The accompanying notes are an integral part
of these consolidated financial statements.
Notes
to Consolidated Financial Statements
Note
1 – History and organization of the company
The
Company was originally organized on September 11, 2006 (Date of Inception) under the laws of the State of Nevada, as The Engraving
Masters, Inc. The Company was authorized to issue up to 100,000,000 shares of its common stock and 100,000,000 shares of preferred
stock, each with a par value of $0.001 per share.
On
March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a Colorado corporation formed in February 2014 (“Blue
Line Colorado”), as a wholly-owned subsidiary of the Company. Blue Line Colorado provides protection, compliance and financial
services to the lawful cannabis industry.
On
May 2, 2014, the Company changed its name from The Engraving Masters, Inc. to Blue Line Protection Group, Inc. (“BLPG”)
On
May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1,
whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the authorized capital
of the Company concurrently increased to 1,400,000,000 shares of common stock. All references to share and per share amounts in
the consolidated financial statements and accompanying notes thereto have been retroactively restated to reflect the forward stock
split.
The
Company provides armed protection, logistics, and compliance services for businesses engaged in the legal cannabis industry. The
Company offers asset logistic services, such as armored transportation service; security services, including shipment protection,
money escorts, security monitoring, asset vaulting, VIP and dignitary protection, financial services, such as handling transportation
and storage of currency; training; and compliance services.
Note
2 – Accounting policies and procedures
Principles
of consolidation
For
the years ended December 31, 2018 and 2017, the consolidated financial statements include the accounts of Blue Line Protection
Group, Inc. (formerly The Engraving Masters, Inc.), Blue Line Advisory Services, Inc. (a Nevada corporation; “BLAS”),
Blue Line Capital, Inc. (a Colorado corporation; “Blue Line Capital”), Blue Line Protection Group (California), Inc.
(a California corporation; “Blue Line California”), Blue Line Colorado, Blue Line Protection Group Illinois, Inc.
(an Illinois corporation; “Blue Line Illinois”), BLPG, Inc. (a Nevada corporation; “Blue Line Nevada”),
Blue Line Protection Group (Washington), Inc. (a Washington corporation; “Blue Line Washington”). All significant
intercompany balances and transactions have been eliminated. BLPG and its subsidiaries are collectively referred herein to as
the “Company.”
Basis
of presentation
The
financial statements present the balance sheets, statements of operations, stockholder’s equity (deficit) and cash flows
of the Company. The financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America.
The
Company has adopted December 31 as its fiscal year end.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Cash
and cash equivalents
The
Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For
the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are
considered to be cash equivalents. There were no cash equivalents as of December 31, 2018 and 2017.
Accounts
receivable
Accounts
receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company
provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The
allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s
existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for
additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement
for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with
past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted
and the potential for recovery is considered remote.
Allowance
for uncollectible accounts
The
Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred.
There was no allowance for doubtful customer receivables at December 31, 2018 and 2017.
Property
and equipment
Property
and equipment is recorded at cost and capitalized from the initial date of service. Expenditures for major additions and improvements
are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment
is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful
lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation
methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment
categories are as follows:
Automotive
Vehicles
|
5
years
|
Furniture
and Equipment
|
7
years
|
Buildings
and Improvements
|
15
years
|
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that
the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an
impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating results, trends and prospects, the manner in
which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this
assessment there was no impairment as December 31, 2018 and 2017. Depreciation expense for the years ended December 31, 2018
and 2017 totaled $82,663 and $50,332, respectively.
Impairment
of long-lived assets
The
Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal
of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company
assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the
asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment
loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. As of
December 31, 2018 and 2017, the Company determined that none of its long-term assets were impaired.
Concentration
of business and credit risk
The
Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging
arrangements. The Company’s financial instruments that are exposed to concentration of credit risks consist primarily of
cash. The Company maintains its cash in bank accounts, which may at times, exceed federally insured limits.
The
Company had two major customers which generated approximately 34% (17%, and 17%) of total revenue in the
year ended December 31, 2018.
The
Company had two major customers which generated approximately 40% (26%, and 14%) of total revenue in the year ended December 31,
2017.
Related
party transactions
FASB
ASC 850, “Related Party Disclosures” requires companies to include in their financial statements disclosures of material
related party transactions. The Company discloses all material related party transactions. Related parties are defined to include
any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director
or executive officer.
Fair
value of financial instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and related party payables approximate the respective
fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded
at fair value on the Company’s consolidated balance sheet on a recurring basis, and their level within the fair value hierarchy
as of December 31, 2018 and 2017:
December
31, 2018
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Embedded
conversion derivative liability
|
|
$
|
716,080
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
716,080
|
|
Warrant
derivative liabilities
|
|
$
|
11,252
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,252
|
|
Total
|
|
$
|
727,332
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
727,332
|
|
December
31, 2017
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Embedded
conversion derivative liability
|
|
$
|
1,580,517
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,580,517
|
|
Warrant
derivative liabilities
|
|
$
|
299,413
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
299,413
|
|
Total
|
|
$
|
1,879,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,879,930
|
|
The
embedded conversion feature in the convertible debt instruments that the Company issued, that became convertible during the years
ended December 31, 2018 and 2017, qualified them as derivative instruments since the number of shares issuable under the notes
are indeterminate based on guidance in FASB ASC 815, Derivatives and Hedging. These convertible notes tainted all other equity
linked instruments including outstanding warrants and fixed rate convertible debt on the date that the instrument became convertible.
The valuation of the derivative liability of the warrants was determined through the use of Black Scholes option-pricing model
(See Note 8).
Revenue Recognition
The Company recognizes
revenue when delivery of the promised goods or services is transferred to its customers, in an amount that reflects the consideration
that the Company expects to be entitled to in exchange for those goods or services. We determine revenue recognition through the
following five steps:
|
●
|
Identify
the contract with the customer;
|
|
|
|
|
●
|
Identify
the performance obligations in the contract;
|
|
|
|
|
●
|
Determine
the transaction price;
|
|
|
|
|
●
|
Allocate
the transaction price to the performance obligations in the contract; and
|
|
|
|
|
●
|
Recognize
revenue when, or as, the performance obligations are satisfied.
|
We generate substantially
all our revenue from providing services to customers. The Company recorded revenue with the 5 steps above have been completed.
Effective
January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue
recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout
the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect
to revenues and cash flows arising from contracts with customers. The Company adopted the standard using the modified retrospective
approach effective January 1, 2018.
The
Company adopted these standards at the beginning of the first quarter of fiscal 2018 using the modified retrospective method.
The adoption of these standards did not have an impact on the Company’s Statements of Operations in for the year
ended December 31, 2018.
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics. Revenue is
characterized by several lines of services and typically the pricing is fixed.
|
|
Year
ended December 31,
|
|
Revenue
Breakdown By Streams
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Service-
Guards
|
|
$
|
2,119,534
|
|
|
$
|
2,823,186
|
|
Sales
|
|
|
-
|
|
|
|
4,600
|
|
Services
|
|
|
-
|
|
|
|
104,465
|
|
Services:
Transport
|
|
|
898,992
|
|
|
|
516,660
|
|
Services:
Currency Processing
|
|
|
912,792
|
|
|
|
302,840
|
|
Services:
Compliance
|
|
|
112,562
|
|
|
|
25,428
|
|
Services:
Consulting
|
|
|
-
|
|
|
|
81,263
|
|
Other
|
|
|
6,157
|
|
|
|
7,365
|
|
Total
|
|
$
|
4,050,037
|
|
|
$
|
3,865,807
|
|
Other Income
The Company received a reimbursement of $72,890 from its insurance company for damages
caused by a hail storm during the year ended December 31, 2017.
Advertising
costs
The
Company expenses all costs of advertising as incurred. There were $9,871 and $8,119 in advertising costs for the years ended December
31, 2018 and 2017, respectively.
General
and administrative expenses
The
significant components of general and administrative expenses consist mainly of rent and compensation.
Stock-based
compensation
The
Company records stock-based compensation in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation.”
FASB ASC Topic 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. The Company recognizes in the statement
of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505-50, “Equity-Based
Payments to Non-Employees”, which requires that such equity instruments are recorded at their fair value on the measurement
date, with the measurement of such compensation being subject to periodic adjustment as the underlying equity instruments vest.
Cost
of Revenue
The
Company’s cost of revenue primarily consists of labor, fuel costs and items purchased by the Company specifically purposed
for the benefit of the Company’s client.
Basic
and Diluted Earnings per share
Net
loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic loss per share is computed
by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period.
Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss
per share excludes all potential common shares if their effect is anti-dilutive. During 2018 and 2017 all convertible instruments
were excluded from the calculation of diluted loss per share.
Dividends
The
Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Income
Taxes
The
Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests
that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance
is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of
assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset
or liability are classified as current or non-current depending on the periods in which the temporary differences are expected
to reverse.
Recent
Pronouncements
In February 2016, the
FASB issued ASU 2016-02,
Leases
, which will amend current lease accounting to require lessees to recognize (i) a lease
liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and
(ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however,
certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard was effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing
the provisions of this ASU and finalizing the impact on our results of operations, cash flows or financial condition.
The adoption of ASU
2016-02 will have a significant impact on our balance sheet as we will record material assets and obligations primarily related
to our corporate office and equipment leases based on the present value of the remaining minimum rental payments using discount
rates as of the effective date.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment
Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the
accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards
as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal
years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this
standard as of December 31, 2016. The adoption of this standard had no effect on our results of operation, cash flows, other
than presentation, or financial condition.
In
April 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” ASU 2016
- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective
for annual periods beginning after December 15, 2017, with early adoption permitted. The Company does not believe this ASU will
have an impact on our results of operation, cash flows, other than presentation, or financial condition.
On
November 17, 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, a consensus
of the FASB’s Emerging Issues Task Force (the “Task Force”). The new standard requires that the 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. Entities will also be required to reconcile such total to amounts on the balance sheet and
disclose the nature of the restrictions. ASU No. 2016-18 is effective for public business entities for fiscal years beginning
after December 15, 2017. The Company does not believe this ASU will have an impact on our results of operation, cash flows, other
than presentation, or
financial condition. The Company evaluated
all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material
effect on the financial position, results of operations or cash flows of the Company.
Note
3 – Going concern
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company has a net loss for the year ended December 31, 2018, accumulated deficit and had a working capital
deficit as of December 31, 2018. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is
significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing. There
are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to
continue as a going concern.
The
financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the
amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These
financial statements do not include any adjustments that might arise from this uncertainty.
Note
4 – Commitments and contingencies
Contingencies
On
December 28, 2015 Patrick Deparini, the Company’s former CFO resigned. Mr. Deparini purports his resignation was made pursuant
to a termination clause for other than cause if he is required to undertake other responsibilities other then set forth in his
employment agreement. Mr., Deparini claims through the date of his resignation he is owed a total of $154,000 in unreimbursed
compensation, $575 in accrued authorized expenses and the remaining balance of his base salary as defined in the employment agreement
in the amount of $179,000. As of December 31, 2017 and 2016 the Company has accrued a total of $125,575 contingent liabilities
On February 6, 2017, The Company received a Notification of Wage Claim from the State of Nevada Department of Business & Industry
Office of the Labor Commissioner stating that Patrick Deparini had filed a claim for unpaid wages with the Office of the Labor
Commissioner (the “Commissioner”). The notification states that Mr. Deparini maintains he was not paid for all hours
worked between February 3, 3015 and December 28, 2015 for a total amount owed of $99,000. The Company disputed Mr. Deparini’s
claim with the Commissioner and responded by explaining to the Commissioner that Mr. Deparini improperly categorized his dispute
with the Company as a wage claim, which it is not. If litigation is commenced the Company will attempt a reasonable out-of-court
settlement and if such efforts are not successful, will defend the litigation. The Labor Commission informed the Company on August
24, 2017 that the claim was closed.
On
November 6, 2015 Daniel Sullivan sent a wage claim demand. Mr. Sullivan purports to have had an Independent Contractor Agreement
with the Company which provides he is entitled to certain compensation and to be reimbursed for Company expenses. The demand claims
unpaid compensation in the amount of $8,055 and unreimbursed expenses in the amount of $154,409. The Company denies the agreement
was ever signed. As of December 31, 2018 and December 31, 2017 the Company accrued a total of $88,968 contingent liabilities.
If litigation is commenced the Company will attempt a reasonable out-of-court settlement and if such efforts are not successful,
will defend the litigation.
Mile
High Real Estate Group, an entity owned by Mr. Sullivan, sent correspondence stating the Mr. Sullivan and/or Mile High Real Estate
loaned the Company either directly or directly to contractors, material suppliers or utilities for operating and building remodeling
in the amount of $98,150. Counsel for Mr. Sullivan stated that he was still compiling information. The Company is investigating
whether Mr. Sullivan and/or Mile High Real Estate Group ever made the alleged loans. If the alleged loan was actually made, the
Company will seek an out-of-court settlement. As of December 31, 2018 and December 31, 2017 the Company accrued a total of $98,150.
On
April 14, 2016, the Company entered into an agreement with an unrelated third party to provide the Company with investor relations
services. Upon signing the agreement, the Company paid the investor relations consultant $75,000 and agreed to issue the consultant
1,500,000 shares of its restricted common stock. The agreement requires the Company to pay the consultant an additional $75,000
prior to June 14, 2016. The Company cancelled the agreement and is of the opinion that the shares are not owed to the consultant.
As of December 31, 2018 and December 31, 2017 there was no payable recorded.
Leases
On
April 25, 2018, the Company recorded capital lease obligation for a leased a vehicle for $38,388. The Company made a down
payment of $7,500 and agreed to make 36 monthly payment of $1,015.78 including sales tax.
On
August 16, 2018, the Company recorded capital lease obligation for a leased a vehicle for $58,476. The Company made
a down payment of $20,000 and an additional $10,000 for delivery fees, taxes and its first month payment and agreed to
make 36 monthly payments of $1,265.30, including sales tax.
On
August 16, 2018, the Company recorded capital lease obligation for a leased a vehicle for $58,476. The Company made
a down payment of $20,000 and an additional $10,000 for delivery fees, taxes and its first month payment and agreed to
make 36 monthly payments of $1,265.30, including sales tax.
On
October 27, 2016 the Company sold its building located at 5765 Logan Street Denver, Colorado to an unrelated third party for $1,400,000.
The Company repaid the mortgage on the building in the amount of $677,681. After the sale, the Company leased the building from
the purchaser of the property. The lease is for an initial term of ten years, with the Company having the option to extend the
term of the lease for two additional five year periods. The lease requires rental payments of $10,000 per month and will increase
2% annually. The Company
paid
a $30,000 deposit at the inception of the lease.
Future
minimum lease payments:
|
|
|
|
2019
|
|
$
|
218,688
|
|
2020
|
|
|
205,861
|
|
2021
|
|
|
153,664
|
|
2022
|
|
|
132,711
|
|
2023
|
|
|
135,365
|
|
2024
and thereafter
|
|
|
368,464
|
|
Total
minimum lease payments
|
|
$
|
1,214,753
|
|
Note
5 – Fixed assets
Machinery
and equipment consisted of the following at:
|
|
December
31, 2018
|
|
|
December
31,2017
|
|
|
|
|
|
|
|
|
Automotive
vehicles
|
|
$
|
317,489
|
|
|
$
|
194,882
|
|
Furniture
and equipment
|
|
|
85,435
|
|
|
|
85,437
|
|
Machinery
and Equipment
|
|
|
115,335
|
|
|
|
|
|
Leasehold
improvements
|
|
|
69,484
|
|
|
|
-
|
|
Fixed
assets, total
|
|
|
587,743
|
|
|
|
280,319
|
|
Total
: accumulated depreciation
|
|
|
(194,454
|
)
|
|
|
(165,642
|
)
|
Fixed
assets, net
|
|
$
|
393,289
|
|
|
$
|
114,677
|
|
During
the year ended December 31, 2018, the Company disposed of vehicles with a net book of $3,751.
Total
depreciation expenses for the years ended December 31, 2018 and 2017 were $82,663 and $50,322, respectively.
Note
6 – Notes payable
Notes
payable to non-related parties
During
February 2015, the Company borrowed $50,000 from a non-affiliated person. The loan is due and payable on demand with interest
at 10% per annum. As of December 31, 2018 and December 31, 2017, the principal balance owed on this loan was $50,000 and $50,000,
respectively.
During
April 2015, the Company borrowed $25,000 from a non-affiliated person. The loan is due and payable May 1, 2015 with interest at
6% per year and has a 5% per month penalty upon default. As of December 31, 2018 and December 31, 2017, the principal balance
owed on this loan was $25,000 and $25,000, respectively. The note is currently past due.
On
January 5, 2016, the Company borrowed $10,000 from a non-affiliated person. The loan was due and payable on January 5, 2017 and
bore interest at 5% per annum. and has a 5% per month penalty upon default. The principal balance owed on this loan at December
31, 2018 and December 31, 2017 was $10,000 and $10,000, respectively. The note is currently past due.
On
August 24, 2017 the Company signed a Merchant Agreement with a lender. Under the agreement the Company received $50,000 in exchange
for rights to all customer receipts until the lender is paid $69,000 which is collected at the rate of $410.71 per day with 15%
interest per year. The Company recorded a debt discount of $19,000 and recorded $8,444 amortization expense for the year ended
December 31, 2017 and $10,556 for the year ended December 31, 2018. As of December 31, 2018 the unamortized discount was $0 and
outstanding loan amount was $0. As of December 31, 2017 the unamortized discount was $10,556 and outstanding loan amount was $35,782.
The Company repaid a total of $35,782 during the year ended December 31, 2018. The payments were secured by second position rights
to all customer receipts until the loan has been paid in full.
Convertible
notes payable to non-related party
On
July 18, 2017 the Company borrowed $125,000 from an unrelated third party. The loan has a maturity date of April 30, 2018 and
bears interest at the rate of 8% per year. The Company paid $3,000 of fees associated with the loan, during the year ended December
31, 2017. The Company had amortized $1,741 of the discount and the remaining discount of $1,259 was amortized during the year
ended December 31, 2018. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is
entitled, at its option, at any time after January 14, 2018, (180 days from date of the note) to convert all or any part of the
outstanding and unpaid principal and accrued interest into shares of the Company’s common stock at a price per share equal
to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion date. The
note was not convertible as of December 31, 2017, therefore no derivatives were recorded. On January 14, 2018 the note became
convertible note was discounted for a derivative (see note 8 for details) and the discount of $122,000 was being amortized over
the life of the note using the effective interest method resulting in 122,000 of interest expense for the year ended December
31, 2018. The balance outstanding on the note at December 31, 2017 was $125,000. During the year ended December 31, 2018, the
principal of $125,000 and accrued interest of $5,000 were converted into a total of 4,558,402 shares of common stock.
On
August 24, 2017 the Company borrowed $58,500 from an unrelated third party. The Company paid $3,500 of fees associated with the
loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $1,618 as of December
31, 2017. During the year ended December 31, 2018 the remaining discount of $1,822 was fully amortized. The loan has a maturity
date of May 30, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid amount will bear
interest at 22% per year. The Lender is entitled, at its option, at any time after February 20, 2018 to convert all or any part
of the outstanding and unpaid principal and accrued interest into shares of the Company’s common stock at a price per share
equal to
58% of the average of the three lowest trading prices
for the 25 trading days immediately preceding the conversion date. The note was not convertible as of December 31, 2017, therefore
no derivatives were recorded. On February 20, 2018 the note became convertible note was discounted for a derivative (see note
8 for details) and the discount of $55,000 was being amortized over the life of the note using the effective interest method resulting
in $55,000 of interest expense for the year ended December 31, 2018. The balance outstanding on the
note
at December 31, 2017 was $58,500. As during the year ended December 31, 2018 the principal of $58,500 and accrued interest of
$2,340 were converted into a total of 3,342,857 shares of common stock.
On
October 18, 2017, the Company borrowed $150,000 from an unrelated third party. The Company paid $15,250 of fees associated with
the loan, which was recorded as discount and to be amortized over the term of the debt and had amortized $4,164 of the costs as
of December 31, 2017. The loan bears interest at a rate of 10% (default interest 24%) and has a maturity date of July 16, 2018,
the loan is not in default as a result of extended the conversion date to October 11, 2018. The Holder has the option to convert
the outstanding principal and accrued interest into common stock of the Company. The conversion price is the lesser of (1) lowest
trading price during the previous 25 days prior to the note agreement or (2) 50% lowest trading price during the 25 days prior
to
conversion. Covenants: The Borrower shall not, without the
Holder’s consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business.
The note was discounted for a derivative (see note 8 for details) and the discount of $134,750 is being amortized over the life
of the note using the effective interest method resulting in $36,795 of interest expense for the year ended December 31, 2017.
During the year ended December 31, 2018 the Company recorded an additional interest expense of $109,041. On April 11, 2018 the
Company paid the holder $75,000 in additional interest to forgo converting the note till October 11, 2018, the fee paid is accounted
for as interest expense. On November 21, 2018 the Company paid the holder $75,000 in additional interest to forgo converting
the note till May 11, 2019, the fee paid is accounted for as interest expense.
On
October 19, 2017 the Company borrowed $73,000 from an unrelated third party. The Company paid $3,000 of fees associated with the
loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $771 as of December 31,
2017, during the year ended December 31, 2018 the Company amortized the remaining discount of $2,229 on the note. The loan has
a maturity date of July 30, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid amount
will bear interest at 22% per year. The Lender is entitled, at its option, at any time after April 17, 2018 to convert all or
any part of the outstanding and unpaid principal and accrued interest into shares of the Company’s common stock at a price
per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion
date. During the year ended December 31, 2018, the principal of $73,000 and accrued interest of $2,920 converted into a total
of 3,836,781 shares of common stock.
On
November 24, 2017, the Company borrowed $75,000 from an unrelated third party. The Company paid $7,000 of fees associated with
the loan, and had amortized $717 of the costs as of December 31, 2017. The note bears an interest rate: 12% (default interest
lesser of 15% or maximum permitted by law) and matures on November 20, 2018. The conversion Feature Convertible immediately after
the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company.
The Conversion price is 55% of the lowest trading price during the 25 Trading Day periods prior to the Conversion. In addition
there is an additional 10% discount for the DWAC unavailability: In the event that shares of the Borrower’s Common Stock
are not deliverable via DWAC following the conversion of any amount hereunder, an additional ten percent (10%) discount shall
be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 55% assuming
no other adjustments are triggered hereunder).There is also an additional 15% discount that can be triggered as well: (a) DTC;
Market Loss. If the Borrower fails to maintain its status as “DTC Eligible” for any reason, or, if at any time while
this Note is outstanding the Conversion Price is equal to or lower than $0.01, then an additional fifteen percent (15%) discount
shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of
60%, assuming no other adjustments are triggered hereunder).
Covenants:
The Borrower shall not, without the Holder’s consent, sell, lease or dispose of any significant portion of its assets outside
the ordinary course of business. The note was discounted for a derivative (see note 8 for details) and the discount of $68,000
is being amortized over the life of the note using the effective interest method resulting in $6,970 of interest expense for the
year ended December 31, 2017. During the year ended December 31, 2018, the Company recorded an additional interest expense $67,313
including $61,030 on debt discount from derivative and $6,283 for original issue discount for the year ended December 31,
2018. During the year ended December 31, 2018, principal of $75,000 and fees of $4,500 were converted into a total of 28,252,481
shares of common stock.
On December 15, 2017, the Company borrowed
$63,000 from an unrelated third party. The Company paid $3,000 of fees associated with the loan. The Company amortized
$771 as of December 31, 2017. During the year ended December 31, 2018, the Company amortized an additional $2,825.
The loan has a maturity date of September 15, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when
due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after June 13, 2018
to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company’s common
stock at a price per share equal to 58% of the average of the lowest 3 trading prices during the 10 days prior to conversion date.
On June 13, 2018, the Company recorded a discount of $60,000 and recorded day one loss due to derivative of $9,528. During the
year ended December 31, 2018 the discount was fully amortized. During the year ended December 31, 2018 the principal of $63,000
and accrued interest of $2,520 converted into a total of 4,682,540 shares of common stock.
On
January 2, 2018 the Company borrowed $30,000 from an unrelated third party. The Company paid $2,000 of fees associated with the
loan and the Company amortized $1,989 as of December 31, 2018. The loan has a maturity date of January 2, 2019 and bears interest
at the rate of 12% (default interest lesser of 15% or maximum permitted by law). The conversion Feature Convertible immediately
after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the
Company. The
Conversion price is 55% of the lowest trading price
during the 25 Trading Day periods prior to the Conversion. Covenants: The Borrower shall not, without the Holder’s consent,
sell, lease or dispose of any significant portion of its assets outside the ordinary course of business. The note was discounted
for a derivative (see note 8 for details) and the discount of $28,000 is being amortized over the life of the note using the effective
interest method resulting in $27,847 of interest expense for the year ended December 31, 2018.
On
January 25, 2018 the Company borrowed $150,000 from an unrelated third party. The Company paid $7,500 of fees associated with
the loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $6,986 as of December
31, 2018. The loan has a maturity date of January 25, 2019 and bears interest at the rate of 12% per year. If the loan is not
paid when due, any unpaid amount will bear interest at 18% per year. The Lender is entitled, at its option, at any time after
July 24, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company’s
common stock at a price per share equal to 55% of the average of the lowest trading price for the 20 trading days immediately
preceding the conversion date. On July 24, 2018, the Company recorded a discount of $142,500 and recorded day one loss due to
derivative of $74,900 As during the year ended December 31, 2018 the principal of $85,149 converted into a total of 33,375,972
shares of common stock. The Company also recorded amortization of debt discount (from derivative) of $132,740 during the year
ended December 31, 2018.
On
February 13, 2018 the Company borrowed $128,000 from an unrelated third party. The Company paid $3,000 of fees associated with
the loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $3,000 as of December
31, 2018. The loan has a maturity date of November 30, 2018 and bears interest at the rate of 8% per year. If the loan is not
paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after
August 12, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company’s
common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately
preceding the conversion date. On August 12, 2018, the Company recorded a debt discount due to the derivative of $107,711.
During the year ended December 31, 2018 the discount of $107,711 was fully amortized. During the year ended December 31, 2018
the principal of $128,000 and accrued interest of $5,120 converted into a total of 26,673,229 shares of common stock.
On
March 21, 2018, the Company borrowed $45,000 from an unrelated third party. The Company paid $4,500 of fees associated with the
loan, and had amortized $3,514 of the costs as of December 31, 2018. The note bears an interest rate: 12% (default interest lesser
of 15% or maximum permitted by law) and matures on March 21, 2019. The conversion Feature Convertible immediately after the issuance,
the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion
price is 55%
of the lowest trading price during the 25 Trading
Day periods prior to the Conversion. Covenants: The Borrower shall not, without the Holder’s consent, sell, lease or dispose
of any significant portion of its assets outside the ordinary course of business. The note was discounted for a derivative (see
note 8 for details) and the discount of $40,500 is being amortized over the life of the note using the effective interest method
resulting in $31,623 of interest expense for the year ended December 31, 2018.
On
April 11, 2018 the Company borrowed $103,000 from an unrelated third party. The Company paid $3,000 of fees associated with the
loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $3,000 as of December
31, 2018. The loan has a maturity date of January 30, 2019 and bears interest at the rate of 8% per year. If the loan is not paid
when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after October
8, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company’s
common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately
preceding
the conversion date. As during the year ended December
31, 2018, the principal of $103,000 and accrued interest of $4,120 converted into a total of 79,061,412 shares of common stock.
The Company also recorded amortization of debt discount (from derivative) of $87,642 during the year ended December 31, 2018.
During
the year ended December 31, 2018, the Company recognized amortization expense of $897,600 for the discount from derivative liabilities.
Note
7 – Notes payable – related parties
On
July 31, 2014, the Company borrowed $98,150 from an entity controlled by an officer and shareholder of the Company. The loan is
due and payable on demand and bears no interest. As of December 31, 2018 and December 31, 2017, the principal balance owed on
this loan is $98,150 and $98,150, respectively.
As
of December 31, 2014, a related party loaned the Company $10,000, in the form of cash and expenses paid on behalf of the Company.
The loan is due and payable on demand and bears no interest. During the year ended December 31, 2015 the Company borrowed an additional
$20,000. As of December 31, 2018 and December
31,
2017, the principal balance owed on this loan was $30,000 and $30,000, respectively.
As
of December 31, 2014, a related party loaned the Company $180,121, in the form of cash and expenses paid on behalf of the Company.
The loan is due and payable on demand and bears no interest. The Company repaid $125,500 towards this note during 2015 and as
of December 31, 2018 and December 31, 2017; the principal balance owed on this loan was $54,621 and $54,621, respectively.
During
2015, the Company borrowed $43,575 from its former CFO and repaid $43,000 of the loan. The note is non-interest bearing, and due
on demand. As of December 31, 2018 and December 31, 2017, the principal amount owed on this loan was $575.
During
October 2015, the Company borrowed $30,000 from an entity controlled by an officer of the Company. The loan is due and payable
on demand and is non-interest bearing. During the year ended December 31, 2017, the Company repaid $251,363 and borrowed an additional
$265,363 from the same related party.
During
the year ended December 31, 2018 the Company repaid $121,500 and borrowed an additional $184,500 from the same related party.
As of December 31, 2018 and December 31, 2017, the principal balance owed on this loan was $107,000 and $44,000, respectively.
On
July 7, 2016, the Company borrowed $73,000 from a related party. The loan was due and payable on July 7, 2017 and bore interest
at 5% per annum. The principal balance owed on this loan at December 31, 2018 and December 31, 2017 was $73,000 and $73,000, respectively.
The holder of the note has agreed to extend the default
date
of the note to September 30, 2018. As of December 31, 2018 the note is currently in default.
On
August 8, 2016, the Company entered into, an promissory note with Hypur Inc., a Nevada Corporation which is a related party pursuant
to which the Company to borrow $52,000. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower The loan was due and payable on August 10, 2017 and bore interest at 18% per annum. The principal balance owed on this
loan at December 31, 2018 and
December 31, 2017 was $52,000 and
$52,000, respectively. The Note is currently in default at bears a default rate of interest of 24% per annum as part of the default
terms of this note. The lender waived the conversion option through October 1, 2017. On October 1, 2017, it was determined this
note had derivative.
Upon default, the note bears a default rate of interest of 15% per annum, and if the default has
not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default
term and agreed to extend the default date to October 15, 2019.
On
September 20, 2016, the Company borrowed $47,500 from Hypur Inc., which is a related party. The loan is due and payable on December
20, 2016 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. The principal balance owed on this loan at December 31, 2018 and December 31, 2017 was $47,500 and $47,500, respectively.
The loan is currently past due and in default. The Note is currently in default at bears a default rate of interest of 24% per
annum as part of the default terms of this note. The lender waived the conversion option through October 1, 2017. On October 1,
2017 it was determined this note had derivative. Upon default, the note bears a default rate of interest of 15% per annum,
and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder
has waived the default term and agreed to extend the default date to October 15, 2019.
On
October 29, 2018, the Company borrowed $100,000 from Hypur Inc., which is a related party. The loan is due and payable on January
28, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note.The
principal balance owed on this loan at December 31, 2018 was $100,000.
On
November 21, 2018, the Company borrowed $70,000 from Hypur Inc., which is a related party. The loan is due and payable on February
19, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note. The
principal balance owed on this loan at December 31, 2018 was $70,000.
On
November 26, 2018, the Company borrowed $75,000 from Hypur Inc., which is a related party. The loan is due and payable on February
24, 2019 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert
the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the
Borrower. Upon default the note bears a default rate of interest of 24% per annum as part of the default terms of this note.
The principal balance owed on this loan at December 31, 2018 was $75,000.
During
2017, the Company borrowed $47,880 from its Vice President of Operations and repaid $27,880 of the loan. The note is non-interest
bearing, and due on demand. During the year ended December 31, 2018, the Company repaid the remaining $20,000. As of December
31, 2018 and December 31, 2017 the principal amount owed on this loan was $0 and $20,000, respectively.
Convertible
notes payable to related party
In
November 2015, the Company entered into an arrangement with a related party, whereby the Company borrowed $25,000 in Convertible
Notes. The Convertible Note bears interest at a rate of 5% per annum and payable quarterly in arrears and matures twelve months
from the date of issuance, and is convertible into shares of the Company’s common stock at a per share conversion price
equal to $0.025. The note was due on November 4, 2016. In December 2015 the lender loaned the Company an additional $20,000 with
same terms except that it is payable upon demand. As of December 31, 2018 and December 31, 2017, the Company owed a total
of
$45,000 and $45,000, respectively. The holder of the note has agreed to extend the default date of the note to September 30, 2018.
As of December 31, 2018 the note is currently in default.
In
July 2015, the Company entered into an arrangement with a related party, whereby the Company could borrow up to $500,000 in Convertible
Notes. The Convertible Note bears interest at a rate of 5% per annum and payable quarterly in arrears and matures twelve months
from the date of issuance, and is convertible into shares of the Company’s common stock at a per share conversion price
equal to $0.025. Upon the occurrence and during the continuation of an event of default, the holder may require the Company to
redeem all or any
portion of this Note in cash at a price equal
to 150% of the principal amount. During the year ended December 31, 2017, the Company borrowed an additional $110,000. As of December
31, 2018 and December 31, 2017, the Company owed a total of $500,000 and $500,000, respectively. As of December 31, 2017 there
is a total of $500,000 of the notes are past due, respectively. Since the debt holder has not elect the right to require the Company
to redeem the note at a price equal to 150% of the principal amount, the terms stated prior to maturity are still in effect. The
holder has waived the default term and the note is not considered to be in default as of December 31, 2018.
On
September 1, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited
partnership (the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $75,000. The
loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common
stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50
per share during a 10 day period. The principal balance owed on this loan at December 31, 2018 December 31, 2017 was $75,000
and $75,000, respectively. Upon default, the note bears a default rate of interest of 15% per annum, and if the default has
not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the
default term and agreed to extend the default date to March 31, 2018 and further extended to September 30, 2018.
As of
December 31, 2018 Hyper has waived the default provision.
On
October 14, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $100,000. The loan was due
180 days from the date of issuance and bears interest at 10% per
annum.
The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if
the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at December 31, 2018
and December 31, 2017 was $100,000 and $100,000, respectively. Upon default, the note bears a default rate of interest of 15%
per annum, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount.
The holder has waived the default
term and agreed to extend the default date to March 31, 2018 and
further extended to September 30, 2018.
As of December 31, 2018 Hyper has waived the default provision.
On
March 7, 2017, the Company borrowed $100,000 from Hypur Ventures, L.P., a related party. The loan is due 180 days from March 7,
2017 and bears interest at 10% per annum. The loan is convertible into shares of the Company’s common stock at a price of
$.05 per share. The loan will automatically convert into shares of the Company’s common stock if the price of the Company’s
common stock is over $.50 per share during any ten-day period. The principal balance owed on this loan at December 31, 2018 and
December 31, 2017 was $100,000 and $100,000 respectively. Upon default, the note bears a default rate of interest of 15% per annum,
and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder
has waived the default term and agreed to extend the default date to March 31, 2018 and further
extended
to September 30, 2018.
As of December 31, 2018 Hyper has waived
the default provision.
On
May 26, 2017, the Company borrowed $100,000 from CGDK, a related party. The loan is due 360 days from May 26, 2017 and bears interest
at 5% per annum. The loan is convertible into shares of the Company’s common stock at a price of $.025 per share. The loan
will automatically convert into shares of the Company’s common stock if the price of the Company’s common stock is
over $.25 per share during any ten-day period. The principal balance owed on this loan at December 31, 2018 and December 31, 2017
was $100,000 and $100,000, respectively. As of December 31, 2018 the note is currently in default.
On
July 13, 2017, the Company borrowed $150,000 from CGDK, a related party. The loan is due 360 days from July 13, 2017, and bears
interest at 5% per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share.
The loan will automatically convert into shares of the Company’s common stock if the price of the Company’s common
stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at December 31, 2018 and December
31, 2017 was $150,000. As of December 31, 2018 the note is currently in default.
On
April 13, 2018, the Company borrowed $130,000 from CGDK, a related party. The loan is due 360 days from April 13, 2018, bears
interest at 12% per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share.
The loan will automatically convert into shares of the Company’s common stock if the price of the Company’s common
stock is over $.25 per share during any ten-day period. The Company recorded a discount of $101,272 and derivative liability,
there was no day one loss due to derivative on this note. The Company amortized $72,694 in debt discounts during the year ended
December 31, 2018. The principal balance owed on this loan at December 31, 2018 is $130,000.
On
June 14, 2018, the Company issued a $30,217 to CGDK, a related party, for previous expenses paid on behalf of the Company. The
loan is due 360 days from June 18, 2018, bears interest at 12% per annum. The loan is convertible into shares of the Company’s
common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company’s common stock
if the price of the Company’s common stock is over $.25 per share during any ten-day period. The Company recorded a debt
discount of $10,292, there was no day one loss due to derivative on this note. During the year ended December 31, 2018 the Company
amortized $5,639 of the discount. The principal balance owed on this loan at December 31, 2018 is $30,217.
On
July 2, 2018, the Company borrowed $150,000 from CGDK, a related party. The loan is due July 2, 2019 and bears interest at 12%
per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share. The loan will
automatically convert into shares of the Company’s common stock if the price of the Company’s common stock is over
$.10 per share during any ten-day period or the trading volume of the Company’s common stock during these ten trading days
was at least 2,500,000 shares. The Company recorded a
debt discount
of $19,779 there was no day one loss due to derivative on this note. During the year ended December 31, 2018 the Company amortized
$9,862 of the discount. The principal balance owed on this loan at December 31, 2018 is $150,000.
On
August 6, 2018, the Company borrowed $150,000 from CGDK, a related party. The loan is due July 2, 2019 and bears interest at 12%
per annum. The loan is convertible into shares of the Company’s common stock at a price of $.05 per share. The loan will
automatically convert into shares of the Company’s common stock if the price of the Company’s common stock is over
$.10 per share during any ten-day period or the trading volume of the Company’s common stock during these ten trading days
was at least 2,500,000 shares. The Company recorded a
debt discount
of $20,095 there was no day one loss due to derivative on this note. During the year ended December 31, 2018 the Company amortized
$8,093 of the discount. The principal balance owed on this loan at December 31, 2018 is $150,000.
The
carrying amount of the convertible note, net of the unamortized debt discount, at December 31, 2018 and December 31, 2017 is $1,419,919
and $1,057,726, respectively. Total unamortized at December 31, 2018 is $55,149.
On
October 1, 2017, these notes were tainted by the variable conversion price notes and remained tainted as of December 31, 2018.
The Company re-measured the fair value of derivative liabilities on December 31, 2018. See Note 8.
NOTE
8 – Derivative Liability
The
Company analyzed the conversion options for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging,
and determined that the instrument should be classified as a liability when the conversion option becomes effective.
The
derivative liability in connection with the conversion feature of the convertible debt is measured using, level 3 inputs.
The
change in the fair value of derivative liabilities is as follows:
Balance -
December 31, 2016
|
|
$
|
-
|
|
Addition
of new derivative as a debt discount
|
|
|
253,188
|
|
Reclass
from additional paid in capital to derivative liabilities due to tainting
|
|
|
317,224
|
|
Loss
on change in fair value of the derivative
|
|
|
1,309,588
|
|
Balance
- December 31, 2017
|
|
$
|
1,879,930
|
|
Addition
of new derivative as a derivative loss
|
|
|
448,579
|
|
Resolution
of derivatives upon conversion
|
|
|
(1,076,702)
|
|
Debt
discount from derivative liability
|
|
|
864,791
|
|
Loss
on change in fair value of the derivative
|
|
|
(1,389,266
|
)
|
Balance
- December 31, 2018
|
|
$
|
727,322
|
|
The
table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each
measurement date:
|
|
|
Year
ended
|
|
|
|
Year
ended
|
|
|
|
|
December
31, 2018
|
|
|
|
December
31,2017
|
|
Expected
term
|
|
|
0.02
– 2.69 years
|
|
|
|
0.02-3.65
years
|
|
Expected average
volatility
|
|
|
144.96%
-446.59 %
|
|
|
|
108
.61%-584.87%
|
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free
interest rate
|
|
|
2.25%
- 2.66 %
|
|
|
|
1.53%-1.98%
|
|
Note
9 – Long term notes payable
On
November 21, 2014, the Company purchased a vehicle for $20,827, net of discounts. The Company financed the $20,827 at an interest
rate of 2.42% for five years, with a maturity date of December 5, 2019. As of December 31, 2018 and December 31, 2017 the total
principal balance of the note is $4,678 and $8,639, respectively, of which $368 and $6,518 is considered a long-term liability
and $4,310 and $2,121 is considered a current liability.
Note
10 – Stockholders’ equity
The
Company was originally authorized to issue 100,000,000 shares of common stock and 100,000,000 shares of preferred stock. On May
6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1,
whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the number of authorized
shares increased to 1,400,000,000 shares of common stock. All references to share and per share amounts in the consolidated financial
statements and these notes thereto have been retroactively restated to reflect the forward stock split.
Common
stock
During
the year ended December 31, 2017, the Company entered into a consulting agreement for business advisory services. The Company
issued a total of 2,000,000 shares of common stock to the consultant for business advisory services valued at $46,583 the fair
value measurement on the common stock, which was at service completion date. The certificate for 1,000,000 of these shares was
issued during the year ended December 31, 2017. During the year ended December 31, 2018 the Company issued the remaining 1,000,000
shares and remeasured the fair value of those shares on the service completion date and recorded the remaining expense of $31,917.
During
the year ended December 31, 2018, the Company issued a total of 239,120,675 shares of common stock for the conversion of $769,199
of convertibles loans, accrued interest, and fees.
Preferred
stock
On
May 3, 2016, the Company entered into, an agreement with Hypur Ventures, L.P., a Delaware limited partnership (the “Hypur
Ventures”) which is a related party pursuant to which the Company sold to Hypur Ventures, in a private placement, 10,000,000
shares of the Company’s preferred stock and 5,000,000 common stock warrants with a five year term and an exercise price
of $0.10, at a purchase price of $0.05 per share for gross proceeds of $500,000. The shares of preferred stock are convertible
into shares of the Company’s common stock. The preferred stock shall have such other rights, preferences and privileges
to be set forth in a certificate of designation to be filed with the Secretary of State. The Company evaluated the convertible
preferred stock under FASB ASC 470-20-30 and determined it contained a beneficial conversion feature. The intrinsic value of the
beneficial conversion feature was determined to be $114,229. The beneficial conversion feature was fully amortized and recorded
as a deemed dividend.
Between
July and August of 2016 Hypur Ventures purchased an additional 10,000,000 shares of the Company’s preferred stock and 5,000,000
common stock warrants with a five year term and an exercise price of $0.10, at a purchase price of $0.05 per share for net proceeds
of $445,000, net of legal fees of $55,000. The shares of preferred stock are convertible into shares of the Company’s common
stock. The preferred stock shall have such other rights, preferences and privileges to be set forth in a certificate of designation
to be filed with the Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined
it does not contain a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to
be $0.The preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically
convert to common stock if the closing price of the Company’s common stock equals or exceeds $.50 per share over any consecutive
twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply
to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one
director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
The
preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically convert
to common stock if the closing price of the Company’s common stock equals or exceeds $.50 per share over any consecutive
twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply
to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one
director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
The
Company has reserved thirty million shares of common stock that may be issued upon the conversion and/or exercise of the preferred
stock and the warrants. The preferred stock sold to Hypur Ventures will be subject to the terms and conditions of the Certificate
of Designation, as well as further documentation to be drafted in accordance with the terms and conditions agreed upon between
the Company and Hypur Ventures.
Note
11 – Options and warrants
Options
All
stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of
each option award is estimated using a Black-Scholes-Merton option valuation model. The Company has not paid any cash dividends
on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses
an expected dividend yield of zero in the Black-Scholes-Merton option valuation model. Volatility is an estimate based on the
calculated historical volatility of similar entities in industry, in size and in financial leverage, whose share prices are publicly
available. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company
has no historical experience with which to establish a basis for determining an expected life of these awards. Therefore, the
Company only gave consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting
and post-vesting forfeitures significant to the expected life of the option award. The Company bases the risk-free interest rate
used in the Black-Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury issues with
an equivalent remaining term equal to the expected life of the award.
On
December 28, 2016, the Company issued stock options to various offices and employees of the Company to purchase 7,950,000 shares
of the Company’s common stock at an exercise price of $0.05 per share. The options vest immediately. The options carry a
life of three years.
During
the year ended December 31, 2017 a total of 40,000 stock options were forfeited by various employees of the Company.
During
the year ended December 31, 2018 a total of 466,667 stock options were forfeited by various employees of the Company.
The
following is a summary of the Company’s stock option activity for the years ended December 31, 2018 and 2017:
|
|
Number
Of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2016
|
|
|
24,753,405
|
|
|
$
|
0.11
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(235,000
|
)
|
|
$
|
0.13
|
|
Cancelled
|
|
|
(40,000
|
)
|
|
$
|
0.13
|
|
Outstanding
at December 31, 2017
|
|
|
24,478,405
|
|
|
$
|
0.11
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(466,667
|
)
|
|
$
|
0.11
|
|
Cancelled
|
|
|
-
|
|
|
|
$
|
|
Outstanding
at December 31, 2018
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
Options exercisable
at December 31, 2017
|
|
|
24,471,738
|
|
|
$
|
0.11
|
|
Options
exercisable at December 31, 2018
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
The
following tables summarize information about stock options outstanding and exercisable at December 31, 2018 and December 31, 2017:
OPTIONS
OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2018
|
Range
of Exercise Prices
|
|
Number
of Options Outstanding
|
|
|
Weighted-Average
Remaining Contractual Life in Years
|
|
|
Weighted-
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average Exercise Price
|
|
$
|
0.034 – 1.00
|
|
|
24,011,738
|
|
|
|
1.3
|
|
|
$
|
0.11
|
|
|
|
24,011,738
|
|
|
$
|
0.11
|
|
OPTIONS
OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2017
|
Range
of Exercise Prices
|
|
Number
of Options Outstanding
|
|
|
Weighted-Average
Remaining Contractual Life in Years
|
|
|
Weighted-
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average Exercise Price
|
|
$
|
0.035
– 1.00
|
|
|
24,478,405
|
|
|
|
2.313
|
|
|
$
|
0.11
|
|
|
|
24,471,738
|
|
|
$
|
0.11
|
|
Total
stock-based compensation expense in connection with options and modified awards recognized in the consolidated statement of operations
for years ended December 31, 2018 and 2017 was $52,437 and $79,840, respectively.
Warrants
The
following is a summary of the Company’s warrant activity for the years ended December 31, 2018 and December 31, 2017:
|
|
Number
Of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding
at December 31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
at December 31, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding
at December 31, 2018
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Warrants exercisable
at December 31, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Warrants
exercisable at December 31, 2018
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
The following tables summarize information about warrants outstanding and exercisable at December
31, 2018 and and December 31, 2017:
WARRANTS
OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2018
|
Range
of Exercise Prices
|
|
Number
of Warrants Outstanding
|
|
|
Weighted-Average
Remaining Contractual Life in Years
|
|
|
Weighted-
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average Exercise Price
|
|
$
|
0.10
|
|
|
10,000,000
|
|
|
|
2.52
|
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
WARRANTS
OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2017
|
Range
of Exercise Prices
|
|
Number
of Warrants Outstanding
|
|
|
Weighted-Average
Remaining Contractual Life in Years
|
|
|
Weighted-
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average Exercise Price
|
|
$
|
0.10
|
|
|
10,000,000
|
|
|
|
3.49
|
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Note
12 – Income taxes
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms
the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains
significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a
flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction
for net operating losses to 80% of current year taxable income and elimination of net operating loss carry backs, in each case,
for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely);
modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing
expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”;
and repeal of the federal Alternative Minimum Tax (“AMT”).
The
staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in
situations when a registrant does not have the necessary information available, prepared or analyzed (including computations)
in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis
of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are
expected to reverse in the future, which is generally 21%. The remeasurement of the Company’s deferred tax assets and liabilities
was offset by a change in the valuation allowance.
For the years ended December 31, 2018
and 2017, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded.
In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December
31, 2018 and 2017, the Company had approximately $7,275,182 and $5,734,309 of federal and state net operating losses.
The net operating loss carry forwards, if not utilized, will begin to expire in 2029. The provision for income taxes consisted
of the following components for the years ended December 31:
Components
of net deferred tax assets, including a valuation allowance, are as follows at December 31:
|
|
December
31
|
|
|
|
2018
|
|
|
2017
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
1,527,788
|
|
|
$
|
1,204,205
|
|
Valuation
allowance
|
|
|
(1,527,788
|
)
|
|
|
(1,204,205
|
)
|
Total
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
FASB
ASC 740,
Income Taxes,
requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight
of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration
of all the evidence, both positive and negative, management has determined that a full valuation allowance of $1,527,788 and $1,204,205
against its net deferred taxes is necessary as of December 31, 2018 and December 31, 2017, respectively. The change in valuation
allowance for the years ended December 31, 2018 and 2017 is $323,583 and $311,379 respectively.
At
December 31, 2018 and December 31, 2017, respectively, the Company had $7,275,182 and $5,734,309, respectively,
of U.S. net operating loss carryforwards remaining, which expire beginning in 2017.
As
a result of certain ownership changes, the Company may be subject to an annual limitation on the utilization of its U.S. net operating
loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change,
has not been undertaken.
Tax
returns for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 are subject to examination by the Internal Revenue Service.
A
reconciliation of the Company’s income taxes to amounts calculated at the federal statutory rate is as follows for the years
ended December 31:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Federal
statutory taxes
|
|
|
(21.00
|
)%
|
|
|
(35.00
|
)%
|
Change
in tax rate estimate
|
|
|
—
|
|
|
|
14.00
|
%
|
Change
in valuation allowance
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
|
|
|
—
|
%
|
|
|
—
|
%
|
The valuation allowance for deferred tax assets
as of December 31, 2018 and 2017 was $1,572,788 and $1,204,205 respectively. In assessing the recovery
of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of
future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a
result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2018
and 2017 and recorded a full valuation allowance.
Reconciliation
between the statutory rate and the effective tax rate is as follows at December 31:
|
|
2018
|
|
|
2017
|
|
Federal
statutory tax Reconciliation rate
|
|
|
(21.0
|
)%
|
|
|
(35.0
|
)%
|
Permanent
difference and other
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
Note
13 – Subsequent Events
On
January 18, 2019, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $250,000. The loan was due
10 days from the date of issuance and bears interest at 18% per annum. The note is convertible into common stock at a price at
the lower of $.0002 per share or 60% of the of the closing price of the common stock prior to conversion. Upon default, the note
bears a default rate of interest of 24% per annum. The holder has waived the default term and agreed to extend the default date
to October 15, 2019.
On
February 22, 2019 the Company entered into a settlement agreement with a former employee and agreed to pay $15,000 for past due
wages.
On
February 24, 2019 Crown Bridge Partners converted notes payable in the amount of $9,374, fees of $500 and accrued interest of
$2,625 into 18,380,000 shares of common stock.
On
March 5,2019, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $50,000. The loan was due
10 days from the date of issuance and bears interest at 18% per annum. The note is convertible into common stock at a price at
the lower of $.0002 per share or 60% of the of the closing price of the common stock prior to conversion. Upon default, the note
bears a default rate of interest of 24% per annum. The holder has waived the default term and agreed to extend the default date
to October 15, 2019.
Between
January 25, 2019 and March 22, 2019 JSJ Investments, Inc. converted notes payable in the amount of $64,882 principal and $996
interest into 80,518,873 shares of common stock.