
into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest trade price for a period
of 25 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November 22, 2015, the Company
became delinquent on its filing requirements with the Securities and Exchange Commission, triggering a default of the note. Upon
the Event of Default, the outstanding balance was increased to 118%, in addition to that a default penalty payment of $1,000 per
business day was added to the outstanding balance. The principal and interest due under the note at December 31, 2015 was $174,064.
On March 10, 2016, a complaint was filed in relation to the unpaid balance of this note payable. On June 28, 2016, the parties
entered into a settlement agreement in the amount of $153,000 payable in equal payments of $35,000 made in cash or shares issued
at market every 21 days from the date of settlement. On July 14, 2016, 333,333 common shares were issued at a price of $0.105 per
share in lieu of $35,000 cash. On August 4, 2016, an additional 448,717 common shares were issued at a price of $0.078 instead
of a $35,000 cash payment. On November 1, 2016, the Company issued 416,446 shares at a price of $0.084 per share for the settlement
of convertible notes payable with a total value of $35,000. On December 5, 2016, the Company issued 594,228 shares at a price of
$0.059 per share for the settlement of a further $35,000. The balance due to the holder at December 31, 2016 was $47,191. On January
6, 2017, the Company issued a further 673,077 shares at a price of $0.052 per share for a payment of $35,000. On February 6, 2017,
the Company issued a final 234,447 shares at a price of $0.052 for a final settlement amount of $12,191. At September 30, 2017,
June 30, 2017 and March 31, 2017 the balance due under this note was nil. The lawsuit has been dismissed with prejudice as to defendant.
|
|
e)
|
On June 17, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $52,500 of which $50,000 was advanced to the
Company at the inception of the note. The Company recorded 5% interest of $2,500 at inception of the note. The interest rate on
the note is 8%. The prepayment penalty of the note is as follows: 15% from day 1 to 60 days, 21% from day 61 to 90 days, 27% from
day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest
trade price for a period of 15 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November
22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the Event of Default, the interest rate was increased to 16% per annum. The note is payable upon demand.
On October 27, 2016, the Company and holder entered into a settlement agreement on this note, with issuance of 184,775 common shares
at $.08 due upon signing and an additional 3 payments paid by way of common shares or cash election valued at $27,911 each. On
November 3, 2016, the Company delivered the 184,775 free trading shares at a price of $0.08 per share as payment of $14,782. On
February 6, 2017, the lender filed in the courts of the Eastern District of New York, claiming for preliminary and permanent injunctive
relief, breach of contract and damages, cost and attorney’ fees. On May 16, 2017, the Company issued three certificates pursuant
to the settlement agreement each in the amount of 558,222 common shares with a restrictive legend to be removed for trading on
May 31, 2017, June 30, 2017 and July 31, 2017, respectively, for aggregate proceeds of $75,360, reflected as a deposit on the note
payable. That share issuance was rejected by the lender, however the shares remain outstanding, and available for settlement. On
August 16, 2018, a court order was issued for payment of $58,514, plus interest in settlement of the loan amount. The principal
and interest due under the note settlement agreement, at December 31, 2016 were $83,733. At September 30, 2017, the balance reflected
in the financial statements was $79,889 (June 30, 2017 - $76,976, March 31, 2017 - $74,094). Subsequent to year end, the payment
of the August 16, 2018 judgment amount of $58,514 plus interest of $31,077 is being negotiated by the Company and lender.
|
F-71
5BARz
International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 7 – Notes Payable
(continued)
|
f)
|
On June 18, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $105,000 of which $100,000 was advanced to
the Company at the inception of the note. The Company agreed to pay an original issue discount of 5% of the loan amount, or $5,000.
The interest rate on the note is 10%. The prepayment penalty of the note is as follows: 15% from day 1 to 60 days, 21% from day
61 to 90 days, 27% from day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be
prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%,
with the market defined as the lowest trade price for a period of 25 days prior to the conversion, with a conversion floor price
at no lower than $0.00001. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and
Exchange Commission, triggering an event of default of the note. Upon the Event of Default, the interest rate was increased to
16%. The note is payable upon demand. On August 8, 2016, the lender filed a law suit for settlement of the note by delivery of
4,299,689 shares of the Company. On October 11, 2016, the Company settled the lawsuit by delivery of 4,299,689 shares at a price
of $0.0312 representing aggregate proceeds of $134,150 and an agreement to pay $25,000 in legal fees. At December 31, 2016, the
$25,000 remains payable to the lender (2015 - $163,956). The $25,000 was not paid on a timely basis. On May 9, 2017, the Company
was required by court order to pay legal fees and damages in the aggregate amount of $48,413 and the case was dismissed. On July
26, 2017, a court ordered receiver was appointed to collect the unpaid balance. On August 23, 2017, the Company paid $63,712 in
legal fees and costs in full and final settlement of the unpaid amounts. The balance due at September 30, 2017 is nil, June 30,
2017 – $32,678 and March 31, 2017 – $25,000 (December 31, 2016 - $25,000).
|
|
g)
|
On June 18, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $52,500 of which $50,000 was advanced to the
Company at the inception of the note. The Company recorded an interest of $2,500 at inception of the note. The interest rate on
the note is 8%. The prepayment penalty of the note is as follows: 15% from day 1 to 60 days, 21% from day 61 to 90 days, 27% from
day 91 to 120 days, 33% from day 121 to 150 days and 39% from day 151 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest
trade price for a period of 15 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November
22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the event of default, the interest rate was increased to 16% per annum. The note is payable upon demand.
On June 8, 2016, the lender filed a complaint claiming 1,699,580 shares in settlement of the principal and interest under the note
and injunctive relief related to terms of the note. On June 24, 2016, the Company has filed an answer and defense in response to
the complaint filed. The principal and interest due under the note at December 31, 2016 were $64,609. (See litigation note 14 to
the December 31, 2017 consolidated financial statements included in this document). On September 30, 2017, the Company reflected
a balance due to the lender of $72,677 (June 30, 2017 - $69,852, March 31, 2017 - $67,165). On September 6, 2018, an order was
entered which awarded damages of $110,472, plus legal fees. The additional amount of $34,856 has been accrued in the 2018 fiscal
year financial statements. (see subsequent events note 16 to the December 31, 2017 consolidated financial statements included in
this document).
|
F-72
5BARz
International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 7 – Notes Payable (continued)
|
h)
|
On June 26, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $110,000 of which $104,500 was advanced to
the Company at the inception of the note. The Company agreed to pay an “original issue discount” in an amount of $5,500.
The interest rate on the note is 12%. Upon an Event of Default, the interest rate shall increase to 18%. The prepayment penalty
of the note is as follows: 35% from day 1 to 90 days, 45% from day 91 to 120 days, and 50% there- after on buyout of loan. The
note is convertible into common stock of the issuer at a discount to market of 42%, with the market defined as the lowest trade
price for a period of 20 days prior to the conversion, with a conversion floor price at no lower than $0.0001. On November 22,
2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an Event
of Default of the note. Upon the Event of Default, the interest rate was increased to 18% per annum. On July 6, 2016, a complaint
was filed in the District Court of Dallas County Texas, alleging breach of contract, promissory estoppel as to note, and tortious
interference with Contract (see litigation note 14 to the December 31, 2017 consolidated financial statements included in this
document). On May 31, 2017, the Company and plaintiff entered into a mediation and settled the law suit by agreement to pay
$200,000 in shares at market over six equal monthly payments. The Company paid by way of shares four payments from June to October
2017 in the aggregate amount of $133,332. The remaining principal and interest due under the note at September 30, 2017 were $100,000
(June 30, 2017 - $166,667, March 31, 2017 – $177,424). On February 9, 2018 a final judgment was issued by the Dallas County
District court for damages of $92,174 plus attorney fees of $15,275. The increase of $25,506, plus legal fees pursuant to court
order was reflected in 2018 as interest and legal fees. On September 7, 2018, the Company paid $30,000 in cash pursuant to a payment
schedule negotiated with the lender for the balance due.
|
|
i)
|
On July 30, 2015, the Company entered into a
convertible note arrangement with an investment company, in the principal amount of $110,000 of which $100,000 was advanced to
the Company at the inception of the note. The interest rate on the note is 10%. Upon an Event of Default, the interest rate shall
increase to 24%. The prepayment penalty of the note is as follows, 35% from day 1 to 90 days, and 50% there- after on buyout of
loan. The note is convertible into common stock of the issuer at a discount to market of 42%, with the market defined as the lowest
trade price for a period of 25 days prior to the conversion, with a conversion floor price at no lower than $0.00001. On November
22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event
of default of the note. Upon the event of default, the outstanding balance was increased to 150%. The note is payable upon demand.
On August 31, 2016, the Company and lender completed a settlement agreement, to repay $188,500 paid, in six monthly payments, in
cash or shares over a six-month period in full settlement of the note. On November 1, 2016, the Company paid $30,023 by delivery
of 389,910 common shares at a price of 0.077 per share. At December 31, 2016 the balance due under the note agreement was $158,477
(2015 - $12,167). During 2017 the Company made an additional three payments by delivery of an aggregate of 1,969,747 shares with
a market value of $96,735. The outstanding balance at September 30, 2017 is $61,742 (June 30, 2017 - $96,871, March 31, 2017 -
$96,871). On June 7, 2018, a complaint was filed in the United States Court, Southern District of New York against 5BARz International,
Inc. by the lender, EMA Financial LLC (see litigation note 14 to the December 31, 2017 consolidated financial statements included
in this document). The complaint requests specific performance under the agreements, claims breach of contract, injunctive relief,
costs and attorney fees. The Company expects to recommence its payment schedule when the Company’s filings with the SEC are
current, and shares will again be accepted by the lender in settlement of the settlement amount.
|
F-73
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 7 – Notes Payable (continued)
|
j)
|
On August 27, 2015, the Company entered into
a convertible note arrangement with an investment company, in the principal amount of $110,000 of which $100,000 was advanced to
the Company at the inception of the note. The Company agreed to pay an “original issue discount” in an amount up to
10% of the loan amount, or $10,000. The interest rate on the note is 10%. The prepayment penalty of the note is as follows: 35%
from day 1 to 90 days, 45% from day 91 to 180 days. This note may not be prepaid after the 180
th
day. The note is convertible
into common stock of the issuer at a discount to market of 40%, with the market defined as the lowest trade price for a period
of 20 days prior to the conversion, with a conversion floor price at no lower than $0.0001. On November 22, 2015, the Company became
delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event of default of the note.
Upon the event of default, the outstanding balance was increased to 150% and the interest rate was increased to 24% per annum.
The principal and interest due under the note at December 31, 2015 were $170,764. The note is payable upon demand. On March 10,
2016, the Company entered into a settlement agreement on the convertible debt in the principal and interest amount of $168,065.
The settlement agreement provides for the Company to make eight monthly payments commencing on April 15, 2016, each in the amount
of $21,008, an aggregate amount of $168,065. During the period May to November 3, 2018, the Company paid four payments in the aggregate
amount of $84,032. Upon receipt of the November payment, on November 21, 2016 the lender Blue Citi filed a law suit claiming breach
of contract, requesting specific performance under the original note agreement and in the alternative breach of contract under
the settlement agreement (see litigation note 14 to the December 31, 2017 consolidated financial statements included in this document).
At December 31, 2016, the balance due to the lender was $84,033. At September 30, 2017, the balance was nil, June 30, 2017 - $8,454
and March 31, 2017 - $84,033. On August 31, 2017, pursuant to court order, the Company delivered 1,857,777 shares at a price of
$0.045 per share in further settlement of an additional $83,600 and attorney’s fees of $18,988. Accordingly, the Company
has paid $167,632 on the $110,000 note. The Company filed a cross motion to vacate that order and to dismiss the lawsuit on the
basis that the Note violates New York’s laws against criminal usury. On September 19, 2018, the New York District Court denied
this cross motion yet pointed out that it is possible that the New York Court of Appeals will see the issue differently. The District
court ordered $180,204 in damages, $116,950 in prejudgment interest and $5,837 in attorney fees. On October 30, 2018, the Company
filed a notice of appeal in the United States Court of Appeals, Second Circuit, 1:16-cv-09027-VEC, which appeals that decision
and order of the District Court, granting the Petitioners motion and further appealed the denial of the district court to vacate
the prior order for the issuance of 1,857,777 shares and denying the dismissal of the lawsuit on the basis that the note violates
New York law on the basis of criminal usury. On December 31, 2017, the financial statement reflects a provision for loss on this
matter in the amount of $321,979. Should the Company prevail in the court of appeal, a refund of $83,600 would be required from
the plaintiff.
|
|
k)
|
On October 28th, 2015, the Company entered into
a convertible note arrangement with an investment company in the principal amount of $100,000. Interest is accrued on the note
at a rate of 12% per annum, and the note matured on July 28, 2016. The note is convertible at any time by the borrower at a conversion
price, which is the lesser of closing sale price on the close date of the note or 60% of market, defined as the lowest trade price
for a period 25 days prior to the notice of conversion. The Company may prepay the note principal and interest at rates from 145%
of principal and interest within 180 days from the issue date. After 180 days the note may not be prepaid. On November 22, 2015,
the Company became delinquent on its filing requirements with the Securities and Exchange Commission, triggering an event of default
of the note. Upon the event of default, the outstanding balance was increased to 150%. On May 2, 2016, the Company entered into
a settlement agreement, to pay $153,912 by way of six-monthly payments, each in the amount of $25,652, with the first payment due
on May 15, 2016. Two of the six payments were completed on May 31, 2016 and June 20, 2016. On August 15, 2016, the Company
issued 388,667 common stock at a price of $0.066 per share in payment of $25,652 under the settlement agreement. On November 3,
2016, the Company paid an additional $25,262 by the issuance of 360,886 common shares at a price of $0.07 per share. On December
7, 2016, $26,042 was paid by the issuance of 520,840 shares at $0.05 per share. At December 31, 2016, the balance due under the
note agreement was $25,652. The final payment was made on January 6, 2017 by way of issuance of 513,040 shares at a price of $0.05
per share for aggregate proceeds of $25,652.
|
F-74
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 7 – Notes Payable (continued)
|
l)
|
On October 30, 2015, the Company entered into
a convertible note arrangement with an investment company, in the principal amount of $105,000 of which $100,000 was advanced to
the Company at the inception of the note. Interest is accrued on the note at a rate of 8% per annum, and the note matures on October
30, 2016. The note is convertible at any time by the borrower at a conversion price which is the lesser of closing sale price on
the close date of the note or 60% of market, defined as the lowest trade price for a period 10 days prior to the notice of conversion.
The Company may prepay the note principal and interest as follows, 125% from day 1 to 90 days, 140% from day 91 to 180 days, 150%
after 180 days. On November 22, 2015, the Company became delinquent on its filing requirements with the Securities and Exchange
Commission, triggering an event of default of the note. Upon the Event of Default, the outstanding balance was increased to 150%
and the interest rate was increased to 18% per annum. The note is payable upon demand. On May 31, 2016, the Company entered into
a settlement agreement to make a series of six payments, each in the amount of $27,354, for an aggregate amount of $164,128, in
full settlement of the amounts due under this note agreement. On May 31, 2016, the Company issued 547,100 common stock at a price
of $0.05 per share valued at $27,355. On June 30, 2016, the Company issued another 547,100 common shares at a price of $0.05 valued
at $27,355. On November 8, 2016 the Company issued a further 405,259 shares at a price of $0.0675 per share for proceeds of $27,355.
On December 7, 2016, the Company issued 547,100 shares at a price of $0.05 per share for a payment of $27,355. At December 31,
2016, the balance outstanding on the note was $54,713. On January 6, 2017, the Company issued an additional 547,080 shares at $0.05
per share for a payment of $27,354. On February 28, 2017, the Company issued 526,038 shares at $0.052 for a final payment of $27,359.
On September 30, 2017, June 30, 2017 and March 31, 2017, the balance due was nil (December 31, 2016 - $54,713).
|
|
m)
|
During the period March 24, 2017 to September
30, 2017, the Company entered into 36 Unsecured Convertible Promissory Note agreements in Canada, for aggregate proceeds of $614,271
USD ($776,650 CAD.). The notes provide for interest at a rate of 10% per annum payable on a semi-annual basis. The maturity of
the notes shall occur on the earlier of the date that is 12 months from the effective date of the note, or the completion of an
initial public offering in Canada, at which point the Notes and any accrued interest shall automatically convert into common shares.
The conversion price shall be the Initial Public Offering price, less a 50% discount. At September 30, 2017, the principal and
interest outstanding on the notes was $621,124, June 30, 2017 - $130,691, March 31, 2017 - $49,961.
|
|
n)
|
On May 24, 2012, a subsidiary Company, CelLynx
Group, Inc., completed a transaction pursuant to a Promissory Note agreement, through which the Company borrowed $37,500. The Note
bears interest at a rate of 8%, and was due on November 24, 2012, (the “Due Date”). The Company could settle
that note within the first 90 days following the issue date by paying to the Lender 140% of the principal amount of the note
plus accrued interest. The Company may settle the note during the period which is 91 days from the issue date of the note to 180
days from the issue date of the note by payment of 150% of the principal amount of the note plus accrued interest. In the event
that the note is not repaid 180 days from the date of issue, the note and accrued interest are convertible into common stock at
a variable conversion price equal to 51% of the average of the three lowest closing bid prices for CelLynx Group, Inc’s common
stock for a period of 10 days prior to the date of notice of conversion. The Company redeemed $21,600 payable on that note, by
the issuance of CelLynx Group, Inc. common shares. As of September 30, 2017, the note is past due. The note principal and
accrued interest outstanding at September 30, 2017 was $66,951, June 30, 2017 - $63,434, March 31, 2017 - $60,135 (December 31,
2016 - $57,041).
|
|
o)
|
On September 12, 2012, CelLynx Group, Inc. completed
a transaction pursuant to a Promissory Note agreement, through which the Company borrowed $12,500. The Note bears interest at a
rate of 8%, and is due on March 12, 2013, (the “Due Date”). The Company may settle that note within the
first 90 days following the issue date by paying to the Lender 140% of the principal amount of the note plus accrued interest.
The Company may settle the note during the period which is 91 days from the issue date of the note to 180 days from the issue date
of the note by payment of 150% of the principal amount of the note plus accrued interest. In the event that the note is not repaid
180 days from the date of issue, the note and accrued interest are convertible into common stock at a variable conversion price
equal to 51% of the average of the three lowest closing bid prices for CelLynx Group, Inc’s common stock for a period of
10 days prior to the date of notice of conversion. As of September 30, 2017, the note is past due. The note principal and interest
outstanding at September 30, 2017 was $48,081, June 30, 2017 - $45,555, March 31, 2017 - $43,186 (December 31, 2016 - $40,964).
|
At September 30, 2017, March 31, 2017,
June 30, 2017 and December 31, 2016, all the above debt, was either settled or is in default and is immediately due and payable,
with the exception of the debt referred to in sub-sections (a)(b)(c) & (s) above.
F-75
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 8 – Commitments and Contingencies
|
Operating Lease Obligation The Company has leased properties in San Diego, California, and Miami, Florida in the United States. Outside of the United States the Company has leased sites in Bangalore, India. Future minimum lease payments under all noncancelable operating leases with an initial term over the next five years are as follows:
|
September 30,
|
|
|
|
June 30,
|
|
|
|
March 31,
|
|
|
2017
|
|
$
|
101,048
|
|
|
2017
|
|
$
|
187,488
|
|
|
2017
|
|
$
|
282,585
|
|
2018
|
|
|
103,959
|
|
|
2018
|
|
|
92,722
|
|
|
2018
|
|
|
91,425
|
|
2019
|
|
|
71,725
|
|
|
2019
|
|
|
71,197
|
|
|
2019
|
|
|
69,835
|
|
2020
|
|
|
36,737
|
|
|
2020
|
|
|
36,467
|
|
|
2020
|
|
|
35,769
|
|
2021
|
|
|
—
|
|
|
2021
|
|
|
—
|
|
|
2021
|
|
|
—
|
|
Total
|
|
$
|
313,469
|
|
|
Total:
|
|
$
|
387,874
|
|
|
Total:
|
|
$
|
479,614
|
|
Upon the event of default, the office in
San Diego, California was surrendered to the landlord and there are no operating leases with an initial term over the next five
years as September 30, 2017.
Note 9 – Options and Warrants
Warrants – 5BARz International Inc.
The following table summarizes the warrant
activity for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017:
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Life
|
Outstanding at December 31, 2016
|
|
|
188,125,232
|
|
|
$
|
0.21
|
|
|
|
1.25
|
|
Exercisable at December 31, 2016
|
|
|
180,125,232
|
|
|
$
|
0.22
|
|
|
|
1.25
|
|
Granted *
|
|
|
4,150,000
|
|
|
|
0.20
|
|
|
|
1.89
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/ expired
|
|
|
(6,369,167
|
)
|
|
|
0.20
|
|
|
|
—
|
|
Outstanding at March 31, 2017
|
|
|
185,906,065
|
|
|
|
0.21
|
|
|
|
1.89
|
|
Exercisable at March 31, 2017
|
|
|
177,906,065
|
|
|
|
0.21
|
|
|
|
1.89
|
|
Granted *
|
|
|
6,268,111
|
|
|
|
0.27
|
|
|
|
1.26
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/ expired
|
|
|
(15,434,000
|
)
|
|
|
0.27
|
|
|
|
—
|
|
Outstanding at June 30, 2017
|
|
|
176,740,176
|
|
|
|
0.20
|
|
|
|
1.26
|
|
Exercisable at June 30, 2017
|
|
|
176,740,176
|
|
|
|
0.20
|
|
|
|
1.26
|
|
Granted *
|
|
|
4,510,667
|
|
|
|
0.24
|
|
|
|
1.70
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/ expired
|
|
|
(15,085,000
|
)
|
|
|
0.30
|
|
|
|
—
|
|
Outstanding at September 30, 2017
|
|
|
166,165,843
|
|
|
|
0.19
|
|
|
|
1.70
|
|
Exercisable at September 30, 2017
|
|
|
166,165,843
|
|
|
|
0.19
|
|
|
|
1.70
|
|
The Company has authorized capital of 600,000,000
shares, and accordingly should all options, warrants and potentially convertible securities be exercised, the Company may not have
enough authorized shares to honor its commitments.
F-76
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 9 – Options and Warrants (continued)
Options – 5BARz International Inc.
The following table summarizes the options
for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017:
|
|
Number of
Options
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Life
|
Outstanding at December 31, 2016
|
|
|
26,345,000
|
|
|
$
|
0.10
|
|
|
|
5.90
|
|
Exercisable at December 31, 2016
|
|
|
14,997,836
|
|
|
$
|
0.12
|
|
|
|
2.12
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(4,075,000
|
)
|
|
|
0.13
|
|
|
|
3.55
|
|
Outstanding at March 31, 2017
|
|
|
22,270,000
|
|
|
|
0.10
|
|
|
|
6.06
|
|
Exercisable at March 31, 2017
|
|
|
11,842,904
|
|
|
|
0.11
|
|
|
|
2.35
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(430,000
|
)
|
|
|
0.12
|
|
|
|
2.75
|
|
Outstanding at June 30, 2017
|
|
|
21,840,000
|
|
|
|
0.10
|
|
|
|
5.74
|
|
Exercisable at June 30, 2017
|
|
|
12,084,603
|
|
|
|
0.11
|
|
|
|
3.49
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(900,000
|
)
|
|
|
0.11
|
|
|
|
2.77
|
|
Outstanding at September 30, 2017
|
|
|
20,940,000
|
|
|
|
0.10
|
|
|
|
5.73
|
|
Exercisable at September 30, 2017
|
|
|
11,655,945
|
|
|
|
0.11
|
|
|
|
3.49
|
|
The Company reports stock-based compensation
under ASC 718 “Compensation – Stock Compensation”. ASC 718 requires all share-based payments to employees, including
grants of employee stock options, warrants to be recognized in the consolidated financial statements based on their fair values.
The Company amortizes the fair value of employee stock options on a straight-line basis over the requisite service period of the
awards. The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity
-Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement
date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary
performance to earn the equity instruments is complete. Accordingly, the fair value of these options is being “marked to
market” until the measurement date is determined or the date the options are vested.
F-77
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 9 – Options and Warrants (continued)
Options – CelLynx Group, Inc.
The number and weighted average exercise
prices of all Cellynx Group, Inc. options and warrants exercisable as of March 31, 2017, June 30, 2017 and September 30, 2017 are
as follows:
|
|
Options
|
|
Weighted average
exercise price
|
|
Weighted average remaining contract life
|
Opening at December 31, 2016
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
1.18
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at March 31, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.93
|
|
Exercisable at March 31, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.93
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at June 30, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.68
|
|
Exercisable at June 30, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.68
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.43
|
|
Exercisable at September 30, 2017
|
|
|
65,000,000
|
|
|
$
|
0.0002
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 - Related party transactions
During the period ended September 30, June
30, and March 31, 2017, the Company engaged an engineering company in Bangalore, India to perform engineering services, product
development and manufacturing services for the Company in the aggregate amount of $0, $0 and $358,512, respectively. The Director
and the CEO of 5BARz India Private Limited owns a 30% interest in that engineering firm, and the Executive Director of the engineering
company is the spouse of the Director and the CEO of 5BARz India Private Limited. The amount due to Aseema Softnet Technologies
Inc. at September 30, June 30, and March 31, 2017, was $1,624,941, $1,734,941 and $1,734,941, respectively. During the period ended
September 30, June 30, and March 31, 2017, there were $0, $0 and $358,512 in billings and $110,000, $0 and $30,000 in payments
to Aseema Softnet Technologies Inc. resulting in an amount due of $1,624,941, $1,734,941 and $1,734,941 at September 30, June 30,
and March 31, 2017, respectively. Subsequent to March 31, 2017 there have been no further billings.
F-78
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 11 – Litigation
The Company may become involved in legal
proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable
with assurance. (see litigation Note 14 to the December 31, 2017 consolidated financial statements included in this document and
subsequent events Note 16).
Note 12 – Accounts payable and
accrued liabilities
Accounts payable and accrued expenses are comprised of the following:
|
|
September 30,
2017
|
|
June 30,
2017
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
Product development costs
|
|
$
|
466,831
|
|
|
$
|
496,146
|
|
|
$
|
440,352
|
|
|
$
|
448,596
|
|
Consulting and wages
|
|
|
2,643,616
|
|
|
|
2,343,015
|
|
|
|
2,178,159
|
|
|
|
2,265,825
|
|
Legal and administrative
|
|
|
656,364
|
|
|
|
655,833
|
|
|
|
545,410
|
|
|
|
26,438
|
|
Acquired liabilities – CelLynx - 2012
|
|
|
363,516
|
|
|
|
362,916
|
|
|
|
362,316
|
|
|
|
360,716
|
|
Other
|
|
|
42,843
|
|
|
|
39,603
|
|
|
|
32,748
|
|
|
|
19,389
|
|
Total
|
|
$
|
4,173,170
|
|
|
$
|
3,897,513
|
|
|
$
|
3,558,985
|
|
|
$
|
3,120,964
|
|
Note 13 – Subsequent events
Sales of Common Stock
Shares issued for cash
During the period January 1, 2018 to March
31, 2018, the Company issued 2,998,800 units at a price of $0.03 per unit for proceeds of $89,964. Each unit is comprised of one
share, one share purchase warrant to acquire a second share at a price of $0.20 per share acquired and one share purchase warrant
to acquire a third share at a price of $0.10 per share acquired. Each warrant has a two-year term.
During the period April 1, 2018 to June
30, 2018, the Company issued 666,666 units at a price of $0.03 per unit for proceeds of $20,000. Each unit is comprised of one
share, one share purchase warrant to acquire a second share at a price of $0.20 per share acquired and one share purchase warrant
to acquire a third share at a price of $0.10 per share acquired. Each warrant has a two-year term. The Company also issued 3,100,000
units at a price of $0.03 per unit for proceeds of $93,000. Each unit is comprised of one share and one share purchase warrant
to acquire a second share at a price of $0.20 per share acquired, with a two-year term on the attached warrant.
During the period July 1, 2018 to September
30, 2018, the Company issued 37,325,335 units at a price of $0.03 per unit for proceeds of $1,119,760. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant.
During the period October 1, 2018 to December
31, 2018, the Company issued 13,225,900 units at a price of $0.03 per unit for proceeds of $396,777. Each unit is comprised of
one share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term
on the attached warrant.
F-79
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 13 – Subsequent events (continued)
Sales of Common Stock (continued)
Shares issued for cash (continued)
During the period January 1, 2019 to February
14, 2019, the Company issued 9,733,333 units at a price of $0.03 per unit for proceeds of $292,000. Each unit is comprised of one
share and one share purchase warrant to acquire a second share at a price of $0.20 per share acquired, with a two-year term on
the attached warrant.
Shares issued
for services
During the period January 1, 2018 to March
31, 2018, the Company issued 567,867
shares at a price of $0.03 per share for services valued at $17,036. The Company also issued
750,000 shares at a price of $0.0325 per share for services valued at $24,375.
During the period April 1, 2018 to June
30, 2018, the Company issued 350,000 shares at a price of $0.029 per share for services valued at $10,150. The Company also issued
8,526,033 shares at a price of $0.03 per share for debt and services valued at $255,781.
During the period July 1, 2018 to September
30, 2018, the Company issued 750,000 shares at a price of $0.03 per share for services valued at $22,500.
During the period October 1, 2018 to December
31, 2018, the Company issued 308,840 shares at a price of $0.05 per share for services valued at $15,442. The Company also issued
333,334 shares at a price of $0.03 per share for services valued at $10,000.
Shares issued
for note and interest payable conversions
During the period July 1, 2018 to September
30, 2018, the Company issued 1,802,882 shares at a price of $0.03 per share for the settlement of interest payable with a total
value of $54,086. The Company also issued 2,917,649 shares at a price of $0.03 per share upon conversion of $87,529 of principal
and interest due under the terms of a convertible promissory note and the balance of principal and interest due under that note
after the conversion was nil.
During the period October 1, 2018 to December
31, 2018, the Company issued 506,056 shares at a price of $0.03 per share for the settlement of interest payable with a total value
of $15,182. The Company also issued 843,419 shares at a price of $0.03 per share upon conversion of $25,303 of principal and interest
due under the terms of a convertible promissory note and the balance of principal and interest due under that note after the conversion
was nil.
During the period January 1,
2019 to February 14, 2019, the Company issued 8,083,557 shares at a price of $0.03 per share upon conversion of $242,507 of
principal and interest due under the terms of a convertible promissory note and the balance of principal and interest due
under that note after the conversion was nil.
Related Party Transactions –
Convertible Promissory Notes
On June 30, 2018, the Company settled certain
unpaid liabilities comprised of unpaid consulting fees and expenses for each of the CEO of 5BARz International, Inc. of $110,000,
the Chairman of 5BARz International Inc. of $110,000 and the CEO of 5BARz India Private Limited of $110,000. The amounts were settled
by the issuance of convertible notes, which bear interest at a rate of 8% per annum and are convertible on demand at a price of
$0.03 per share. Each convertible note is provided along with a warrant to acquire an equal number of the conversion shares at
a strike price of $0.20 per share and a similar issue of warrants at a strike price of $0.10 per share. Accordingly warrants to
acquire an aggregate of 11,000,000 shares at a strike price of $0.20 and warrants were issued to acquire the same number of shares
at a strike price of $0.10 were issued. The warrants have a term of 2 years.
F-80
5BARz International, Inc.
Notes to Condensed Consolidated Financial
Statements
Note 13 – Subsequent events (continued)
Settlement of Convertible Promissory
Notes
During the period subsequent to December 31, 2017 several convertible
promissory notes were settled by way of litigation or settlement agreement as follows;
Note Reference
|
Balance
12/31/17
|
Settlement
Date
|
Settlement
Amount
|
Terms of Settlement
|
Note 8(b)
|
$91,896
|
May 1, 2018
|
$110,448
|
Settlement of 3,681,600 shares and warrants at $0.20
|
Note 8(h)
|
$82,802
|
August 16, 2018
|
$89,590
|
Litigation order, payment negotiation ongoing
|
Note 8(j)
|
$75,616
|
Sept. 6, 2018
|
$110,472
|
Litigation order, payment negotiation ongoing.
|
Note 8(k)
|
$66,667
|
February 9, 2018
|
$107,449
|
Litigation order, paid $30,000 Sept 7, 2018, balance due.
|
Note 8(O)
|
$321,979
|
Sept 19, 2018
|
$321,979
|
Litigation order, Appealed - United States District Court
|
Each of the settlements and judgments reflected above terminate
the note holders right to convert amounts due into common stock of the Company.
Other Litigation - Settlement
On October 19, 2018 the Company paid $25,000
as an initial payment in settlement of a stipulated judgment in favor of Ramona Featherby dba California Recovery Specialists.
The stipulated judgment was in the amount of $130,000 and the settlement agreement provided for $105,000 to be paid in four monthly
payments in full settlement of which $25,000 was paid, October 19, 2018. The balance due pursuant to the settlement agreement subsequent
to the payment is $80,000.
Litigation
On June 7, 2018, a complaint was filed
in the United States Court, Southern District of New York against 5BARz International, Inc. by EMA Financial LLC, a lender by way
of convertible note in the principal amount of $110,000. The Note was entered into on July 30, 2015, see Note 8(m). The complaint
requests specific performance under the agreements, claims breach of contract, injunctive relief, costs and attorney fees. On August
31, 2016, the Company had entered into a settlement agreement, which provided for a series of six (6) monthly settlement payments,
in the aggregate amount of $188,500 in full settlement of the above referenced note. During the period to December 31, 2016, the
Company paid $30,023 by way of the issuance of 389,910 shares. The balance reflected in the consolidated financial statements at
December 31, 2016 was $158,477. During 2017, the Company remitted a further $96,659 in payments pursuant to the settlement agreement
by way of three issuance of shares aggregating 1,431,447 common shares. At December 31, 2017, the balance due of $61,818 under
the settlement agreement was reflected in the consolidated financial statements.
On January 8, 2019 a summary judgment was
issued in the R Squared Partners, LLC vs 5BARz International, Inc., and Daniel Bland law suit. The summary judgment was awarded
without opposition as the parties were actively engaged in settlement negotiations. Accordingly, the Company is filing a
motion vacate the order and or granting a motion to renew. The judgment awarded an interim order for breach of contract in the
sum of $380,571 plus late fees in the amount of $2,987 accruing daily from March 16, 2016. The Company’s advisors hold that
the judgment is based upon an agreement that charges interest at usury rates, illegal in the State of New York.
Incorporation of 5BARz Technologies Pte. Ltd.
On October 23, 2018 the Company incorporated
a wholly owned subsidiary 5BARz Technologies Pte. Ltd., in Singapore, with the stated objective of the development of software
and programming activities related to the Companies developing Big Data business.
F-81