The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – History and organization of the company
The Company was originally organized on September 11, 2006 (Date of Inception) under the laws of the State of Nevada, as The Engraving Masters, Inc. The Company was authorized to issue up to 100,000,000 shares of its common stock and 100,000,000 shares of preferred stock, each with a par value of $0.001 per share.
On March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a Colorado corporation formed in February 2014 ("Blue Line Colorado"), as a wholly-owned subsidiary of the Company. Blue Line Colorado provides protection, compliance and financial services to the lawful cannabis industry.
On May 2, 2014, the Company changed its name from The Engraving Masters, Inc. to Blue Line Protection Group, Inc. ("BLPG")
On May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the authorized capital of the Company concurrently increased to 1,400,000,000 shares of common stock. All references to share and per share amounts in the consolidated financial statements and accompanying notes thereto have been retroactively restated to reflect the forward stock split.
The Company provides armed protection, logistics, and compliance services for businesses engaged in the legal cannabis industry. The Company offers asset logistic services, such as armored transportation service; security services, including shipment protection, money escorts, security monitoring, asset vaulting, VIP and dignitary protection, financial services, such as handling transportation and storage of currency; training; and compliance services.
Note 2 – Accounting policies and procedures
Interim financial statements
The unaudited interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
In the opinion of management, these statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2016 and notes thereto included in the Company's annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Principles of consolidation
The consolidated financial statements include the accounts of Blue Line Protection Group, Inc. (formerly The Engraving Masters, Inc.), Blue Line Advisory Services, Inc. (a Nevada corporation; "BLAS"), Blue Line Capital, Inc. (a Colorado corporation; "Blue Line Capital"), Blue Line Protection Group (California), Inc. (a California corporation; "Blue Line California"), Blue Line Colorado, Blue Line Protection Group Illinois, Inc. (an Illinois corporation; "Blue Line Illinois"), BLPG, Inc. (a Nevada corporation; "Blue Line Nevada"), Blue Line Protection Group (Washington), Inc. (a Washington corporation; "Blue Line Washington"). All significant intercompany balances and transactions have been eliminated. BLPG and its subsidiaries are collectively referred herein to as the "Company."
Basis of presentation
The financial statements present the balance sheets, statements of operations, stockholder's equity (deficit) and cash flows of the Company. The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.
The Company has adopted December 31 as its fiscal year end.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 2017 and December 31, 2016.
Accounts receivable
Accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
Allowance for uncollectible accounts
The Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred. There was no allowance for doubtful customer receivables at September 30, 2017 and December 31, 2016.
Property and equipment
Property and equipment is recorded at cost and capitalized from the initial date of service. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:
|
Automotive Vehicles
|
5 years
|
|
Furniture and Equipment
|
7 years
|
|
Buildings and Improvements
|
15 years
|
The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as September 30, 2017 and December 31, 2016.
Impairment of long-lived assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and its fair value or disposable value. As of September 30, 2017 and December 31, 2016, the Company determined that none of its long-term assets were impaired.
Concentration of business and credit risk
The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company's financial instruments that are exposed to concentration of credit risks consist primarily of cash. The Company maintains its cash in bank accounts, which may at times, exceed federally insured limits.
The Company had 5 major customers which generated approximately 64% (25%, 14%, 9%, 8% and 8%) of total revenue in the nine months ended September 30, 2017.
The Company had 5 major customers which generated approximately 63% (23%, 15%, 9%, 9% and 7%) of total revenue in the nine months ended September 30, 2016.
Related party transactions
FASB ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.
Fair value of financial instruments
The carrying amounts reflected in the balance sheets for cash, accounts payable and related party payables approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
|
Level 1:
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
Level 2:
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
|
|
Level 3:
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
Revenue recognition
The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is reasonably assured.
Other Income
The Company received a reimbursement of $72,890 from its insurance company for damages caused by a hail storm during the nine months ended September 30, 2017.
Advertising costs
The Company expenses all costs of advertising as incurred. There were $2,663, $7,209 $1,933 and $9,156 in advertising costs for the three and nine months ended September 30, 2017 and 2016, respectively.
General and administrative expenses
The significant components of general and administrative expenses consist mainly of legal and professional fees and compensation.
Stock-based compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, "Compensation – Stock Compensation." FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505-50, "Equity-Based Payments to Non-Employees", which requires that such equity instruments are recorded at their fair value on the measurement date, with the measurement of such compensation being subject to periodic adjustment as the underlying equity instruments vest.
Cost of Revenue
The Company's cost of revenue primarily consists of labor, fuel costs and items purchased by the Company specifically purposed for the benefit of the Company's client.
Basic and Diluted Earnings per share
Net loss per share is provided in accordance with FASB ASC 260-10, "Earnings per Share". Basic loss per share is computed by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Income Taxes
The Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Recent Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases
, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this standard as of December 31, 2016. The adoption of this standard had no effect on our results of operation, cash flows, other than presentation, or financial condition.
In April 2016, the FASB issued ASU 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU No. 2016-15,
"Classification of Certain Cash Receipts and Cash Payments"
ASU 2016 - provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company does not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.
On November 17, 2016, the FASB issued ASU No. 2016-18, "
Statement of Cash Flows (Topic 230): Restricted Cash"
, a consensus of the FASB's Emerging Issues Task Force (the "Task Force"). The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU No. 2016-18 is effective for public business entities for fiscal years beginning after December 15, 2017. The Company does not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition
The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company.
Note 3 – Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has a net loss of $982,807 for the nine months ended September30, 2017, accumulated deficit of $7,954,597 and had a working capital deficit of $2,216,106 as of September 30, 2017. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
Note 4 – Commitments and contingencies
Contingencies
On December 28, 2015 Patrick Deparini, the Company's former CFO resigned. Mr. Deparini purports his resignation was made pursuant to a termination clause for other than cause if he is required to undertake other responsibilities other then set forth in his employment agreement. Mr., Deparini claims through the date of his resignation he is owed a total of $154,000 in unreimbursed compensation, $575 in accrued authorized expenses and the remaining balance of his base salary as defined in the employment agreement in the amount of $179,000. As of December 31, 2016 and 2015 the Company has accrued a total of $125,575 contingent liabilities On February 6, 2017, The Company received a Notification of Wage Claim from the State of Nevada Department of Business & Industry Office of the Labor Commissioner stating that Patrick Deparini had filed a claim for unpaid wages with the Office of the Labor Commissioner (the "Commissioner"). The notification states that Mr. Deparini maintains he was not paid for all hours worked between February 3, 3015 and December 28, 2015 for a total amount owed of $99,000. The Company disputed Mr. Deparini's claim with the Commissioner and responded by explaining to the Commissioner that Mr. Deparini improperly categorized his dispute with the Company as a wage claim, which it is not. If litigation is commenced the Company will attempt a reasonable out-of-court settlement and if such efforts are not successful, will defend the litigation.
On November 6, 2015 Daniel Sullivan sent a wage claim demand. Mr. Sullivan purports to have had an Independent Contractor Agreement with the Company which provides he is entitled to certain compensation and to be reimbursed for Company expenses. The demand claims unpaid compensation in the amount of $8,055 and unreimbursed expenses in the amount of $154,409. The Company denies the agreement was ever signed. As of September 30, 2017 and December 31, 2016 the Company accrued a total of $88,968 contingent liabilities. If litigation is commenced the Company will attempt a reasonable out-of-court settlement and if such efforts are not successful, will defend the litigation.
Mile High Real Estate Group, an entity owned by Mr. Sullivan, sent correspondence stating the Mr. Sullivan and/or Mile High Real Estate loaned the Company either directly or directly to contractors, material suppliers or utilities for operating and building remodeling in the amount of $98,150. Counsel for Mr. Sullivan stated that he was still compiling information. The Company is investigating whether Mr. Sullivan and/or Mile High Real Estate Group ever made the alleged loans. If the alleged loan was actually made, the Company will seek an out-of-court settlement. As of September 30, 2017 and December 31, 2016 the Company accrued a total of $98,150.
On April 14, 2016, the Company entered into an agreement with an unrelated third party to provide the Company with investor relations services. Upon signing the agreement, the Company paid the investor relations consultant $75,000 and agreed to issue the consultant 1,500,000 shares of its restricted common stock. The agreement requires the Company to pay the consultant an additional $75,000 prior to June 14, 2016. The Company cancelled the agreement and is of the opinion that the shares are not owed to the consultant. As of September 30, 2017 and December 31, 2016 there was no payable recorded.
Leases
On February 15, 2014 the Company entered into a sublease agreement for approximately 2,000 square feet of office space on a month to month basis contingent on the lessor's master lease for the premises. The lease amount adjusts yearly and the current lease is $1,614 per month.
On October 27, 2016 the Company sold its building located at 5765 Logan Street, Denver, Colorado to an unrelated third party for $1,400,000. The Company repaid the mortgage on the building in the amount of $677,681. After the sale, the Company leased the building from the purchaser of the property. The lease is for an initial term of ten years, with the Company having the option to extend the term of the lease for two additional five year periods. The lease requires rental payments of $10,000 per month and will increase 2% annually. The Company paid a $30,000 deposit at the inception of the lease.
|
Future minimum lease payments
:
|
|
|
|
|
2017
|
|
$
|
30,050
|
|
|
2018
|
|
|
122,604
|
|
|
2019
|
|
|
125,056
|
|
|
2020
|
|
|
127,557
|
|
|
2021
|
|
|
130,108
|
|
|
2022 and thereafter
|
|
|
654,539
|
|
|
Total minimum lease payments
|
|
$
|
1,189,914
|
|
Note 5 – Fixed assets and construction in progress
Machinery and equipment consisted of the following at:
|
|
September 30,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Automotive vehicles
|
|
$
|
194,882
|
|
|
$
|
194,882
|
|
|
Furniture and equipment
|
|
|
54,904
|
|
|
|
53,314
|
|
|
Fixed assets, total
|
|
|
249,786
|
|
|
|
248,196
|
|
|
Total : accumulated depreciation
|
|
|
(151,088
|
)
|
|
|
(115,309
|
)
|
|
Fixed assets, net
|
|
$
|
98,698
|
|
|
$
|
132,887
|
|
Depreciation expense for the three and nine months ended September 30, 2017 and 2016 totaled $11,801, $35,779, $24,724 and $51,105, respectively.
Note 6 – Notes payable
Notes payable to non-related parties
During February 2015, the Company borrowed $50,000 from a non-affiliated person. The loan is due and payable on demand with interest at 10% per annum. As of September 30, 2017 and December 31, 2016, the principal balance owed on this loan was $50,000 and $50,000, respectively.
During April 2015, the Company borrowed $25,000 from a non-affiliated person. The loan is due and payable May 1, 2015 with interest at 6% per year and has a 5% per month penalty upon default. As of September 30, 2017 and December 31, 2016, the principal balance owed on this loan was $25,000 and $25,000, respectively. The note is currently past due.
On January 5, 2016, the Company borrowed $10,000 from a non-affiliated person. The loan was due and payable on January 5, 2017 and bore interest at 5% per annum. The principal balance owed on this loan at September 30, 2017 and December 31, 2016 was $10,000 and $10,000, respectively. The note is currently past due.
On September 21, 2016, the Company borrowed $100,000 from a non-affiliated person. The loan was due and payable on December 21, 2016 and bore interest at 60% per year. The lender extended the loan and waived the default fee of 120%. The loan was repaid on February 15, 2017. The Company paid $5,000 in fees in connection with this loan in 2016. As of September 30, 2017 and December 31, 2016, the principal balance owed on this loan was $0 and $100,000, respectively.
On April 13, 2017 the Company signed a Merchant Agreement with a lender. Under the agreement the Company received $63,700 in exchange for rights to all customer receipts until the lender is paid $89,700, which is collected at the rate of $11,213 per month with 15% interest per year. The Company recorded a debt discount of $26,000 and recorded $16,250 amortization expense for the nine months ended September 30, 2017. As of September 30, 2017 the unamortized discount was $9,750 and outstanding loan amount was $33,638. The Company repaid a total of $56,063 during the nine months ended September 30, 2017, The payments were secured by second position rights to all customer receipts until the loan has been paid in full.
On August 24, 2017 the Company signed a Merchant Agreement with a lender. Under the agreement the Company received $69,000 in exchange for rights to all customer receipts until the lender is paid $88,000 which is collected at the rate of $410.71 per day with 15% interest per year. The Company recorded a debt discount of $19,000 and recorded $2,262 amortization expense for the nine months ended September 30, 2017. As of September 30, 2017 the unamortized discount was $16,738 and outstanding loan amount was $60,785. The Company repaid a total of $8,215 during the nine months ended September 30, 2017, The payments were secured by second position rights to all customer receipts until the loan has been paid in full.
Convertible notes payable to non-related party
On January 4, 2017 the Company borrowed $125,000 from an unrelated third party. The loan has a maturity date of October 28, 2017 and bears interest at the rate of 8% per year. The Company paid $2,000 of fees associated with the loan, which was fully amortized during the nine months ended September 30, 2017. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after July 3, 2017, (180 days from date of the note) to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the five lowest trading prices for the 25 trading days immediately preceding the conversion date.
On July 13, 2017, the Company paid total $173,901 including prepayment penalty and interest expense. The Note was in default for 10 days prior to its repayment. The Company did not record a derivative as it would have been immaterial to the financial statements.
On April 13, 2017 the Company borrowed $65,500 from an unrelated third party. The loan has a maturity date of January 25, 2018 and bears interest at the rate of 8% per year. The Company paid $3,500 of fees associate with the loan, which was fully amortized during the nine months ended September 30, 2017. If the loan is not paid when due, any unpaid amount will bear interest at 21% per year. The Lender is entitled, at its option, at any time after October 10, 2017 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the five lowest trading prices for the 25 trading days immediately preceding the conversion date. The note is not convertible as of September 30, 2017, therefore no derivatives were recorded. The balance outstanding on the note at September 30, 2017 is $65,500.
On July 1, 2017 the Company borrowed $125,000 from an unrelated third party. The loan has a maturity date of April 30, 2018 and bears interest at the rate of 8% per year. The Company paid $3,000 of fees associated with the loan, which was fully amortized during the nine months ended September 30, 2017. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after January 14, 2018, (180 days from date of the note) to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the five lowest trading prices for the 25 trading days immediately preceding the conversion date. The note is not convertible as of September 30, 2017, therefore no derivatives were recorded. The balance outstanding on the note at September 30, 2017 is $125,000.
On August 24, 2017 the Company borrowed $58,500 from an unrelated third party. The loan has a maturity date of May 30, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid amount will bear interest at 21% per year. The Lender is entitled, at its option, at any time after February 20, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the five lowest trading prices for the 25 trading days immediately preceding the conversion date. The note is not convertible as of September 30, 2017, therefore no derivatives were recorded. The balance outstanding on the note at September 30, 2017 is $58,500.
Note 7 – Notes payable – related parties
On July 31, 2014, the Company borrowed $98,150 from an entity controlled by an officer and shareholder of the Company. The loan is due and payable on demand and bears no interest. As of September 30, 2017 and December 31, 2016, the principal balance owed on this loan is $98,150 and $98,150, respectively.
As of December 31, 2014, a related party loaned the Company $10,000, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. During the year ended December 31, 2015 the Company borrowed an additional $20,000. During the nine months ended September 30, 2017 the Company borrowed and additional $158,863 and repaid $158,863. As of September 30, 2017 and December 31, 2016, the principal balance owed on this loan was $30,000 and $30,000, respectively.
As of December 31, 2014, a related party loaned the Company $180,121, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. The Company repaid $125,500 towards this note during 2015 and as of September 30, 2017 and December 31, 2016; the principal balance owed on this loan was $54,621 and $54,621, respectively.
During 2015, the Company borrowed $43,575 from its former CFO and repaid $43,000 of the loan. The note is non-interest bearing, and due on demand. As of September 30, 2017 and December 31, 2016 the principal amount owed on this loan was $575.
During October 2015, the Company borrowed $30,000 from an entity controlled by an officer of the Company. The loan is due and payable on demand and is non-interest bearing. During the year ended December 31, 2016, the Company repaid $135,000 and borrowed an additional $135,000 from the same related party. As of September 30, 2017 and December 31, 2016, the principal balance owed on this loan was $30,000 and $30,000, respectively.
On July 7, 2016, the Company borrowed $73,000 from a related party. The loan was due and payable on July 7, 2017 and bore interest at 5% per annum. The principal balance owed on this loan at September 30, 2017 and December 31, 2016 was $73,000 and $73,000, respectively. The holder of the note has agreed to extend the default date of the note to March 30, 2018.
On August 8, 2016, the Company entered into, an promissory note with Hypur Inc., a Nevada Corporation which is a related party pursuant to which the Company to borrow $52,000. If an Event of Default remains uncured after 30 days Holder has the option to convert the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the Borrower The loan was due and payable on August 10, 2017 and bore interest at 18% per annum. The principal balance owed on this loan at September 30, 2017 and December 31, 2016 was $52,000 and $52,000, respectively. The Note is currently in default at bears a default rate of interest of 24% per annum
as part of the default terms of this note. The lender waived the conversion option through October 1, 2017 and so no derivative is required.
On September 20, 2016, the Company borrowed $47,500 from Hypur Inc., which is a related party. The loan is due and payable on December 20, 2016 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the Borrower The principal balance owed on this loan at September 30, 2017 and December 31, 2016 was $47,500 and $47,500, respectively. The loan is currently past due and in default. The Note is currently in default at bears a default rate of interest of 24% per annum
as part of the default terms of this note. The lender waived the conversion option through October 1, 2017 and so no derivative is required.
On July 13, 2017, the Company borrowed $150,000 from Hypur Inc., which is a related party. The loan is due and payable on July 17, 2017 and bears interest at 18% per annum. The Company repaid the loan prior to September 30, 2017.
In July the Company issued convertible promissory note to UTES 1970 LLC in the amount of $23,901 the note bears Interest at a rate: 18% (default interest 24%) and has a maturity date of July 30, 2017. If an Event of Default remains uncured after 30 days the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company at the conversion price lower of $0.015 and 60% of the closing price of the Company's common stock the day prior to the Conversion. The Company fully paid off the note prior to the maturity date and as of September 30, 2017, the outstanding balance of the loan is zero.
Convertible notes payable to related party
In November 2015, the Company entered into an arrangement with a related party, whereby the Company borrowed $25,000 in Convertible Notes. The Convertible Note bears interest at a rate of 5% per annum and payable quarterly in arrears and matures twelve months from the date of issuance, and is convertible into shares of the Company's common stock at a per share conversion price equal to $0.025 the note was due on November 4, 2016. In December 2015 the lender loaned the Company an additional $20,000 with same terms except that it is payable upon demand. As of September 30 2017 and December 31, 2016, the Company owed a total of $45,000 and $45,000, respectively. The holder of the note has agreed to extend the default date of the note to March 30, 2018.
In July 2015, the Company entered into an arrangement with a related party, whereby the Company could borrow up to $500,000 in Convertible Notes. The Convertible Note bears interest at a rate of 5% per annum and payable quarterly in arrears and matures twelve months from the date of issuance, and is convertible into shares of the Company's common stock at a per share conversion price equal to $0.025. Upon the occurrence and during the continuation of an event of default, the holder may require the Company to redeem all or any portion of this Note in cash at a price equal to 150% of the principal amount. During the nine months ended September 30, 2017, the Company borrowed an additional $110,000. As of September 30, 2017 and December 31, 2016, the Company owed a total of $500,000 and $390,000, respectively. As of September 30, 2017 and December 31, 2016 there is a total of $390,000 and $390,000 of the notes are past due, respectively. Since the debt holder has not elect the right to require the Company to redeem the note at a price equal to 150% of the principal amount, the terms stated prior to maturity are still in effect. The holder has waived the default term and the note is not considered to be in default as of September30, 2017.
On September 1, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") which is a related party pursuant to which the Company to borrow $75,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at September 30, 2017 and December 31, 2016 was $75,000 and $75,000, respectively.
Upon default, the note bears a default rate of interest of 24% per annum, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On October 14, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") which is a related party pursuant to which the Company to borrow $100,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at September 30, 2017 and December 31, 2016 was $100,000 and $100,000, respectively. Upon default, the note bears a default rate of interest of 24% per annum
, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount.
The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On March 7, 2017, the Company borrowed $100,000 from Hypur Ventures, L.P., a related party. The loan is due 180 days from March 7, 2017 and bears interest at 10% per annum. The loan is convertible into shares of the Company's common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.50 per share during any ten-day period. The principal balance owed on this loan at September 30, 2017 was $100,000.
Upon default, the note bears a default rate of interest of 24% per annum, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On May 26, 2017, the Company borrowed $100,000 from CGDK, a related party. The loan is due 360 days from May 26, 2017 and bears interest at 5% per annum. The loan is convertible into shares of the Company's common stock at a price of $.025 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at September 30, 2017 was $100,000.
On July 13, 2017, the Company borrowed $150,000 from CGDK, a related party. The loan is due 360 days from July 13, 2017 and bears interest at 5% per annum. The loan is convertible into shares of the Company's common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at September 30, 2017 was $150,000.
The Company evaluated the convertible note for possible embedded derivatives and concluded that none exist. However, the Company concluded a portion of the note should be allocated to additional paid-in capital as a beneficial conversion feature at the issuance date, since the conversion price on that date was lower than the fair market value of the underlying stock. Resultantly, a discount of $249,440, of which $71,400 was recorded during the nine months ended September 30, 2017, was attributed to the beneficial conversion feature of the note, which amount is being amortized through the maturity date of the note. As of September 30, 2017 and 2016, a total of $41,276 and $124,667, respectively has been amortized and recorded as interest expense, leaving a balance of $30,124 and $9,178 in discounts related to the beneficial conversion feature of this note. The carrying amount of the convertible note, net of the unamortized debt discount, was $1,038,876 and $610,000 as of September 30, 2017 and December 31, 2016, respectively.
Note 8 – Long term notes payable
On November 21, 2014, the Company purchased a vehicle for $20,827, net of discounts. The Company financed the $20,827 at an interest rate of 2.42% for five years, with a maturity date of December 5, 2019. As of September 30, 2017 and December 31, 2016, the total principal balance of the note is $10,733 and $12,801, respectively, of which $6,518 and $8,664 is considered a long-term liability and $4,215 and $4,137 is considered a current liability.
Note 9 – Stockholders' equity
The Company was originally authorized to issue 100,000,000 shares of common stock and 100,000,000 shares of preferred stock. On May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the number of authorized shares increased to 1,400,000,000 shares of common stock. All references to share and per share amounts in the consolidated financial statements and these notes thereto have been retroactively restated to reflect the forward stock split.
Common stock
During the year ended December 31, 2016, the Company entered two consulting agreements for business advisory services. During the year ended December 31, 2016 the Company issued a total of 2,000,000 shares of common stock to the consultant for business advisory services valued at $88,000. The certificate for these shares was issued subsequent to December 31, 2016.
During the nine months ended September 30, 2016, the Company entered into a consulting agreement for business advisory services. The Company issued a total of 1,000,000 shares of common stock to the consultant for business advisory services valued at $17,500. The certificate for these shares was issued subsequent to September 30, 2017.
Preferred stock
On May 3, 2016, the Company entered into, an agreement with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") which is a related party pursuant to which the Company sold to Hypur Ventures, in a private placement, 10,000,000 shares of the Company's preferred stock and 5,000,000 common stock warrants with a five year term and an exercise price of $0.10, at a purchase price of $0.05 per share for gross proceeds of $500,000. The shares of preferred stock are convertible into shares of the Company's common stock. The preferred stock shall have such other rights, preferences and privileges to be set forth in a certificate of designation to be filed with the Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it contained a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $114,229. The beneficial conversion feature was fully amortized and recorded as a deemed dividend.
Between July and August of 2016 Hypur Ventures purchased an additional 10,000,000 shares of the Company's preferred stock and 5,000,000 common stock warrants with a five year term and an exercise price of $0.10, at a purchase price of $0.05 per share for net proceeds of $445,000, net of legal fees of $55,000. The shares of preferred stock are convertible into shares of the Company's common stock. The preferred stock shall have such other rights, preferences and privileges to be set forth in a certificate of designation to be filed with the Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it does not contain a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $0.The preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically convert to common stock if the closing price of the Company's common stock equals or exceeds $.50 per share over any consecutive twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
The preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically convert to common stock if the closing price of the Company's common stock equals or exceeds $.50 per share over any consecutive twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
The Company has reserved thirty million shares of common stock that may be issued upon the conversion and/or exercise of the preferred stock and the warrants. The preferred stock sold to Hypur Ventures will be subject to the terms and conditions of the Certificate of Designation, as well as further documentation to be drafted in accordance with the terms and conditions agreed upon between the Company and Hypur Ventures.
Note 10 – Options and warrants
Options
All stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of each option award is estimated using a Black-Scholes-Merton option valuation model. The Company has not paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model. Volatility is an estimate based on the calculated historical volatility of similar entities in industry, in size and in financial leverage, whose share prices are publicly available. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company has no historical experience with which to establish a basis for determining an expected life of these awards. Therefore, the Company only gave consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures significant to the expected life of the option award. The Company bases the risk-free interest rate used in the Black-Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term equal to the expected life of the award.
During the nine months ended September 30, 2017 a total of 26,666 stock options were forfeited by various employees of the Company.
The following is a summary of the Company's stock option activity for the nine months September 30, 2017:
|
|
|
NumberOf
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
24,753,405
|
|
|
$
|
0.11
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
(146,667
|
)
|
|
$
|
0.17
|
|
|
Forfeited
|
|
|
(26,666
|
)
|
|
$
|
0.15
|
|
|
Outstanding at September 30, 2017
|
|
|
24,580,072
|
|
|
$
|
0.11
|
|
|
Options exercisable at December 31, 2016
|
|
|
20,000,484
|
|
|
$
|
0.11
|
|
|
Options exercisable at September 30, 2017
|
|
|
23,706,008
|
|
|
$
|
0.11
|
|
The following tables summarize information about stock options outstanding and exercisable at September 30, 2017:
|
OPTIONS OUTSTANDING AND EXERCISABLE AT September 30, 2017
|
|
|
Range of
Exercise Prices
|
|
Number of
Options
Outstanding
|
|
Weighted-Average
Remaining
Contractual
Life in Years
|
|
Weighted-
Average
Exercise Price
|
|
Number Exercisable
|
|
Weighted-
Average
Exercise Price
|
|
|
|
|
0.035 – 1.00
|
|
|
|
24,580,072
|
|
|
|
2.55
|
|
|
$
|
0.11
|
|
|
|
23,706,008
|
|
|
$
|
0.11
|
|
Total stock-based compensation expense in connection with options and modified awards recognized in the consolidated statement of operations for nine months ended September 30, 2017 and 2016 was $59,525 and $57,006, respectively. The intrinsic value of stock options issued to related parties was $0 at September 30, 2017.
Warrants
The following is a summary of the Company's warrant activity for the period ended September 30, 2017:
|
|
|
Number Of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at September 30, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
Options exercisable at September 30, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
The following tables summarize information about warrants outstanding and exercisable at September 30, 2017 and December 31, 2016:
|
WARRANTS OUTSTANDING AND EXERCISABLE AT SEPTEMBER 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
Exercise Prices
|
|
Number of
Options
Outstanding
|
|
Weighted-Average
Remaining
Contractual
Life in Years
|
|
Weighted-
Average
Exercise Price
|
|
Number Exercisable
|
|
Weighted-
Average
Exercise Price
|
|
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
|
3.74
|
|
|
$
|
0.10
|
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
Note 11 – Subsequent Events
On October 16, 2017 The Company issued convertible promissory note to AUCTUS FUND LLC in the amount of $150,000 the note bears Interest at a rate: 10% (default interest 24%) and has a maturity date of July 16, 2018. the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion Price is 50% of the lowest trading prices during the 25 Trading Day period prior to the Conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business.
On October 19, 2017 the Company and Power Up Lending Group Ltd entered into a Securities Purchase Agreement for a convertible note of $73,000. The note bears an Interest rate: 8% (default interest 22%) and matures on July 30, 2018. The conversion Feature: Upon 180 days after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion price is 58% of the average of the lowest 3 trading prices during the 10 Trading Day period prior to the Conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business.
Between October 2, 2017 and November 13, 2017, the Company received aggregate advances of $126,380 from related parties which advances are due on demand and bear no interest.