Notes
to Condensed Consolidated Financial Statements
For
the Nine months Ended September 30, 2021 and 2020
(Unaudited)
Note
1 – Nature of the Business
BoxScore
Brands, Inc. (formerly U-Vend Inc.) (the “Company”) formerly developed, marketed and distributed various self-serve electronic
kiosks and mall/airport co-branded islands throughout North America. Due to the nationwide shutdown related to the COVID-19 pandemic,
the Company spent a portion of 2020 restructuring and retiring certain corporate debt and obligations. The Company focused on implementing
a new operational direction. After a thorough evaluation process, the Company found that there is a substantial long-term demand
for specific commodities relating to battery and new energy technologies. This presents a timely and unique opportunity based on rising
demand characteristics. By capitalizing on market trends and current sustainable energy government mandates and environmental,
social, and corporate governance (ESG) initiatives, we will focus on bringing a vertically-integrated solution to market.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the
information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting
of normal recurring accruals considered necessary for a fair and non-misleading presentation of the financial statements have been included.
Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2021. The balance sheet as of December 31, 2020 has been derived from the audited consolidated financial
statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. These
interim consolidated financial statements should be read in conjunction with the December 31, 2020 audited consolidated financial statements
and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities
and Exchange Commission on September 27, 2021.
The
accompanying consolidated financial statements include the accounts of BoxScore Brands, Inc. and the operations of its wholly owned subsidiaries,
U-Vend America, Inc., U-Vend Canada, Inc. U-Vend USA LLC. All intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and be based on
events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires
the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired, or as additional information
is obtained.
Property
and Equipment
Property
and equipment are stated at cost less depreciation. Depreciation is provided using the straight-line method over the estimated useful
life of the assets. Equipment has estimated useful lives between three and seven years. Expenditures for repairs and maintenance are
charged to expense as incurred.
Impairment
of Long-lived Assets
Long-lived
assets, such as property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and
used is measured by comparing the carrying amount to the estimated future undiscounted cash flows expected to be generated by the asset
group. If it is determined that an asset group is not recoverable, an impairment charge is recognized for the amount by which the carrying
amount of the asset group exceeds its fair value.
Earnings
Per Share
The
Company presents basic and diluted earnings per share in accordance with ASC 260, “Earnings per Share.” Basic earnings per
share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed
including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss period,
the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.
As
of September 30, 2021 and December 31, 2020, there were approximately 162 million and 166 million shares potentially issuable under convertible
debt agreements, options, and warrants that could dilute basic earnings per share if converted that were included in the calculation
of diluted earnings per share for the nine months ended September 30, 2021. These if-converted shares were excluded from the other periods
presented because their inclusion would have been anti-dilutive to the Company’s losses during those periods.
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Three Months Ended
|
|
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Nine Months Ended
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|
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September 30,
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September 30,
|
|
|
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2021
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|
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2020
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|
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2021
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2020
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|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,535,606
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)
|
|
|
(280,163
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)
|
|
|
30,703
|
|
|
|
(717,319
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)
|
(Gain) loss on change in fair value of derivatives
|
|
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1,242,201
|
|
|
|
-
|
|
|
|
(871,388
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)
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|
|
-
|
|
Interest on convertible debt
|
|
|
240,921
|
|
|
|
-
|
|
|
|
645,880
|
|
|
|
-
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Net income (loss) – diluted
|
|
|
(52,484
|
)
|
|
|
(280,163
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)
|
|
|
(194,805
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)
|
|
|
(717,319
|
)
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|
|
|
|
|
|
|
|
|
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Denominator:
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|
|
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Weighted average common shares outstanding
|
|
|
261,689,973
|
|
|
|
37,717,755
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|
|
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179,188,115
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|
|
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37,717,755
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|
Effect of dilutive shares
|
|
|
-
|
|
|
|
-
|
|
|
|
161,637,319
|
|
|
|
-
|
|
Diluted
|
|
|
261,689,973
|
|
|
|
37,717,755
|
|
|
|
340,825,434
|
|
|
|
37,717,755
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|
|
|
|
|
|
|
|
|
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|
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Net income (loss) per common share:
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|
|
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|
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|
|
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Basic
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$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
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Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. Certain warrants issued by the Company contain terms that result in the warrants being classified as derivative liabilities
for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated
statement of operations. The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency
risks.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair
Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic
825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair
value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined
as follows:
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●
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Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume
to provide pricing information on an ongoing basis
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●
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Level
2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the
full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market
data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived
from observable data, or supported by observable levels at which transactions are executed in the marketplace.
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|
●
|
Level
3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less
observable from objective sources (i.e. supported by little or no market activity). Level 3 instruments include derivative warrant instruments.
The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.
|
Certain
of the Company’s debt and equity instruments include embedded derivatives that require bifurcation from the host contract under
the provisions of ASC 815-40, “Derivatives and Hedging.”
The
following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair
value on a recurring basis as of September 30, 2021 and December 31, 2020:
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|
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Fair Value Measurement at
|
|
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Carrying
|
|
|
September 30, 2021
|
|
|
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Value
|
|
|
Level 1
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|
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Level 2
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Level 3
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Derivative liabilities, debt and equity instruments
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$
|
2,211,867
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,211,867
|
|
|
|
|
|
|
Fair Value Measurement at
|
|
|
|
Carrying
|
|
|
December 31, 2020
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|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
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|
Derivative liabilities, debt and equity instruments
|
|
$
|
3,083,255
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,083,255
|
|
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation,” that
requires all stock-based awards granted to employees, directors, and non-employees to be measured at grant date fair value of the equity
instrument issued, and recognized as expense. Stock-based compensation expense is recognized on a straight-line basis over the requisite
service period of the award, which is generally equivalent to the vesting period. The fair value of each stock option granted is estimated
using the Black-Scholes option pricing model. The measurement date for the non-forfeitable awards to nonemployees that vest immediately
is the date the award is issued.
Gain
on Liabilities Settlement
During
the nine months ended September 30, 2021 creditors forgave aggregate amount of $19,959 associated with accrued expenses and $26,062 related
to notes payable. In addition, the Company recorded a gain on capital lease settlement of $16,074 as detailed in Note 6, resulting in
total gain on settlement of liabilities of $62,095.
Revenue
Recognition
We
recognize revenue under ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize
revenue to depict the transfer of control for 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. In applying the revenue recognition principles, an entity
is required to identify the contract(s) with a customer, identify the performance obligations, determine the transaction price, allocate
the transaction price to the performance obligations and recognize revenue as the performance obligations are satisfied (i.e., either
over time or at a point in time). ASC 606 further requires that companies disclose sufficient information to enable readers of financial
statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The
Company recognized $0 revenue during the nine months ended September 30, 2021 and 2020.
Recent
Accounting Pronouncements
On
August 5, 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities
and equity, including convertible instruments and contracts on an entity’s own equity. This ASU is effective for public business
entities, excluding smaller reporting companies, for fiscal years beginning after December 15, 2021, and for all other entities for fiscal
years beginning after December 15, 2023. Early adoption is permitted for all entities no earlier than for fiscal years beginning after
December 15, 2020. The Company is currently evaluating the effects this ASU will have on its financial statements.
The
Company has examined all other recent accounting pronouncements and determined that they will not have a material impact on its financial
position, results of operations, or cash flows.
Note
3 – Going Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis. The Company reported net income of $30,703
for the nine months ended September 30, 2021 and has incurred accumulated losses totaling $18,099,752 through September 30, 2021. In
addition, the Company has incurred negative cash flows from operating activities since its inception. The Company has relied on the proceeds
from loans and private sales of its stock, in addition to its revenues, to finance its operations. These factors, among others, indicate
that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
With
the onset of the Covid 19 pandemic, the reduction of foot traffic and closure of retail locations, management has been proactively looking
at new business models and opportunities to stabilize revenues and continue to grow the Company. Until the Company can generate significant
cash from operations, its ability to continue as a going concern is dependent upon obtaining additional financing. The Company hopes
to raise additional financing, potentially through the sale of debt or equity instruments, or a combination, to fund its operations for
the next 12 months and allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis.
Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its
indebtedness. There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it
fails to obtain additional financing. These conditions have raised substantial doubt as to the Company’s ability to continue as
a going concern for one year from the issuance of the financial statements, which has not been alleviated.
Note
4 – Property and Equipment
Property
and equipment consist of the following as of September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
20120
|
|
Freezers and other equipment
|
|
$
|
17,500
|
|
|
$
|
61,600
|
|
Less: accumulated depreciation
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
17,500
|
|
|
$
|
61,600
|
|
During
the nine months ended September 30, 2020, the Company received proceeds of $18,000 for the sale of certain freezers and other equipment,
resulting in a loss on sale of assets of $12,074. During the nine months ended September 30, 2021, the Company remitted leased assets
with a carrying value of $44,100 back to the lessors in settlement of the underlying lease liability (Note 6).
Note
5 – Debt
Senior
Convertible Notes
During
the year ended December 31, 2018, a Senior Convertible Note in the aggregate principal amount of $310,000 and a maturity date of December
31, 2018 payable to Cobrador Multi-Strategy Partners, LP (“Cobrador 1”), was extended until December 31, 2019. The Company
also extended the expiration dates of Series A Warrants issued in connection with Cobrador 1 by one year. The fair value of the Series
A Warrants did not materially change due to the extension. During the year ended December 31, 2020, principal and accrued interest in
the amount of $55,788 were converted into 14,760,086 shares of common stock. The carrying value as of December 31, 2020 was $268,900.
During the nine months ended September 30, 2021, total principal of $218,900 and accrued interest in the amount of $153,686 were converted
into 98,024,360 shares of common stock resulting in carrying value of $50,000 as of September 30, 2021.
On
September 30, 2016, the Company issued a Senior Convertible Note in the face amount of $108,804 to Cobrador (“Cobrador 2”)
in settlement of previously accrued interest, additional interest, fees and penalties. The additional interest, fees and penalties was
$72,734 and this amount was charged to operations as debt discount amortization during the year ended December 31, 2016. The Senior Convertible
Note was extended during the year ended December 31, 2018 and was due on December 31, 2019. It is convertible into shares of common stock
at a conversion price $0.05 per share and bears interest at 7% per annum. The Company determined that Cobrador 2 had a beneficial conversion
feature based on the difference between the conversion price and the market price on the date of issuance and allocated $87,043 as debt
discount representing the beneficial conversion feature which was fully amortized at December 31, 2017. The carrying value as of September
30, 2021 and December 31, 2020, was $108,804.
During
December 2017, the Company issued a Senior Convertible Note in the amount of $25,000 to Cobrador. The note bears interest at 7%, was
due in December 2019, and is convertible into common shares at a conversion price of $0.05 per share. In addition, in conjunction with
this note, the Company issued 500,000 warrants to purchase common shares at $0.05 with a contractual term of 5 years. The estimated value
of the warrants was determined to be $1,421 and was recorded as interest expense during 2017 and a warrant liability due to the down
round provision in the note agreement. The carrying value as of September 30, 2021 and December 31, 2020, was $25,000.
As
of the date of release of these financial statements, all senior convertible notes were in default.
Promissory
Notes Payable
During
2014, the Company issued an unsecured promissory note to a former employee of U-Vend Canada. The original amount of this note was $10,512
has a term of 3 years and accrues interest at 17% per annum. The total principal outstanding on this promissory note as of September
30, 2021 and December 31, 2020, was $6,235.
Starting
of 2015, the Company entered into a series of promissory notes from the same lender. All of the notes bear interest at a rate of 19%
per annum and are payable together with interest over a period of six (6) months from the date of borrowing. As of December 31, 2015,
note balance was $11,083. In 2016, the Company borrowed $76,500 and repaid $63,497. The balance outstanding on these notes was $24,116
at December 31, 2016. In 2017, the Company borrowed $36,400 and repaid $44,449. The balance outstanding on these notes was $16,067 at
December 31, 2017. In 2018, the Company borrowed $143,908 and repaid $125,931. The balance outstanding on these notes was $34,044 at
December 31, 2018. During the year ended December 31, 2019, the Company borrowed additional $38,325 and recorded additional original
discount in the amount of $3,325 associated with the new borrowing. During the year ended December 31, 2019, the Company repaid $46,584
in principal and fully amortized $3,325 of debt discount. As of September 30, 2021 and December 31, 2020, the balance outstanding on
these notes was $25,784.
During
the year ended December 31, 2016, the Company issued two unsecured promissory notes and borrowed an aggregate amount of $80,000. The
promissory notes bear interest at 10% per annum, with a provision for an increase in the interest rate upon an event of default as defined
therein and were due at various due dates in May and September 2017. The due dates of both notes were extended to December 31, 2019.
As of September 30, 2021 and December 31, 2020, the balance outstanding on these notes was $80,000.
In
December 2017, the Company issued promissory notes in the aggregate principal balance of $28,000 to Cobrador. The notes accrue interest
at 7% and have a two-year term. As of September 30, 2021 and December 31, 2020, the balance outstanding on these notes was $28,000.
On
April 13, 2018, the Company issued a promissory note in the principal amount of $115,000. This note bears interest at the rate of 7%
per annum, due on December 31, 2019. In 2019, the Company borrowed an additional $25,000 and repaid $60,000. The balance outstanding
on this note as of September 30, 2021 and December 31, 2020, was $80,000.
On
November 19, 2018, the Company issued a promissory note in the principal amount of $124,000 with net proceeds of $112,840. This note
matures in 64 weeks. The Company recorded $11,160 to debt discount. During the year ended December 31, 2018, the Company repaid $9,784
in principal and amortized $872 of debt discount resulting in an unamortized debt discount of $10,288 and carrying value of $103,928
at December 31, 2018. During the year ended December 31, 2019, the Company repaid $48,154 in principal and amortized $9,744 of debt discount
resulting in an unamortized debt discount of $544 and carrying value of $65,518 at December 31, 2019. During the year ended December
31, 2020, the Company repaid $15,000 in principal and fully amortized $544 of debt discount. As of December 31, 2020, the balance outstanding
on this note was $51,062. During the nine months ended September 30, 2021, the Company fully repaid $25,000 in principal, remaining balance
of the amount owed was released and recorded as a settlement of liability. As of September 30, 2021 the balance outstanding on this note
was $0.
During
the year ended December 31, 2019, the Company issued two promissory notes in the aggregate principal amount of $135,000, bearing interest
of 7% and mature on August 31, 2019. As of September 30, 2021 and December 31, 2020, the balance outstanding on these notes was $135,000.
As
of the date of release of these financial statements, promissory notes were in default.
On
March 5, 2019, the Company issued a non-equity linked promissory note for $100,000 to an investor with an annual 10% rate of interest
and a one (1) year maturity. This investor also received a warrant for 500,000 shares at a strike price of $0.07 per share with a five
(5) year maturity. The fair value of warrant was not material. As of December 31, 2019, the outstanding balance was $100,000. On December
23, 2020, total principal and accrued interest in the amount of $118,250 were converted into a new promissory note in the principal amount
of $118,250 with an annual 10% rate of interest and mature on January 15, 2022. As of September 30, 2021 and December 31, 2020, the outstanding
balance was $118,250.
Convertible
Notes Payable
2014
Stock Purchase Agreement
In
2014 and 2015 the Company entered into the 2014 Securities Purchase Agreement (the “2014 SPA”) pursuant to which it issued
eight (8) convertible notes in the aggregate face amount of $146,000 due at various dates between August 2015 and March 2016. The principal
on these notes is due at the holder’s option in cash or common shares at a conversion rate of $0.30 per share. In connection with
these borrowings the Company granted a total of 360,002 warrants with an exercise price of $0.35 per share and a 5 year contractual term.
The warrants issued have a down round provision and as a result are classified as a liability in the accompanying consolidated balance
sheets. Pursuant to the down round provision, the exercise price of the warrants was reduced to $0.22 at December 31, 2016. During 2017
the Company repaid one of the notes in the amount of $50,000. On May 1, 2018, the Company granted 1,000,000 warrants with an exercise
price of $0.15 per share and a 5 year contractual term, valued at $2,841, which was recorded as debt discount. As of December 31, 2020,
outstanding balance of these notes was $121,000. During the nine months ended September 30, 2021, one of the notes in the principal amount
of $25,000 and accrued interest in the amount of $9,200 were converted into 9,000,000 shares of common stock resulting in carrying value
of $96,000 as of September 30, 2021.
The
Company and Cobrador held three of the convertible notes in the aggregate face amount of $45,000 and agreed to extend the repayment date
to November 17, 2020. The Company agreed to a revised conversion price of $0.05 per share and a revised warrant exercise price of $0.07
per share. As of September 30, 2021 and December 31, 2020, outstanding balance of these notes was $45,000.
As
of the date of release of these financial statements, these notes were in default.
2015
Stock Purchase Agreement
During
the year ended December 31, 2015, the Company issued eleven subordinated convertible notes bearing interest at 9.5% per annum with an
aggregate principal balance of $441,000 pursuant to the 2015 Stock Purchase Agreement (the “2015 SPA”). The notes were due
in December 2017 and are payable at the noteholder’s option in cash or common shares at a conversion rate of $0.30 per share. The
conversion rate was later revised to $0.05 due to down round provisions contained in the 2015 SPA, and the due date was extended to November
17, 2020. In connection with these borrowings, the Company issued a warrant to purchase 735,002 shares of the Company’s common
stock at an exercise price of $0.40 per share and a 5 year contractual term. The exercise price was later revised to $0.22 per share
pursuant to the down round provisions in the 2015 SPA. The Company allocated $8,113 of proceeds received to debt discount based on the
computed fair value of the convertible notes and warrants issued. During the year ended December 31, 2016, the noteholder converted one
note in the face amount of $35,000 into 700,000 shares of common stock. During the nine months ended September 30, 2021, principal in
the amount of $100,000 and accrued interest in the amount of $138,245 were converted into 62,696,053 shares of common stock resulting
in carrying value of $306,000 as of September 30, 2021.
2016
Stock Purchase Agreement
On
June 30, 2016, the Company entered into the 2016 Stock Purchase Agreement (the “2016 SPA”) pursuant to which it issued five
convertible notes in the aggregate principal amount of $761,597. The 2016 SPA notes were due in November 2020 and bear interest at 9.5%
per annum. The notes are convertible into shares of common stock at a conversion price of $0.17 per share. With these notes, the Company
satisfied its obligations for: previously issued promissory notes of $549,000, accrued interest of $38,615, lease principal installments
of $47,466, previously accrued registration rights penalties of $22,156, due to a former officer of $81,250, and additional interest,
expenses, fine and penalties of $23,110. The Company charged additional interest, expenses, fines and penalties $23,110 to operations
as amortization of debt discount and deferred financing costs during the year ended December 31, 2016.
In
connection with the 2016 SPA, the Company granted a total of 2,239,900 warrants with an exercise price of $0.30 per share which was later
revised to $0.05 per share due to down round provisions, with a 5 year contractual life. The Company allocated $19,242 to debt discount
based on the computed fair value of the convertible notes and warrants issued and classified the debt discount is as a warrant liability
due to the down round provision in the warrants.
On
July 11, 2019, $85,000 in principal were converted into 1,700,000 shares of common stock.
As
of September 30, 2021 and December 31, 2020, the 2016 SPA had a carrying value of $676,597. As of the date of release of these financial
statements, these notes were in default.
During
the year ended December 31, 2016, the Company issued four convertible notes (the “Cobrador 2016 Notes”) in the aggregate
principal amount of $115,000. The Cobrador 2016 Notes have a 2 year term, bear interest at 9.5% per annum, and are convertible into shares
of common stock at a conversion price of $0.17 per share. The conversion price was subsequently revised to $0.05 per the down round provisions
and the maturity date was extended to September 26, 2021. In connection with the Cobrador 2016 Notes, the Company granted a total of
338,235 warrants with an exercise price of $0.30 per share which was subsequently revised to $0.05 per share due to down round provisions
with a 5 year contractual term. The Company allocated $1,994 to debt discount based on the computed fair value of the convertible notes
and warrants issued and classified the debt discount as a warrant liability due to the down round provision in the warrants. During the
year ended December 31, 2019, $20,000 was converted into 400,000 shares. As of September 30, 2021 and December 31, 2020, the Cobrador
2016 Notes had a carrying value of $95,000.
During
the fourth quarter of 2016, the Company issued three additional convertible notes in the aggregate principal amount of $250,000. The
notes have a 2 year term, bear interest at 9.5% per annum and are convertible into shares of common stock at a conversion price of $0.05
per share. In connection with these borrowings, the Company granted warrants to purchase 5,000,000 shares of common stock with an exercise
price of $0.07 per share. The Company allocated $27,585 to debt discount based on the computed fair value of the convertible notes and
warrants issued, and the debt discount is classified as a warrant liability due to the down round provision in the warrants. As of September
30, 2021 and December 31, 2020, the carrying value of the notes was $250,000. As of the date of release of these financial statements,
these notes were in default.
2017
Financings
During
the year ended December 31, 2017, the Company entered into 19 separate convertible notes agreements (the “2017 Convertible Notes)”
in the aggregate principal amount of $923,882. The 2017 Convertible Notes each have a 2 year term, bear interest at 9.5%, and are convertible
into shares of common stock at a conversion price of $0.05 per share. In connection with the 2017 Convertible Notes, the Company issued
a total of 16,537,926 warrants with an exercise price of $0.07 per share with a 5 year term. The Company allocated $59,403 to a debt
discount based on the computed fair value of the convertible notes and warrants issued and classified the debt discount as a warrant
liability due to the down round provision in the warrants. During the year ended December 31, 2018, the Company amortized $31,940 of
debt discount resulting in unamortized debt discount of $13,278 and carrying value of $910,608 at December 31, 2018. During the year
ended December 31, 2019, the Company fully amortized remaining $13,278 of debt discount. As of September 30, 2021 and December 31, 2020,
the carrying value of the notes was $924,282. As of the date of release of these financial statements, these notes were in default.
2018
Financings
During
the year ended December 31, 2018, the Company entered into seventeen separate convertible notes agreements (the “2018 Convertible
Notes)” in the aggregate principal amount of $537,500. The 2018 Convertible Notes each have a 2 year term, bear interest at 9.5%
if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of $0.05 per share.
In connection with the 2018 Convertible Notes, the Company issued a total of 10,750,000 warrants with an exercise price of $0.07 per
share with a 5 year term. The Company allocated $33,384 to a debt discount based on the computed fair value of the convertible notes
and warrants issued and classified the debt discount as a warrant liability due to the down round provision in the warrants. During the
year ended December 31, 2018, the Company amortized $12,803 of debt discount resulting in an unamortized debt discount of $20,581 and
carrying value of $516,919 at December 31, 2018. During the year ended December 31, 2019, the Company amortized $16,692 of debt discount
resulting in an unamortized debt discount of $3,889 and carrying value of $533,611 as of December 31, 2019. During the year ended December
31, 2020, the Company fully amortized $3,889 of debt discount resulting in carrying value of $537,500 as of September 30, 2021 and December
31, 2020. As of the date of release of these financial statements, convertible notes were in default.
On
November 20, 2018, two officers converted $436,500 accrued compensation into two convertible note agreements in the principal amount
of $436,500 in exchange. The notes have a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible
into shares of common stock at a conversion price of $0.05 per share. As of September 30, 2021 and December 31, 2020, the carrying value
of the notes was $436,500. As of the date of release of these financial statements, convertible notes were in default.
During the
year ended December 31, 2018, the Company entered into three convertible notes agreements in the aggregate principal amount of $240,500
with a net proceed of $214,000. These notes had a 1-year term, and bear interest at 8%-12%. The notes are convertible into common stock
at 60% to 61% multiplied by the lowest one to two trading price(s) during fifteen to twenty-five trading day period prior to the Conversion
Date. The embedded conversion features were valued at $59,027, which were recorded as debt discount. In addition, the Company also recorded
$26,500 as original debt discount. These notes were in default due to failure to comply with the reporting requirements of the Exchange
Act, as the result, the Company recorded additional $120,250 penalty in principal as of December 31, 2018. During the year ended December
31, 2018, the Company amortized $21,382 of debt discount resulting in unamortized debt discount of $64,145 and carrying value of $296,605
at December 31, 2018. During the year ended December 31, 2019, the Company repaid $64,300 in principal and amortized $21,381 of debt
discount, recorded $42,764 in accretion of debt discount, resulting in unamortized debt discount of $0 and carrying value of $296,450
at December 31, 2019. During the year ended December 31, 2020, total principal and accrued interest in the amount of $37,712 were converted
into 9,924,132 shares of common stock resulting in carrying value of $281,250 as of December 31, 2020. During the nine months ended September
30, 2021, the Company repaid $202,500 in principal, accrued interest in the amount of $31,860 was converted into 7,737,705 shares of
common stock resulting in carrying value of $78,750 as of September 30, 2021. As of the date of release of these financial statements,
convertible notes were in default.
2019
Financings
On
March 18, 2019, the Company issued a convertible promissory note for $85,250 with net proceed of $75,000 to an investor with an 8.0%
rate of interest and a one (1) year maturity. The Company has the option to pre-pay the note (principal and accrued interest) in cash
within the 1st 90 days from issuance at a 25% premium, and 40% premium 91-180 days from the issuance date. Subsequent to 181 days, the
Company shall have no right of prepayment and the holder may convert at a 40% discount to the prevailing market price. The note matured
on December 11, 2019. The note is convertible into shares of common stock at the lesser of 1) lowest trading price of twenty-five days
prior to March 18, 2019 or 2) 60% of lowest trading price of twenty-five days prior to the Conversion Day. The embedded conversion features
were valued at $0 due to default. In addition, the Company also recorded $10,250 as original debt discount. These notes were in default
due to failure to comply with the reporting requirements of the Exchange Act, as the result, the Company recorded additional $42,625
penalty in principal as of December 31, 2019. During the year ended December 31, 2019, the Company fully amortized $23,384 of debt
discount. During the year ended December 31, 2020, accrued interest in the amount of $24,508 was converted into 13,426,091 shares of
common stock resulting in carrying value of $127,875 as of December 31, 2020. During the nine months ended September 30, 2021, total
principal of $85,250 and accrued interest in the amount of $18,623 were converted into 34,811,689 shares of common stock resulting in
carrying value of $42,625 as of September 30, 2021. As of the date of release of these financial statements, convertible note was in
default.
On
March 14, 2019, the Company converted accounts payable of approximately $105,000 payables into a convertible note agreement in the principal
amount of $60,000, remaining balance of the amount owed was released and recorded as a settlement of liability. The note has a 2 year
term, bears interest at 9.5% if paid in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion
price of $0.05 per share. The outstanding principal balance was $60,000 as of September 30, 2021 and December 31, 2020. As of the date
of release of these financial statements, convertible note was in default.
On
April 1, 2019, The Company converted an aggregate amount of principal and accrued interest of Perkins promissory note in the amount of
$321,824 and accounts payable of $10,000 into two convertible notes. Both Notes have a 2 year term, bear interest at 9.5% if paid in
cash, 15% if paid in common stock, and are convertible into shares of common stock at a conversion price of $0.05 per share. The outstanding
principal balance was $331,824 as of September 30, 2021 and December 31, 2020. As of the date of release of these financial statements,
convertible notes were in default.
On
April 15, 2019, The Company converted an accrued payable of $108,572, which was used to purchase vending machine, into a convertible
note. The note has a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares
of common stock at a conversion price of $0.07 per share. The outstanding principal balance was $108,572 as of September 30, 2021 and
December 31, 2020. As of the date of release of these financial statements, convertible note was in default.
On
May 30, 2019, the Company issued a series of convertible notes under a $250,000 revolving Senior Secured credit facility to an investor,
for working capital purposes. The notes carry an interest rate of 9.5% and a two-year term. The notes are convertible into common stock
at $0.07 per share and are redeemable after one-year at the company’s option. The notes also contain a 4.99% limitation of ownership
on conversion. The investor had consented to higher draws on the facility in excess of the limit per the initial agreement. On April
15, 2020, the Company issued a convertible note in the amount of $206,231. The note has a 2 year term, bears interest of 9.5% if paid
in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion price of $0.05 per share. On December
24, 2020, the Company issued a convertible promissory note in the amount of $147,000. The note has a 2 year term, bears interest of 9.5%
if paid in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion price of $0.03 per share
and is redeemable at the principal amount plus accrued unpaid interest after one year, at the Company’s option. As of September
30, 2021 and December 31, 2020, $603,231 was drawn under these agreements.
During
the year ended December 31, 2019, the Company entered into several convertible notes agreements in the amount of $68,000. The Notes have
a 2 year term, bear interest at 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at
a conversion price of $0.07 per share. The outstanding principal balance was of $68,000 as of September 30, 2021 and December 31, 2020.
As of the date of release of these financial statements, convertible notes were in default.
During
the year ended December 31, 2019, the Company entered into a convertible notes agreement in the amount of $50,000. The Note has a 6 month
term, bears interest at 9.5% if paid in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion
price of $0.01 per share. In connection with the Note, the Company issued 10,000,000 warrants with an exercise price of $0.02 per share
with a 5 year term. The outstanding balance was of $50,000 as of September 30, 2021 and December 31, 2020. As of the date of release
of these financial statements, convertible note was in default.
2020
Financings
During
the year ended December 31, 2020, the Company entered into several convertible notes agreements in the amount of $73,118. The notes have
a 2 year term, bear interest of 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common stock at
a conversion price of $0.05 per share. The outstanding principal balance was $73,118 as of September 30, 2021 and December 31, 2020.
2021
Financings
During
the nine months ended September 30, 2021, the Company entered into several convertible notes agreements in the amount of $365,000. The
notes have a 2 year term, bear interest of 9.5% if paid in cash, 15% if paid in common stock, and are convertible into shares of common
stock at a conversion price of $0.05 per share. The outstanding principal balance was $365,000 as of September 30, 2021.
On
July 13, 2021, the Company issued a convertible note in the amount of $150,000. The note has a 3 year term, bears interest of 9.5% if
paid in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion price of $0.05 per share. The
outstanding principal balance was $150,000 as of September 30, 2021.
On
September 21, 2021, the Company issued a convertible note in the amount of $100,000. The note has a 2 year term, bears interest of 9.5%
if paid in cash, 15% if paid in common stock, and is convertible into shares of common stock at a conversion price of $0.03 per share.
The outstanding principal balance was $100,000 as of September 30, 2021.
On
March 1, 2021, the Company issued a convertible note for deferred compensation in the principal amount of $94,600. The note bears interest
at the rate of 9.5% per annum and is due and payable in two years. The note is convertible into shares of the Company’s common
stock at $0.05 per share and is redeemable at the principal amount plus accrued unpaid interest after one year, at the Company’s
option. During the nine months ended September 30, 2021, the Company repaid $94,600 in principal resulting in carrying value of
$0 as of September 30, 2021.
Scheduled
maturities of debt remaining as of September 30, 2021 for each respective fiscal year end are as follows:
2021
|
|
|
$
|
4,895,473
|
|
2022
|
|
|
|
544,599
|
|
2023
|
|
|
|
487,500
|
|
2024
|
|
|
|
150,000
|
|
Thereafter
|
|
|
|
6,077,572
|
|
Less: unamortized debt discount
|
|
|
|
-
|
|
Total
|
|
|
$
|
6,077,572
|
|
The
following table reconciles, for the nine months ended September 30, 2021 and 2020, the beginning and ending balances for financial instruments
related to the embedded conversion features that are recognized at fair value in the consolidated financial statements.
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Balance of embedded derivative at the beginning of the period
|
|
$
|
3,083,255
|
|
|
$
|
13,553
|
|
Change in fair value of conversion features
|
|
|
(871,388
|
)
|
|
|
75,960
|
|
Balance of embedded derivatives at the end of the period
|
|
$
|
2,211,867
|
|
|
$
|
89,513
|
|
Note
6 – Capital Lease Obligations
The
Company acquired capital assets under capital lease obligations. Pursuant to the agreement with the lessor, the Company makes quarterly
lease payments and will make a guaranteed residual payment at the end of the lease as summarized below. At the end of the lease, the
Company will own the equipment.
During
the year ended December 31, 2018 the Company entered into various capital lease agreements. The leases expire at various points through
the year ended December 31, 2023. During the nine months ended September 30, 2021, the Company settled lease liability amounts totaling
$146,881 by paying the lessors $126,100 and returning the leased property and equipment with a carrying value of $44,100, resulting in
a gain on settlement of liability of $20,781.
The
following schedule provides minimum future rental payments required as of September 30, 2021, under the current portion of capital leases.
2021
|
|
|
36,692
|
|
Total minimum lease payments
|
|
|
36,692
|
|
Less: Amount represented interest
|
|
|
(438
|
)
|
Present value of minimum lease payments and guaranteed residual value
|
|
$
|
36,254
|
|
Note
7 – Capital Stock
Preferred
Stock
The
Company has authorization for “blank check” preferred stock, which could be issued with voting, liquidation, dividend and
other rights superior to common stock. As of September 30, 2021 and December 31, 2020, there are 10,000,000 shares of preferred stock
authorized, and no shares issued or outstanding.
Common
Stock
The
Company has authorized 600,000,000 shares of common stock.
During
the nine months ended September 30, 2021, the Company issued 212,269,807 shares of its common stock, in conversion of $780,765 of convertible
notes and accrued interest.
There
were no stock issuances during the nine months ended September 30, 2021. Total common shares issued and outstanding at September 30,
2021 and December 31, 2020 were 288,097,871 and 75,828,064, respectively.
Note
8 – Stock Options and Warrants
Warrants
At
December 31, 2020 the Company had the following warrant securities outstanding:
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Expiration
|
|
2016 Warrants for services
|
|
|
200,000
|
|
|
$
|
0.07
|
|
|
October 2020
|
|
2016 Warrants issued with Convertible Notes
|
|
|
5,000,000
|
|
|
$
|
0.07
|
|
|
November - December 2021
|
|
2017 Warrants – 2017 financing
|
|
|
15,109,354
|
|
|
$
|
0.07
|
|
|
December 2022
|
|
2018 Warrants – 2019 financing
|
|
|
9,991,905
|
|
|
$
|
0.07
|
|
|
January - November 2023
|
|
2018 Warrants for services
|
|
|
2,250,000
|
|
|
$
|
0.07
|
|
|
October - December 2023
|
|
2019 Warrants – 2020 financing
|
|
|
10,500,000
|
|
|
$
|
0.07
|
|
|
March 2024
|
|
2019 Warrants for services
|
|
|
3,500,000
|
|
|
$
|
0.07
|
|
|
March 2024
|
|
2020 Warrants for services
|
|
|
3,000,000
|
|
|
$
|
0.05
|
|
|
February 2025
|
|
Total
|
|
|
49,551,259
|
|
|
|
|
|
|
|
|
During
the nine months ended September 30, 2020, the Company issued warrants exercisable into 3,000,000 shares of common stock to its officer.
The fair value of warrants was estimated using the Black-Scholes-Merton option-pricing model with the following assumptions: expected
volatility of 339%, risk-free interest rate 1.35%, expected dividend yield of 0%. During the nine months ended September 30, 2021 and
2020, the Company recorded $4,722 and $4,198, respectively, in warrant expense related to vesting of these warrants.
A
summary of all warrants activity for the nine months ended September 30, 2021 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Balance outstanding at December 31, 2020
|
|
|
52,979,485
|
|
|
$
|
0.06
|
|
|
|
2.34
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(3,428,226
|
)
|
|
|
0.05
|
|
|
|
-
|
|
Balance outstanding at September 30, 2021
|
|
|
49,551,259
|
|
|
$
|
0.06
|
|
|
|
1.96
|
|
Exercisable at September 30, 2021
|
|
|
49,551,259
|
|
|
$
|
0.06
|
|
|
|
1.96
|
|
Equity
Incentive Plan
On
July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”)
and on July 26, 2011, stockholders holding a majority of shares of the Company approved, by written consent, the Plan and the issuance
under the Plan of 5,000,000 shares. On November 16, 2017, the Board of Directors approved an increase of 10,000,000 shares to be made
available for issuance under the Plan. Accordingly, the total number of shares of common stock available for issuance under the Plan
is 15,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors
of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified
stock options. Stock-based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants
and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.
A
summary of all stock option activity for the nine months ended September 30, 2021 is as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Balance outstanding at December 31, 2020
|
|
|
2,500
|
|
|
$
|
60
|
|
|
|
0.5
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
(2,500
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding at September 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercisable at September 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Note
10 – Subsequent Events
The
Company has evaluated events occurring subsequent to September 30, 2021 through the date these financial statements were issued and determined
the following significant events require disclosure:
On
November 5, 2021, the company acquired the rights to 102 Federal Mining Claims located in San Juan County, Utah for the purchase price
of $100,000.00. The acquisition decision was driven by historical mineral data from seven (7) existing wells with brine aquifer access,
supporting what we believe to be a commercially viable project. The historical data show a substantial concentration of Lithium Brine
in the targeted area.
On
November 2, 2021, the Company issued three (3) convertible notes - $150,000, $100,000 and $66,500 - to fund an asset acquisition, continue
funding operations and reconciling a debt. The note bears interest at the rate of 9.5% per annum and is due and payable in two years.
The note is convertible into shares of the Company’s common stock at $0.03 per share and is redeemable at the principal amount
plus accrued unpaid interest after one year, at the Company’s option. The note also contains a 4.99% limitation on the investor’s
beneficial ownership of the Company’s outstanding common stock upon conversion.