Notes
to Condensed Consolidated Financial Statements
As
of March 31, 2020 (Unaudited)
Note
1 – Business Organization and Nature of Operations
Balance
Labs, Inc. (“Balance Labs” or the “Company”) was incorporated on June 5, 2014 under the laws of the State
of Delaware. Balance Labs is a consulting firm that provides business development and consulting services to start up and development
stage businesses. The Company offers services to help businesses in various industries improve and fine tune their business models,
sales and marketing plans and internal operations as well as make introductions to professional services such as business plan
writing, accounting firms and legal service providers.
The
Company leverages its knowledge in developing businesses with entrepreneurs and start up companies’ management whereby it
creates a customized plan for them to overcome obstacles so that they can focus on marketing their product(s) and/or service(s)
to their potential customers.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they
do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of
management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary
for a fair presentation of the unaudited condensed consolidated financial position of Balance Labs as of March 31, 2020 and the
unaudited condensed consolidated results of its operations and cash flows for the three months ended March 31, 2020. The unaudited
consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the operating results
for the full year. It is recommended that these unaudited condensed consolidated financial statements be read in conjunction
with the audited financial statements and related disclosures of the Company for the year ended December 31, 2019 which was filed
with the Securities and Exchange Commission on May 28, 2020.
Note
2 – Going Concern
The
condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company
used $52,777 of cash in operating activities and currently has $2,657 in cash. There is substantial doubt about the Company
to continue as a going concern. This will not sustain the Company without additional funds. Management plans to raise additional
capital within the next twelve months that will sustain its operations for the next year. In addition, the Company will begin
an active marketing campaign to market its services. There can be no assurance that such a plan will successful. The accompanying
condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable
to continue as a going concern.
Furthermore,
COVID-19 has also caused severe disruptions in transportation and limited access to the Company’s facilities resulting in
limited support from its staff and professional advisors. This in turn has limited the Company’s resources in promoting
its services and acquiring additional capital.
Note
3 – Summary of Significant Accounting Policies
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
At March 31, 2020 and December 31, 2019, the Company has $2,000 and $2,000 in cash equivalents, respectively.
Use
of Estimates
The
preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to stock-based
compensation, depreciable lives of fixed assets and deferred tax assets. Actual results could materially differ from those estimates.
Accounts
Receivable
Accounts
receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts
by specific customer identification. If market conditions decline, actual collections may not meet expectations and may result
in decreased cash flow and increased bad debt expense. Once collection efforts by the Company and its collection agency are exhausted,
the determination for charging off uncollectible receivables is made.
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Joint
Venture
Balance
Labs, Inc. and subsidiaries use the equity method to account for their financial interest in the following company:
|
|
|
|
March 31,
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
iGrow Systems Inc. (a)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
a)
Balance Labs Inc., is a 43.15% owner of iGrow Systems Inc., as of March 31, 2020 and December 31, 2019, respectively.
The
Company has a non controlling interest in iGrow Systems, Inc., a Limited Partnership Corporation formed to develop a rapid plant
growing device. Some of the members participate in the project which is under the general management of the members. Summary information
on the joint venture follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Total Assets
|
|
$
|
10,112
|
|
|
$
|
4,522
|
|
|
Total Liabilities
|
|
|
148,768
|
|
|
|
104,868
|
|
|
Shareholders’ (Deficit)
|
|
|
(138,656
|
)
|
|
|
(100,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
-
|
|
|
|
-
|
|
|
Expenses
|
|
|
53,311
|
|
|
|
280,557
|
|
|
Net (Loss)
|
|
$
|
(53,311
|
)
|
|
$
|
(280,557
|
)
|
The
Company’s portion of the net loss for the three months ended March 31, 2020 was $23,004, which exceeded its investment
in the joint venture by $46,072. The Company also contributed a loan to the joint venture of $17,500 during the three
months ended March 31, 2020.
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Revenue
Recognition
The
Company accounts for its revenues under FASB ASC 606,
which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer
of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those
goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met:
(1) Identify the Contract with a Customer, (2) Identify the Performance Obligations in the Contract, (3) Determine the Transaction
Price, (4) Allocate the Transaction Price to the Performance Obligations in the Contract, and (5) Recognize Revenue When (or
As) the Entity Satisfies a Performance Obligation.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included
or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
The
Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.
Management
has evaluated and concluded that there are no material tax positions requiring recognition in the Company’s unaudited condensed
consolidated financial statements as of March 31, 2020. The Company does not expect any significant changes in its unrecognized
tax benefits within twelve months of the reporting date. The Company’s 2016, 2017, 2018 and 2019 tax returns remain open
for audit for Federal and State taxing authorities.
The
Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general
and administrative expenses in the statement of operations.
Investments
When
the fair value of an investment is indeterminable, the Company accounts for its investments that are under 20% of the total equity
outstanding using the cost method. For investments in which the Company holds between 20-50% equity and is non-controlling are
accounted for using the equity method. For any investments in which the Company holds over 50% of the outstanding stock, the Company
consolidates those entities into their condensed consolidated financial statements herein. The Company holds two investments on
its Balance Sheet as of March 31, 2020. Our investment in Bang Holdings Corp., is recorded at fair value on March 31, 2020 and
December 31, 2019, with the gains and losses being recorded through other income on the income statement for the periods then
ended. On November 9, 2018, the Company acquired a non-controlling interest in iGrow Systems Inc. This investment is recorded
on our balance sheet using the equity method as of March 31, 2020 and December 31, 2019.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents
and marketable securities. As of March 31, 2020, the carrying value of marketable securities was $126,000, which consist of common
shares held in one (1) investment which currently is trading on the Over-the Counter Bulletin Board (OTCBB). The Company has classified
this investment as a Level 3 asset on the fair value hierarchy because the investment is valued using unobservable inputs, due
to the fact that observable inputs are not available, or situations in which there is little, if any, market activity for the
asset or liability at the measurement date.
Principles
of Consolidation
The
condensed consolidated financial statements include the Company and its wholly owned corporate subsidiaries, Balance Labs LLC.,
from October 12, 2015, Balance AgroTech Co., from July 11, 2016, Advanced Auto Tech Co., from May 10, 2016, Balance Cannabis Co.,
from May 13, 2016, and Balance Medical Marijuana Co from December 22, 2015, and our 51% majority owned subsidiary KryptoBank Co
from December 28, 2017. All intercompany transactions are eliminated. The Company’s four subsidiaries, Balance AgroTech
Co., Advanced AutoTech Co., Balance Cannabis Co., and Balance Medical Marijuana Co. are dormant. The Company has a non-controlling
interest of 43.15% in iGrow Systems Inc., which is not included in this consolidation for the period ended March 31, 2020
and the year ended December 31, 2019.
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Net
Income (Loss) Per Common Share
Basic
and diluted income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common
shares and warrants from convertible debentures outstanding during the periods. The effect of 740,000 and 700,000 warrants and
3,003,137 and 2,845,565 shares from convertible notes payable for the three months ended March 31, 2020 and 2019,
respectively, were anti-dilutive.
Stock-Based
Compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and financial reporting dates until the service period is complete. The fair value amount
is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting
period. Awards granted to directors are treated on the same basis as awards granted to employees.
The
Company has computed the fair value of warrants granted using the Black-Scholes option pricing model. The expected term used for
warrants is the contractual life. Since the Company’s stock has not been publicly traded for a sufficiently long period,
the Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time,
equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry.
The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term
consistent with the expected term of the instrument being valued.
Fair
Value of Financial Instruments
The
Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including
cash, accounts payable, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their
short maturities.
We
adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). This standard defines fair value,
provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value
measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance
does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market
approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach
(cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of
those three levels:
|
●
|
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are
not active.
|
|
|
|
|
●
|
Level
3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed
by us, which reflect those that a market participant would use.
|
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
The
following table presents certain assets of the Company’s measured and recorded at fair value on the Company’s balance
sheet on a recurring basis and their level within the fair value hierarchy as of March 31, 2020.
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair-value – equity securities
|
|
$
|
126,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
126,000
|
|
|
Total Assets measured at fair value
|
|
$
|
126,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
126,000
|
|
The
following table presents certain assets of the Company’s measured and recorded at fair value on the Company’s balance
sheet on a recurring basis and their level within the fair value hierarchy as of December 31, 2019.
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair-value – equity securities
|
|
$
|
177,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
177,000
|
|
|
Total Assets measured at fair value
|
|
$
|
177,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
177,000
|
|
The
following is a reconciliation of the level 3 Assets:
|
Beginning Balance as of January 1, 2020
|
|
$
|
177,000
|
|
|
|
|
|
|
|
|
Unrealized loss on (level 3) securities
|
|
|
(51,000
|
)
|
|
|
|
|
|
|
|
Ending Balance as of March 31, 2020
|
|
$
|
126,000
|
|
Business
Segments
The
Company operates in one segment and therefore segment information is not presented.
Advertising,
Marketing and Promotional Costs
Advertising,
marketing and promotional expenses are expensed as incurred and are included in selling, general and administrative expenses on
the accompanying unaudited condensed consolidated statement of operations. For the three months ended March 31, 2020 and March
31, 2019, advertising, marketing and promotion expense was $929 and $312, respectively.
Property
and equipment
Property
and equipment consists of furniture and office equipment and is stated at cost less accumulated depreciation. Depreciation is
determined by using the straight-line method for furniture and office equipment, over the estimated useful lives of the related
assets, generally three to five years.
Expenditures
for repairs and maintenance of equipment are charged to expense as incurred. Major replacements and betterments are capitalized
and depreciated over the remaining useful lives of the related assets.
Property
and equipment as of March 31, 2020 and December 31, 2019 consisted of the following:
|
|
|
March
31,
2020
|
|
|
December
31,
2019
|
|
|
Website
|
|
$
|
1,336
|
|
|
$
|
1,336
|
|
|
Computer
equipment & Software
|
|
|
5,358
|
|
|
|
5,358
|
|
|
Furniture
|
|
|
4,622
|
|
|
|
4,622
|
|
|
Total
|
|
|
11,316
|
|
|
|
11,316
|
|
|
Less
Accumulated Depreciation
|
|
|
(9,780
|
)
|
|
|
(9,740
|
)
|
|
Property
and Equipment, net
|
|
$
|
1,536
|
|
|
$
|
1,576
|
|
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Depreciation
expense for the three months ended March 31, 2020 and 2019 totaled $40 and $69 respectively. There were no additions during the
three months ended March 31, 2020.
Intangible
Assets
Intangible
Assets as of March 31, 2020 and December 31, 2019 consisted of the following:
|
|
|
2020
|
|
|
2019
|
|
|
Trademarks
|
|
$
|
2,836
|
|
|
$
|
2,836
|
|
|
Total
|
|
$
|
2,836
|
|
|
$
|
2,836
|
|
There
were no additions to Intangible Assets during the three months ended March 31, 2020.
Recently
Issued Accounting Pronouncements
The
Company has evaluated all new accounting standards that are in effect and may impact its unaudited condensed consolidated financial
statements and does not believe that there are any other new accounting standards that have been issued that might have a material
impact on its financial position or results of operations.
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Note
4 – Stockholders’ Equity
Authorized
Capital
The
Company is authorized to issue 500,000,000 shares of common stock, $0.0001 par value, and 50,000,000 shares of preferred stock,
$0.0001 par value.
Non-Controlling
Interest
On
December 28, 2017, the Company sold a non-controlling interest in its subsidiary, KryptoBank Co. for $500 equal to 9% of the outstanding
equity. On January 17, 2018 the Company sold an additional 40% in its subsidiary KryptoBank Co. for $4,500. As of March 31, 2020,
the non-controlling interest is 49% of the shares outstanding.
Warrants
During
2015, the Company issued 100,000 warrants as part of a convertible note offering. The fair value of the warrants was $19,965.
The warrants expire December 23, 2020.
On September 30, 2016,
Balance Group LLC loaned the Company $120,000. In addition to paying interest at 10%, the Company issued 600,000 warrants
at an exercise price of $1.00 per share expiring on September 30, 2021.
In
conjunction with The Sammy Farkas Foundation agreement the Company issued warrants to purchase 40,000 shares of the Company’s
common stock at an exercise price of $1.00 per share, expiring on October 10, 2022.
The
following tables summarize warrants outstanding as of March 31, 2020 and the related changes during the periods are presented
below.
|
|
|
Weighted
|
|
|
Number of
|
|
Average
|
|
|
Warrants
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
740,000
|
|
|
$
|
0.93
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020 (unaudited)
|
|
|
740,000
|
|
|
$
|
0.93
|
|
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Note
5 – Related Party Transactions
The
Company’s CEO earned $10,000 per month. The following compensation was recorded within general and administrative expenses
– related parties on the statements of operations: $30,000 and $30,000 for the three months ended March 31, 2020 and 2019,
respectively. As of March 31, 2020, $636,659 of compensation was unpaid and was included in accounts payable – related
party on the balance sheet.
On
September 30, 2016, Balance Group LLC loaned $120,000 as a convertible note payable to the Company at an interest rate
of 10%, due on October 1, 2017. In addition, the Company issued 600,000 warrants at an execution price of $1.00 which expire on
September 30, 2021. See Note 7. The note is currently in default and has an accrued interest balance of $42,016.
During
2016, 2017, and 2019 Balance Group LLC loaned an additional $66,850 to the Company. The notes are in default and have an accrued
interest balance of $17,052.
As of March 31, 2020, the CEO and companies
controlled by the CEO have loaned the Company a total of $1,132,358 in addition to the convertible note discussed above.
The loans carry an interest rate of 8% and mature one year and one day from the date of the loan. The Company accrued interest
of $146,223 on the loans. $808,949 of these loans are in default as of March 31, 2020.
The
Company on July 27, 2016 signed a sublease with entity partially owned by a related party to sub-lease approximately 2200 square
feet 1691 Michigan Ave, Miami Beach, Fl. 33139, beginning August 1, 2016 and ending December 31, 2019 at a monthly base rental
of $7,741 per month until July 31, 2017, $7,973 per month from August 1, 2017 to July 31, 2018, and $8,212 from August 1, 2018
to the sublease termination date. In addition to base rent, the Company will have to pay 50% of the CAM charges as additional
rent. On or about January 15, 2017, The Company was made aware that the master lease for the office space was in default. Consequently,
the Company ceased payments. On or about March, 31, 2017, The Company was served with an eviction notice as the Master Lease was
still in default. The Company has used its security deposit to partially pay its delinquent rent. The balance was paid in cash
and the matter was partially settled. The Company still has $16,725 accrued on its books representing the amount that may be subject
to pay. On May 12, 2017 the Company moved its headquarters to 350 Lincoln Road, Miami Beach, FL 33139. The Company pays $2,750
per month rent. Beginning November 1, 2017, the Company began occupying the space on a month to month basis. In addition, the
Company had to pay a security deposit of $4,325. The security deposit is included in prepaid expenses on the balance sheet.
iGrow Systems, Inc., as part of its initial funding borrowed
$15,000 from KryptoBank Co. On July 15, 2019, KryptoBank Co. converted the $15,000 note into 150,000 shares of common stock at
a price of $0.10 per share.
On
April 1, 2016, the Company received $500,000 from Newell Trading Group in exchange for a convertible debenture due April 2, 2017
bearing interest at 10% and convertible into common stock at $.25 per share unless the note is paid by the Company prior to the
election of the holder to convert. The Company recognized a beneficial conversion feature expense of $500,000 that has been fully
amortized. As of March 31, 2020, accrued interest on the note is $200,034. On October 3, 2019, Newell Trading Group assigned
its rights and interests in its $500,000 convertible debenture to the Sammy Farkas Foundation Inc., (the “Foundation”),
a related party. The Foundation then entered into an agreement with the Company to extend the maturity date of the convertible
debenture to October 10, 2024 in exchange for 54,000 shares of the Company’s stock. The shares have a fair value of $56,700
which was recorded as a debt discount and amortized over the life of the extension. As of March 31, 2020, the remaining debt discount
was $51,030.
The Company received
$40,000 from The Foundation in exchange for a promissory note which bears 12% interest per annum and matures on October 10, 2020
or upon the Company raising $500,000 from outside investors, whichever occurs first. As of March 31, 2020, accrued interest
on the note is $5,030. The promissory note comes with a warrant to purchase 40,000 shares of the Company’s stock with
an exercise price of $1.00 per share and expires on October 10, 2022. The warrants have a relative fair value of $8,283, which
was recorded as a debt discount and amortized over the life of the note. As of March 31, 2020, the remaining debt discount was
$4,141.
During January 2020,
The Farkas Group, a related party, loaned the Company $36,200, unsecured, for one year and one day at an interest rate of 8%.
During February 2020,
The Farkas Group, a related party, loaned the Company $23,500, unsecured for one year and one day at an interest rate of 8%.
During March 2020,
The Farkas Group, a related party, loaned the Company $4,050, unsecured for one year and one day at an interest rate of 8%.
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Note
6 – Commitments and Contingencies
Litigation,
Claims and Assessments
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s condensed
consolidated financial position or results of operations.
Consulting
Fees
The
Company will continue to pay its CEO $10,000 per month as compensation on a month to month basis. It will be recorded in general
and administrative expenses-related parties on the consolidated statement of operations.
Note
7 – Notes Payable
As
of March 31, 2020, the CEO and companies controlled by the CEO have loaned the Company a total of $1,132,358 in addition
to the convertible note discussed above. The loans carry an interest rate of 8% and mature one year and one day from the date
of the loan. The Company accrued interest of $146,223 on the loans. $808,949 of these loans are in default as of
March 31, 2020.
KryptoBank
Co., as part of its initial funding, borrowed an additional $100,000 from its shareholders during the year ended December 31,
2018. The notes have a stated interest rate of 12% compounded annually and are due on demand. The balance outstanding as of March
31, 2020 is $112,167. The Company has accrued interest of $17,384 as of March 31, 2020.
On October 3, 2019,
The Sammy Farkas Foundation, a related party, loaned the Company $40,000, the note bears 12% interest per annum and matures on
October 10, 2020 or upon the Company raising $500,000 from outside investors, whichever occurs first (see Note 5). The promissory
note comes with a warrant to purchase 40,000 shares of the Company’s stock with an exercise price of $1.00 per share and
expires on October 10, 2022. The promissory note has accrued interest of $5,030 as of March 31, 2020. The warrants have
a relative fair value of $8,283, which was recorded as a debt discount and amortized over the life of the note. As of March 31,
2020, the remaining debt discount was $4,141.
During January 2020, The Farkas Group, a related party, loaned the Company $36,200, unsecured, for one year and one day at an
interest rate of 8%.
During
February 2020, The Farkas Group, a related party, loaned the Company $23,500, unsecured for one year and one day at an interest
rate of 8%.
During
March 2020, The Farkas Group, a related party, loaned the Company $4,050, unsecured for one year and one day at an interest rate
of 8%.
BALANCE
LABS, INC. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of March 31, 2020 (Unaudited)
Convertible
Notes Payable
On
December 23, 2015, the Company issued a secured convertible promissory note in the amount of $25,000. The note carries a rate
of 8% and was due on March 23, 2016. It is secured by all the assets of the Company. The note further contains a provision that
the lender may convert any part of the note, including accrued interest, that is unpaid into the Company’s common stock
at an exercise price of $0.50 per share. The note also contains a five-year warrant to purchase 100,000 shares of common stock
at an exercise price of $0.50 per share until December 23, 2020. As of March 23, 2016, the note is in default and the interest
rate has been increased to 18%. As of March 31, 2020, the accrued interest on the note is $23,110.
On
April 1, 2016, the Company received $500,000 from Newell Trading Group in exchange for a convertible debenture due April 2, 2017
bearing interest at 10% and convertible into common stock at $.25 per share unless the note is paid by the Company prior to the
election of the holder to convert. The Company recognized a beneficial conversion feature expense of $500,000 that has been fully
amortized. As of March 31, 2020, accrued interest on the note is $200,034. On October 3, 2019, Newell Trading Group assigned its
rights and interests in its $500,000 convertible debenture to the Sammy Farkas Foundation Inc., (the “Foundation”),
a related party. The Foundation then entered into an agreement with the Company to extend the maturity date of the convertible
debenture to October 10, 2024 in exchange for 54,000 shares of the Company’s stock. The shares have a fair value of $56,700
which was recorded as a debt discount and amortized over the life of the extension. As of March 31, 2020, the remaining debt discount
was $51,030.
On
September 30, 2016, Balance Group LLC loaned the Company $120,000 with an interest rate of 10% and is convertible into
common stock at $1.00. In addition, the Company issued the CEO 600,000 warrants and recorded a debt discount of $111,428, which
has been fully amortized. The Company valued the warrants using the Black-Scholes option pricing model with the following assumptions:
Expected volatility of 514%, expected life of five years, risk free rate of return of 1.14% and an expected divided yield of 0%.
The warrants had a fair value of $85,714. The note is currently in default and has an accrued interest balance of $42,016
as of March 31, 2020.
Note
8 – Subsequent Transactions
During
April 2020, The Farkas Group, a related party, loaned the Company $18,500, unsecured for one year and one day at an interest rate
of 8%.
During
May 2020, The Farkas Group, a related party, loaned the Company $2,500, unsecured for one year and one day at an interest rate
of 8%.
On
May 7, 2020, the Company received $34,500 from the Small Business Administration as part of the Paycheck Protection Program. The
interest rate is 1% and it is due on May 3, 2022.
During
June, 2020, The Farkas Group, a related party, loaned the Company $17,200, unsecured for one year and one day at an interest rate
of 8%.
On
July 6, 2020, The Farkas Group, a related party, loaned the Company $2,500, unsecured for one year and one day at an interest
rate of 8%.
Previously,
the Company entered into a litigation with Bang Holdings in order to have the restrictions on its shares removed. A settlement
was reached in which Bang Holdings agreed to remove the restriction on the Company’s shares. The Company’s shares
can now be traded on the open market.
The
coronavirus pandemic may adversely impact our operations and demand for our products and services and our ability to find new
clients. This is due in part to restrictions such as: social distancing requirements; stay at home orders and the shutdown of
non-essential businesses and the impact these restrictions have on small businesses and their ability to generate revenues which
effects their ability to afford our services.