See accompanying notes to the unaudited consolidated financial statements.
See accompanying notes to the unaudited consolidated financial statements.
Notes
to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
GEX
Management, Inc. was originally formed in 2004 as Group Excellence Management, LLC. d/b/a MyEasyHQ. In March of 2016, it was converted
from a limited liability company into a C corporation and changed its name to GEX Management, Inc.
GEX
Management initially began operations as a Professional Services Company providing back office support to third-party clients. In 2016
GEX Management revised its business model to provide staffing and back-office services to a wide variety of industries in order to expand
the Company’s footprint, thereby building on the previous 12-year history of exceptional client service. Over the next few years,
GEX Management experienced tremendous growth in sales and customer pipeline - staffing business grew by over 1600%+ from 2016 to 2017
with the firm being named among the “fastest growing public companies in the North Texas region” by the Dallas Morning News,
while also significantly expanding its client footprints across multiple staffing, business consulting and PEO opportunities.
In
2019, the management of GEX under the leadership of Sri Vanamali set strategic goals to revise the business model to expand into areas
of higher margin and growth particularly in the area of Technology and Strategy Consulting Services. As a result of management efforts,
GEX Management was invited in February 2019 to be a Preferred Supplier to Insight Global (www.insightglobal.com), one of the world’s
largest Managed Service Providers (MSPs) to Fortune 100 Companies in the Enterprise Technology Consulting space. The first consultant
that GEX hired through this Preferred Supplier initiative was successfully placed at a large PA based financial services firm to provide
Business and Quality Analysis professional services to the client. Subsequently, GEX placed its second enterprise consultant at the world’s
leading Fortune 100 CRM Company at its headquarters in San Francisco and subsequently several more highly skilled Enterprise Technology
Consultants at leading Fortune 500 retail, healthcare, manufacturing and technology clients across the country . As a direct result of
the high market demand for experienced technology consultants via its multiple supplier programs, the GEX team has interviewed and is
in the process of procuring 45 highly experienced enterprise technology consultants with expertise across a wide array of functions (Enterprise
Architects, Project Managers, Systems Integration Developers, Quality Assurance Specialists and Business Systems Analysts) who have been
identified for various short to long term projects. Additionally, GEX plans to hire and place more than 100 enterprise consultants over
the next 18 - 24 month period to satisfy its growing pipeline of future contracts. As a result of these market initiatives, GEX forecasts
to potentially achieve approximately $20- $25M in gross billings over the next 18-24 month period, assuming all projected contracts are
fully placed on projects that have been currently identified by the GEX supplier program pipeline and businesses begin to re-open globally
as the pandemic related restrictions are removed.
In
Q4 2019, GEX signed a contract with one of the fastest growing, VC backed social video platform to provide key corporate and strategy
consulting services – an initiative that the CEO was personally involved with in developing and growing the strategic business
relationship over the last two years. This contract has resulted in enormous growth opportunities for GEX and is expected to significantly
expand growth in future periods as well. GEX has also signed additional contracts to provide interim “CFO” and “CEO”
consulting services to various high growth public and private companies, resulting in doubling of sales within a year and achieving an
astounding double digit expansion in gross margins despite the pandemic related recessionary business environment. Furthermore, GEX is
in talks with multiple companies to identify synergistic acquisition opportunities to fuel organic and inorganic growth and fulfil the
corporate objective of becoming a top tier business and technology focused firm while also developing a long term and sustainable technology
centric business model. Management expects these growth initiatives to help the firm eventually achieve strong and stable revenue growth
while also achieving sustainable long term profitability by targeting a higher margin, lower cost model and relying on less expensive
debt instruments to help reduce the burden across the firm’s capital structure.
In
addition to these planned strategic growth initiatives which had started to build momentum in 2019 and gained significant traction in
2021, management has been focusing on materially improving its balance sheet by significantly reducing or eliminating the debt or debt
like instruments related to convertible notes and asset related liens introduced in 2018 while simultaneously exploring opportunities
to reduce or eliminate the high interest MCA related toxic debt instruments that resulted in significant interest expenses to the company
and a burden to operating capital. As part of this balance sheet “clean-up” initiative, on February 8 2019, GEXM and the
G&C Family LLC executed a “Deed in Lieu of Foreclosure” agreement the terms of which would allow GEXM to release ownership
of the Arkansas building under AMAST LLC to the G&C Family Group, LLC in return for cancellation of the $1,300,000 real estate lien
note secured by the building along with any and all accrued interest payable on the note as of the date of the agreement. Additionally,
on March 5, 2019, one of GEX’s promissory note holders proceeded to execute its rights to enforce the liens on the Setco property
through a foreclosure process which resulted in the note holder taking possession of the Setco property resulting in the elimination
of a $500,000 note and any accrued interest on the principal amount and the elimination of $1,125,000 Setco real estate lien note made
to Setco along with any accrued interests from the Company books. Furthermore, GEX has been able to significantly reduce the overall
debt and debt like instruments on the balance sheet through strategic conversions of convertible notes to common equity initiated by
the convertible note issuers throughout 2019 and 2020 and settlement or elimination of certain MCA and debt like instruments. This focus
on balance sheet cleanup and to stay significantly “asset-lite” is expected to achieve material results by Q4 2021, at which
point GEX would be primed for its next phase of strategic growth initiatives by deploying equity and non-toxic debt instruments towards
organic and inorganic opportunities. Finally, management believes that the material elimination of MCA and related debt like instruments
will be a critical first step prior to rebuilding a robust revenue pipeline as this will require strong working capital and favorable
leverage covenants to sustain operations in the long term as well as reduce liabilities related to attachment to future receivables.
While management efforts to settle these instruments are aggressively underway, the inability or failure by the firm to completely address
any toxic debt instruments could result in management pursuing a restructuring program or similar initiatives to bring the balance sheet
within reasonable covenant parameters to allow the firm to continue operating efficiently in the coming years without exposing future
customers to significant business risks associated with these toxic instruments. As part of this long term strategy, management has already
begin putting processes in place to protect the company via a robust internal restructuring program and will be announcing the outcome
of these intra-company restructuring efforts that will protect the interests of investors and shareholders alike over the long term and
also streamline the corporate structure to be synergistic with the management’s long term vision for the company.
Material
Definitive Agreements
No
Material Agreements have been executed by the Company during this reporting period.
Basis
of Presentation
Our
financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”),
as well as the applicable regulations and rules of the Securities and Exchange Commission (“SEC”). This requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and their accompanying notes. The actual
results could differ from those estimates.
Principles
of Consolidation
The
consolidated financial statements include the accounts of GEX Management, Inc. and its wholly owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation.
There
have been no significant changes to our accounting policies that have a material impact on our financial statements and accompanying
notes.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash in banks and short-term investments with original maturities of three months or less.
Accounts
Receivable
Accounts
receivable consists of accrued services and consulting receivables due from customers and are unsecured. The receivables are generally
due within 30 to 45 days after the date of the invoice. Accounts receivable is carried at their face amount, less an allowance for doubtful
accounts. GEX’s policy is not to charge interest on receivables after the invoice becomes past due. Write-offs are recorded at
the time when a customer receivable is deemed uncollectible.
Related
Parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are
controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its own separate interests.
Long-Lived
Assets
The
Company records an impairment of long-lived assets used in operations, other than goodwill, and its equity method investments when events
or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets
over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced
to fair value, which is typically calculated using the discounted cash flow method.
Revenue
Recognition
GEX
enters into contracts with its clients for professional services. GEX’s contract stipulates the rate and price charged to each
client. GEX’s contracts for these services are generally cancellable at any time by either party with 30-days’ written notice.
GEX fulfills its performance obligations each month, and the contracts generally have a term of one year with an automatic renewal after
12 months. The duration between invoicing and when GEX completes its contractual, performance obligations are satisfied is not significant.
For staffing and professional services payment is generally due 30 days after the invoice is sent to the client. GEX does not have significant
financing components or significant payment terms.
Staffing
Services and Professional Services
Staffing
services revenue is derived from supplying temporary staff to clients. Temporary staff generally consists of temporary workers working
under a contract for a fixed period of time, or on a specific client project. The temporary staff includes both GEX employees and third-parties
contracted by GEX.
Temporary
staff are provided to clients through a Staffing Service Agreement (‘SSA’) involving a specified service that the temporary
staff will provide to the client. When GEX is the principal or primary obligor for the temporary staff, GEX records the gross amount
of the revenue and expense from the SSA.
GEX
is generally the primary obligor when GEX is responsible for the fulfillment of services under the SSA, even if the temporary staff are
not employees of GEX. This typically occurs when GEX contracts third-parties to fulfill all or part of the SSA with the client, but GEX
remains the holder of the credit risk associated with the SSA, and GEX has total discretion in establishing the pricing under the SSA.
All
other Professional Services revenues are recognized in the period the services are performed as stipulated in the client’s Outsourcing
Agreement, when the client is invoiced, and collectability is reasonably assured. Revenue recognition for arrangements with multiple
deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the
expected period of performance.
Income
Taxes
The
Company uses the liability method in the computation of income tax expense and the current and deferred income taxes payable. A valuation
allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Fair
Value Measurements
ASC
Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires
certain disclosures about fair value measurements. In general, fair value of financial instruments is based upon quoted market prices,
where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily
use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded
at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s credit worthiness,
among other things, as well as unobservable parameters.
Earnings
Per Share
Earnings
per share are calculated in accordance with ASC 260 “Earnings per Share”. Basic income (loss) per share is computed by dividing
the period income (loss) available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings
(loss) per share is computed by dividing the income (loss) available to common share-holders by the weighted average number of common
shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued.
For purposes of this calculation, common stock dividends, warrants and options to acquire common stock, would be considered common stock
equivalents in periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive
to the net loss per share.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications have had no effect on the
financial position of the Company.
Note 2.
Going Concern
To
date, the Company has funded its operations primarily through public and private offerings of common stock, our line of credit, short-
term discounted and convertible notes payable. The Company has identified several potential financing sources in order to raise the capital
necessary to fund operations.
In
addition to the aforementioned current sources of capital that will provide additional short-term liquidity, the Company is currently
exploring various other alternatives including debt and equity financing vehicles, strategic partnerships, government programs that may
be available to the Company, as well as trying to generate additional sales and increase margins. However, at this time the Company has
no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all.
If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results
of operations may be materially adversely affected and the Company may not be able to continue operations, which raises substantial doubt
about its ability to continue as a going concern. Additionally, even if the Company raises sufficient capital through additional equity
or debt financing, strategic alternatives or otherwise, there can be no assurances that the revenue or capital infusion will be sufficient
to enable it to develop its business to a level where it will be profitable or generate positive cash flow. If the Company raises additional
funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly
diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If the
Company incurs additional debt, a substantial portion of its operating cash flow may be dedicated to the payment of principal and interest
on such indebtedness, thus limiting funds available for business activities. The terms of any debt securities issued could also impose
significant restrictions on the Company’s operations. Broad market and industry factors may seriously harm the market price of
our common stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds. Similarly,
if the Company’s common stock is delisted from the public exchange markets, it may limit its ability to raise additional funds.
The
consolidated financial statements for the twelve months ended December 31, 2021 and three months ended March 31, 2022 were prepared on
the basis of a going concern which contemplates that the Company will be able to realize assets and discharge liabilities in the normal
course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be required to liquidate
its assets. The ability of the Company to meet its total liabilities of $5,313,617 and to continue as a going concern is dependent upon
the availability of future funding, continued growth in billings and sales contracts, and the Company’s ability to profitably meet
its after-sale service commitments with its existing customers. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
In
addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund
its working capital requirements. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange
Commission.
NOTE
3. STOCKHOLDERS’ EQUITY
During
the 3 months ended March 31, 2022, the Company issued 190,318,188 shares of common stock for conversions of notes payable for total principal
and accrued interest of 690,676. The notes were converted within the terms of the original note agreements and therefore, no gain or
loss was recognized on the conversions.
During
the 3 months ended March 31, 2022, the Company issued 32,610,720 shares of common stock for the exercise of warrants on a cashless basis.
NOTE
4. NOTES PAYABLE
In 2018, the Company entered into several notes secured by future receivables of the Company. The Lender declared
bankruptcy and the Company has made no payments on the notes since fiscal year 2019. The notes are recorded on the balance sheet in the
amount of $3174,977.
On
June 9, 2021, the Company entered into a convertible promissory note in the amount of $80,000 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. Additionally, the note holder was granted 22,857,143 warrants at an exercise price of $0.0035
per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $80,000 should be
recorded against the note based on the market price on the date of issuance. During the 3 months ended March 31, 2022, the principal
and accrued interest was fully converted into shares of common stock.
On
June 25, 2021 the Company entered into a convertible promissory note in the amount of $110,000 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. Additionally, the note holder was granted 31,428,571 warrants at an exercise price of $0.0035
per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $110,000 should
be recorded against the note based on the market price on the date of issuance.
On
July 8, 2021 the Company entered into a convertible promissory note in the amount of $600,000 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a discount
of $188,571 should be recorded against the note based on the market price on the date of issuance.
On August 9, 2021 the Company entered
into a convertible promissory note in the amount of $295,000 bearing interest at 10% per annum with a term of 1 year. The principal and
any accrued interest is convertible at the option of the holder at any time from the date of issuance at a fixed price of $0.0035 per
share. Additionally, the note holder was granted 84,285,714 warrants at an exercise price of $0.0035 per share. The Company evaluated
the note for a beneficial conversion feature and determined that a full discount of $295,000 should be recorded against the note based
on the market price on the date of issuance. During the 3 months ended March 31, 2022, the holder converted $129,777 of the principal
balance into common shares of the Company with a remaining principal balance of $165,223 and unamortized discount of $101,223.
On
August 9, 2021 the Company entered into a convertible promissory note in the amount of $137,500 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. Additionally, the note holder was granted 39,285,714 warrants at an exercise price of $0.0035
per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $137,500 should
be recorded against the note based on the market price on the date of issuance. During the 3 months ended March 31, 2022, the holder
converted $104,250 of the principal balance into common shares of the Company with a remaining principal balance of $33,250 and unamortized
discount of $17,458.
On
August 10, 2021, the Company entered into a convertible promissory note in the amount of $100,000 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. Additionally, the note holder was granted 28,571,429 warrants at an exercise price of $0.0035
per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $100,000 should
be recorded against the note based on the market price on the date of issuance. During the 3 months ended March 31, 2022, the holder
converted $42,855 of the principal balance into common shares of the Company with a remaining principal balance of $57,145 and unamortized
discount of $13,019.
On
August 10, 2021, the Company entered into a convertible promissory note in the amount of $110,000 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. Additionally, the note holder was granted 21,142,857 warrants at an exercise price of $0.0035
per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $95,000 should be
recorded against the note based on the market price on the date of issuance. During the 3 months ended March 31, 2022, the principal
and accrued interest was fully converted into shares of common stock.
On
August 20, 2021, the Company entered into a convertible promissory note in the amount of $100,000 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. Additionally, the note holder was granted 28,571,429 warrants at an exercise price of $0.0035
per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $100,000 should
be recorded against the note based on the market price on the date of issuance. During the 3 months ended March 31, 2022, the holder
converted $825,837 of the principal and $5,401 of accrued interest into common shares of the Company with a remaining principal balance
of $17,163 and unamortized discount of $17,000.
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $27,500 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 7,857,143 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $27,500
should be recorded against the note based on the market price on the date of issuance.
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $55,000 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 15,714,286 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $55,000
should be recorded against the note based on the market price on the date of issuance.
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $27,500 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 7,857,143 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $27,500
should be recorded against the note based on the market price on the date of issuance.
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $27,500 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 7,857,143 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $27,500
should be recorded against the note based on the market price on the date of issuance.
On
September 2, 2021, the Company entered into a convertible promissory note in the amount of $155,000 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 44,285,714 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $155,000
should be recorded against the note based on the market price on the date of issuance. During the 3 months ended March 31, 2022, the
holder converted $77,000 of the principal and $10,119 of accrued interest into common shares of the Company with a remaining principal
balance of $78,000 and unamortized discount of $32,911.
On
September 8, 2021, the Company entered into a convertible promissory note in the amount of $55,000 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 15,714,286 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $55,000
should be recorded against the note based on the market price on the date of issuance.
On
September 8, 2021, the Company entered into a convertible promissory note in the amount of $16,500 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 4,714,286 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $16,500
should be recorded against the note based on the market price on the date of issuance.
On
September 9, 2021, the Company entered into a convertible promissory note in the amount of $11,000 bearing interest at 10% per annum
with a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of
issuance at a fixed price of $0.0035 per share. Additionally, the note holder was granted 3,142,857 warrants at an exercise price of
$0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full discount of $55,000
should be recorded against the note based on the market price on the date of issuance.
On
October 5, 2021, the Company entered into a convertible promissory note in the amount of $31,797 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full
discount of $55,000 should be recorded against the note based on the market price on the date of issuance. During the 3 months ended
March 31, 2022, the holder converted $25,547 of the principal balance into common shares of the Company with a remaining principal balance
of $6,250.
On
October 5, 2021, the Company entered into a convertible promissory note in the amount of $31,797 bearing interest at 10% per annum with
a term of 1 year. The principal and any accrued interest is convertible at the option of the holder at any time from the date of issuance
at a fixed price of $0.0035 per share. The Company evaluated the note for a beneficial conversion feature and determined that a full
discount of $55,000 should be recorded against the note based on the market price on the date of issuance. During the 3 months ended
March 31, 2022, the holder converted $25,547 of the principal balance into common shares of the Company with a remaining principal balance
of $6,250.
During
the three months ended March 31, 2022, the Company recognized a total of $500,091 in amortization of debt discounts related to the convertible
notes.
During
the three months ended March 31, 2022, the Company recognized a total of $41,914 in interest expense related to the convertible notes.
NOTE
5. RELATED PARTY TRANSACTIONS
On
March 1, 2015, the Company entered into a Line of Credit Agreement with P413 at an interest rate of 6%. This line of credit has a balance
of $483,677 at March 31, 2022 and December 31, 2021, respectively. On May 2, 2018, this line of credit was extended to April 1, 2020.
On September 1, 2018, the line of credit was extended to September 1, 2020. The line of credit is currently in default.
The
Company owed a director of the Company $172,567 and $172,567 for reimbursable expenses as of March 31, 2022 and December 31, 2021, respectively.
NOTE
6. COMMITMENTS AND CONTINGENCIES
Litigation
From
time to time, claims are made against the Company in the ordinary course of its business, which could result in litigation. Claims and
associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties,
or injunctions prohibiting the Company from selling one or more products or engaging in other activities. The occurrence of an unfavorable
outcome in any specific period could have a material adverse effect on the Company’s results of operations for that period or future
periods.
In 2019, a judgement was received against
the Company awarding EMA Financial, a former note holder of the Company, settlement of default notes payable, accrued interest and fees
in the amount of $195,250. The amount is recorded on the balance sheet as of December 31, 2021, and December 31, 2020. The Company paid
the full amount due under the judgement during fiscal year 2022.
NOTE
7. SUBSEQUENT EVENTS
In
April 2022, the Company issued 19,700,000 common shares in conversion of notes payable in the amount of $68,950.