NOTES
TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
NOTE
1 – NATURE OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN
Nature
of Operations and Going Concern
HPIL
Holding (referred to in this report as “HPIL” or the “Company”) (formerly Trim Holding Group) was incorporated
on February 17, 2004 in the state of Delaware under the name TNT Designs, Inc. A substantial part of the Company’s activities
was involved in developing a business plan to market and distribute fashion products. On June 16, 2009, the majority interest
in the Company was purchased in a private agreement by Mr. Louis Bertoli, an individual, with the objective to acquire and/or
merge with other businesses. On October 7, 2009, the Company merged with and into Trim Nevada, Inc., which became the surviving
corporation. The merger did not result in any change in the Company’s management, assets, liabilities, net worth or location
of principal executive offices. However, this merger changed the legal domicile of the Company from Delaware to Nevada where Trim
Nevada, Inc. was incorporated. Each outstanding share of TNT Designs, Inc. was automatically converted into one share of the common
stock of Trim Nevada, Inc. Pursuant to the merger, the Company changed its name from TNT Designs, Inc. to Trim Holding Group.
On May 21, 2012, the Company changed its name to HPIL Holding. HPIL Holding intends that its main activity will be in the business
of providing consulting services and of investing in differing business sectors.
The
concentration of the Company has become the consulting services and the development of products related to the Brand License Agreement
(see Note 5 for further discussion of the Brand License Agreement). As of June 30, 2017, the Company has yet to commence substantial
operations. Expenses incurred from February 17, 2004 (date of inception) through June 30, 2017, relate to the Company’s
formation and general administrative activities. In the course of its start-up activities, the Company has sustained operating
losses and expects to incur operating losses in 2017. The Company has generated a limited amount of revenue and has not achieved
profitable operations or positive cash flows from operations. These factors and uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. The unaudited condensed interim financial statements do not include any adjustments
related to the recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern. All adjustments consisting only of normal
recurring items, considered necessary for fair presentation have been included in these unaudited condensed interim financial
statements.
The
Company will continue targeting sources of additional financing and opportunities to produce profitable revenue streams, whether
through sole or joint ventures, to provide for the continuation of its operations. The Company is also prepared to re-evaluate
its expense load, if necessary, to determine whether any efficiency can be achieved prior to the commencement of substantial operations
related to the Brand License Agreement (Note 5) or other potential operations identified by the Company. Additionally, the Company’s
Chief Financial Officer, who is also the Company’s Corporate Secretary and Treasurer and Director and stockholder, has indicated
his ability to provide financial support to the Company for the continuation of its operations, should it be necessary.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
unaudited condensed interim financial statements are presented in accordance with accounting principles generally accepted in
the United States (“GAAP”), and are expressed in United States dollars.
Unaudited
Condensed Interim Financial Statements
These
unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statement and should
be read in conjunction with those annual financial statements filed on Form 10-K for the year ended December 31, 2016. In the
opinion of management, these unaudited condensed interim financial statements reflect adjustments, necessary to present fairly
the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations
for such periods are not necessarily indicative of the results for a full year or for any future period.
Derivative
Financial Instruments
The
Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there
are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for
separately as a derivative financial instrument.
Derivative
financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for
as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date,
with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding
and/or bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized
in order to initially record the derivative instrument liabilities at their fair value.
The
discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds
to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the
instrument through periodic charges to income, using the effective interest method.
The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument,
as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the
derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheets as current or non-current
based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance
sheet date.
Impairment
of Long-Lived Assets
The
Company follows the ASC 360, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances
indicate that the assets’ carrying amount may not be recoverable. In performing the review for recoverability, if future
discounted cash flows (excluding interest charges) from the use of ultimate disposition of the assets are less than their carrying
values, an impairment loss represented by the difference between its fair value and carrying value, is recognized.
Research
and Development
The
Company is engaged in research and development in respect to the Company’s Brand License Agreement with World Traditional
Fudokan Shotokan Karate-Do Federation, a worldwide karate federation based in Switzerland (“WTFSKF”). Research and
development costs are charged as an operating expense as incurred.
Intangible
Assets
The
Company entered into a brand license agreement (the “Brand License Agreement”) with WTFSKF. Pursuant to the Brand
License Agreement, WTFSKF has granted to the Company an exclusive, worldwide, transferrable license (the “License”)
to use certain logos, names, and marks of WTFSKF (the “Marks”) and manufacture and sell certain products (clothing,
accessories and sporting goods) bearing the Marks (see Note 5 for further discussion of the Brand License Agreement). The Company
will amortize the License over the contractual life of the asset of 25 years. No amortization has been recognized as of June 30,
2017, and 2016, as the Brand License Agreement does not become effective until 2018.
Net
Loss Per Share
Basic
loss per share is computed by dividing net loss and comprehensive loss available to common shareholders by the weighted average
number of shares of common stock outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding for the year and the number of shares of common stock issuable upon assumed
conversion of the convertible debt provided the result is not anti-dilutive.
Recently
Adopted Accounting Pronouncements
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers.
This new standard provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers
and will supersede virtually all of the current revenue recognition guidance under GAAP. The standard is effective for the first
interim period within annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual periods
beginning after December 15, 2016. The Company’s adoption of this standard did not have a significant impact on the unaudited
interim financial statements.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern. This new standard provided guidance for the presentation of the
disclosure of uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard is effective for annual
periods beginning after December 15, 2016. The Company’s adoption of this standard did not have a significant impact on
the unaudited interim financial statements.
In
March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718,
Compensation – Stock Compensation. The ASU simplifies several aspects of the accounting for employee share-based payment
transaction. This standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within
that that reporting period. The Company’s adoption of this standard did not have a significant impact on the unaudited interim
financial statements.
Recently
Issued Accounting Pronouncements
In
November 2015, the FASB released ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU
2015-17”). ASU 2015-17 simplifies the presentation of deferred income taxes by deferred tax assets and liabilities be classified
as noncurrent on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after
December 15, 2017, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively
and early adoption is permitted. Adoption of this guidance is not expected to have any effect on the Company’s unaudited
condensed interim financial statements. The Company is currently evaluating the impact of the new standard on its financial statements.
In
March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting
Revenue Gross vs. Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016,
the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. ASU
2016-10 clarified the implementation guidance on identifying performance obligations. These ASUs apple to all companies that enter
into contracts with customers to transfer goods or services. There ASUs are effective for public entities for interim and annual
reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual periods beginning
after December 16, 2016. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented
or by recognizing the cumulative effect or applying these standards at the date of initial application and not adjusting comparative
information. The Company is currently evaluating the impact of the new standard on its unaudited condensed interim financial statements.
In
April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligation and Licensing,
to clarify the identification of performance obligation as well as the licensing implementation guidance.
In
May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients,
which clarifies certain core recognition principles including collectability, sales tax presentation, and contract modification,
as well as identifies disclosures no longer required if the full retrospective transition method is adopted.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”.
This ASU provides eight targeted changes to how cash receipts and cash payments are presented and classified in the statement
of cash flows. ASU 2016-15 is effective for the fiscal year commencing after December 15, 2017. The Company is still assessing
the impact that the adoption of ASU 2016-15 will have on the unaudited condensed interim statement of cash flows.
None
of the other recently issued accounting pronouncements are expected to significantly affect the Company.
NOTE
3 – CAPITAL STOCK
The
Company filed an amendment with the Secretary of State of Nevada on April 19, 2016, amending its Articles of Incorporation, Article
IV - Capital Stock. The effect of the amendment was to cancel all 100,000,000 shares of the Company’s authorized preferred
stock (“Preferred Stock”), consisting of 25,000,000 shares of Preferred Stock, par value $8.75 per share; and 75,000,000
shares of Preferred Stock, par value $7 per share. The amendment was effective as of April 18, 2016, at which time there were
no shares of Preferred Stock issued and outstanding. Following the amendment, the Company has 400,000,000 shares of stock authorized
for issuance (reduced from 500,000,000 shares authorized prior to the effect of the amendment), consisting solely of shares of
the Company’s common stock, par value $0.0001 per share.
The
Company entered into an Equity Purchase Agreement (the “Original Equity Purchase Agreement”) with Kodiak Capital Group,
LLC (“KCG”) on August 12, 2016. The Company and KCG executed an Amended and Restated Equity Purchase Agreement dated
December 27, 2016 (the “Amended Equity Purchase Agreement”; together with the Original Equity Purchase Agreement,
the “Equity Purchase Agreement”), which completely restates and makes minor revisions to the Original Equity Purchase
Agreement, such as correcting the stated capitalization of the Company and extending the period of the Original Equity Purchase
Agreement. The Company and KCG also entered into a Registration Rights Agreement dated August 12, 2016 (the “Registration
Agreement”, and together with the Equity Purchase Agreement, the “Agreements”). Pursuant to the Equity Purchase
Agreement, the Company, at its sole and exclusive option, may issue and sell to KCG, from time to time as provided therein, and
KCG would purchase from the Company shares of the Company’s common stock (“Shares”) equal to a value of up to
$5,000,000. Pursuant to the Registration Agreement, the Company has agreed to provide certain registration rights under the Equity
Act of 1933, as amended, and applicable state laws with respect to all Shares issued in connection with the Equity Purchase Agreement.
Subject to the terms and conditions of the Equity Purchase Agreement, the Company, at its sole and exclusive option, may issue
and sell to KCG, and KCG shall purchase from the Company, the Shares upon the Company’s delivery of written notices to KCG.
In exchange of KCG signing the Securities Purchase Agreements, the Company issued to KCG a Convertible Promissory Note (Note 6)
in the principal amount of $215,000 as payment of a commitment fee to induce KCG to enter into the Agreements.
The
aggregate maximum amount of all purchases that KCG shall be obligated to make under the Equity Purchase Agreement shall not exceed
$5,000,000. Once a written notice is received by KCG, it shall not be terminated, withdrawn or otherwise revoked by the Company.
The purchase price per share for each purchase of Shares to be paid by KCG shall be 70% of the lowest trading price (or if there
are no recorded trades, the lowest closing price) during the Valuation Period (as defined and calculated pursuant to the Equity
Purchase Agreement). KCG is not obligated to purchase any Shares unless and until the Company has registered the Shares pursuant
to a registration statement on Form S-1 (or on such other form as is available to the Company).
On
November 9, 2016, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
GPL Ventures, LLC (“GPL”). The Company and GPL also entered into a Registration Rights Agreement dated November 9,
2016 (the “Registration Agreement”, and together with the Securities Purchase Agreement, the “Agreements”).
Pursuant to the Securities Purchase Agreement, the Company, at its sole and exclusive option, may issue and sell to GPL, from
time to time as provided therein, and GPL would purchase from the Company shares of the Company’s common stock (“Shares”)
equal to a value of up to $5,600,000. Pursuant to the Registration Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and applicable state laws with respect to all Shares issued in connection
with the Securities Purchase Agreement. Subject to the terms and conditions of the Securities Purchase Agreement, the Company,
at its sole and exclusive option, may issue and sell to GPL, and GPL shall purchase from the Company, the Shares upon the Company’s
delivery of written notices to GPL. The aggregate maximum amount of all purchases that GPL shall be obligated to make under the
Securities Purchase Agreement shall not exceed $5,600,000. Once a written notice is received by GPL, it shall not be terminated,
withdrawn or otherwise revoked by the Company. GPL is not obligated to purchase any Shares unless and until the Company has registered
the Shares pursuant to a registration statement on Form S-1 (or on such other form as is available to the Company), which is required
to be effective within 11 months of the execution of the Agreements. Pursuant to the Securities Purchase Agreement, each purchase
of Shares must be in an amount equal to at least $100,000 and is capped at the lesser of (i) $175,000 or (ii) 200% of the average
daily trading volume as calculated pursuant to the Securities Purchase Agreement. The purchase price per share for each purchase
of Shares to be paid by GPL shall be 80% of the lowest trading price (or if there are no recorded trades, the lowest closing price)
during the Valuation Period (as defined and calculated pursuant to the Securities Purchase Agreement). In exchange of GPL signing
the Securities Purchase Agreements, the Company issued to GPL a Convertible Promissory Note (Note 6) in the principal amount of
$250,000 as payment of a commitment fee to induce GPL to enter into the Agreements.
On
March 27, 2017, Kodiak Capital Group, LLC, (“KCG”) has claimed an event of default under a convertible promissory
note in the principal amount of $215,000 issued by the company pursuant to the Company’s failure to deliver shares of the
Company’s common stock pursuant to a conversion notice served on the company. KCG has also alleged various defaults with
reference to a convertible promissory note in the principal amount of $60,000. As a result of these various alleged defaults KCG
has sent the Company a claim in the sum of $2,608,572 as of March 27, 2017. KCG claims that the claim amount continues to increase
in accordance to the terms of the notes. The Company is disputing the payment of the $215,000 note with Kodiak and is considering
initiating an action against KCG for obtaining the note by fraudulent means and may claim damages as well. Management believes
that this claim has no merit. There is no litigation currently pending. The Company issued 3,661,150 shares of treasury common
stock of the Company (the “Shares”) related to the conversion of $40,800 convertible notes held by KCG during the
period ended March 31, 2017.
On
August 14, 2017, the Company filed a Certificate of Amendment with the Nevada Secretary of State increasing the Company’s
authorized stock to ten billion, seven hundred three million (10,703,000,000) which consist of: (a) Three Million Ten (3,000,010)
shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”); and (b) Ten billion, six hundred ninety-nine
million, nine hundred ninety-nine thousand, nine hundred ninety (10,699,999,990) shares of common stock, par value $0.0001 per
share (the “Common Stock”). In addition, Certificates of Designation for Series A preferred stock and Series B preferred
stock were filed with the Nevada Secretary of State on August 14, 2017 (the “Designations”). Pursuant to the Designations,
a total of 10 shares of the Corporation’s Preferred Stock was authorized as a series known as Series A Preferred Stock,
par value $0.0001 per share (the “Series A Stock”) and a total of 3,000,000 shares of the Corporation’s Preferred
Stock was authorized as a series known as Series B Preferred Stock, par value $0.0001 per share (the “Series B Stock”).
The designations set forth the voting rights, dividend rights, conversion rights, dividend entitlements and other rights and obligations
of the Common, Preferred A and Preferred B Classes of Stock, each in accordance with the Company’s Form
14C
filing made on April 20, 2017
.
NOTE
4 – RELATED PARTY TRANSACTIONS AND BALANCES
The
Company has advances payable to its current majority shareholder totaling $25,150 as of June 30, 2017, and $34,932 as of December
31, 2016. During the six months ended June 30, 2017, $9,782 were reimbursed to the Company’s current majority shareholder.
During the three months ended June 30, 2017, $150 were advanced to the Company’s current majority shareholder. These advances
were made to be used for working capital. These advances are unsecured, non-interest bearing and due on demand.
The
Company had advances payable to its current Chief Financial Officer, who is also the Company’s Corporate Secretary, Treasurer,
Director and stockholder, totaling $Nil as of June 30, 2017, and $3,500 as of December 31, 2016. These advances were made to be
used for working capital. During the six months ended June 30, 2017, $Nil were reimbursed to the Company’s current Chief
Financial Officer. During the three months ended March 31, 2017, $3,500 were reimbursed to the Company’s current Chief Financial
Officer. These advances are unsecured, non-interest bearing and due on demand. During the six months ended June 30, 2017, the
Company advanced funds to the Chief Financial Officer, totaling $38,064, and $Nil as of December 31, 2016, which are included
in accounts receivable in the unaudited condensed interim balance sheets. During the three months ended June 30, 2017, the Company
advanced funds to its current Chief Financial Officer totaling $7,000, which are included in accounts receivable in the unaudited
condensed interim balance sheets. These receivables are non-interest bearing and due on demand.
The
Company used Bay City Transfer Agency & Registrar Inc. (“BCTAR”) to facilitate its stock transfers, corporate
services and Edgar filings until November 9, 2016. Mr. Amersey is listed with the Securities and Exchange Commission as a control
person of BCTAR. For the six months ended June 30, 2017, and 2016, the Company incurred expenses of $Nil and $2,710, respectively,
in relation to these services. For the three months ended June 30, 2017, and 2016, the Company incurred expenses of $Nil and $1,479,
respectively, in relation to these services. The Company has receivables from BCTAR, totaling $27,000 as of June 30, 2017, and
$Nil as of December 31, 2016, which are included in accounts receivable in the unaudited condensed interim balance sheets.
During
the three months ended June 30, 2017, the Company advanced funds to BCTAR totaling $13,000, which are included in accounts receivable
in the unaudited condensed interim balance sheets. These receivables are non-interest bearing and due on demand.
NOTE
5 – BRAND LICENSE
The
Company, entered into a Brand License Agreement (the “Brand License Agreement”), dated December 29, 2014, with the
World Traditional Fudokan Karate Do Federation (the “WTFSKF”). Under the Agreement: The “Licensed Brand and
Trademarks” shall mean the brand, marks, logos, names, service marks, trademarks, trade names, unexpired patents, utility
models, and applications identified below in this note, and any other United States and foreign patents, utility models, and applications
hereafter developed by the Licensor. The “Licensed Product(s)” shall mean the Licensor’s clothing, accessories
and sporting goods, including basic sporting equipment and additional sporting merchandise, which are products covered, in whole
or in part, by the Licensed Brand and Trademarks identified below in this note, and all modified, improved and derivative versions
thereof manufactured by the Licensee after the Effective Date, and which are added to Exhibit B by agreement of the Parties. Pursuant
to the Brand License Agreement, WTFSKF has granted to the Company the License to use the Marks of WTFSKF and manufacture and sell
the Products bearing the Marks. Pursuant to the Brand License Agreement, in consideration for the License, beginning in 2018,
the Company will pay to WTFSKF an ongoing License Fee. Additionally, the Company issued to WTFSKF 752,000 shares of treasury common
stock (the “Shares”) of the Company in accordance with the Brand License Agreement. WTFSKF has agreed to provide to
the Company annual projected sales forecasts based on its membership and their expected needs for Products (the “Projected
Sales”). The Brand License Agreement requires the License Consideration to be subject to renegotiation by the parties in
the event that Projected Sales exceed actual sales of the Products by more than an agreed upon deviation percentage. Additionally,
pursuant to the Brand License Agreement, the Company may require WTFSKF to either return the Shares or pay to the Company the
market value of the Shares at the time of the execution of the Brand License Agreement (approximately $6,805,600), if the Company
terminates the Brand License Agreement as a result of such deviations within the first 52 months after the execution of the Brand
License Agreement. The initial term of the Brand License Agreement lasts until December 31, 2042, at which time the Brand License
Agreement will automatically renew for successive 25 year terms unless and until either party provides notice of non-renewal or
terminates the Brand License Agreement.
Impairment
of Brand License Agreement
The
Brand License of $6,805,600 was measured based on the fair value of the stock issued (on December 29, 2014, 752,000 common shares
of HPIL Holding issued at $9.05 per share). Currently, based on the market value of the common shares, 752,000 shares would be
equal to the value of $7,520 (752,000 common shares of HPIL Holding at $0.01 per share). In terms of measuring the Brand License
on the value of the stock issued, the Company would have to write the value down to $7,520. Based on a qualitative assessment,
the Company is uncertain of how its relationship with the WTFSKF will proceed in the future and thus based on this uncertainty,
the Company deems it prudent to value the asset at the current market value of the stock held by the WTFSKF. The Company has simply
recognized the potential of it losing the Brand License due to factors beyond its control and based on this risk has reassessed
the value of the Brand License to be the recoverable amount of the potential return of shares during the year ended December 31,
2016. Based on the Company assessment of the value of the Brand License, the Company has determined the fair value of the Brand
License to be $7,520 (752,000 common shares of HPIL Holding at $0.01 per share). No amortization has been recognized during the
period ended June 30, 2017 and the year ended December 31, 2016, as the Brand License Agreement is not effective until 2018. As
a result, an impairment loss of $NIL (December 31, 2016- $6,798,080) is included in the unaudited condensed interim statements
of loss and comprehensive loss. In the event of the Company losing the Brand License, the Company would seek to reacquire this
stock and is thereby assessing the value of the Brand License at the value of the stock as determined by the market. The impairment
loss does not necessarily impact on the future expected cash flow associated with the Brand License or with the Company’s
intent or ability to renew or extend the Brand License Agreement. It simply recognizes the risk that the Company believes is extant.
Addendum
to Brand License Agreement to Acquire Broadcast Rights
On
May 19, 2017, the Company entered into an addendum to the Brand License Agreement (the “Addendum”) with the WTFSKF
whereby the Company acquired the television, radio and internet rights to the WTFSKF World Karate Championship and the International
Karate Gasshuku. The term of the agreement is for the life of the Brand License Agreement. The Addendum further enhances the ability
of the Company to develop the market under the Brand License Agreement and the Addendum. However, the Company has chosen to follow
a prudent and vigilant course of action in writing down the value of the Brand License. The Company has considered and taken note
of Section 350-30-35, the Subsequent Measurement Section that provides guidance on an entity’s subsequent measurement and
subsequent recognition of an item. Situations that may result in subsequent changes to the carrying amount include impairment,
credit losses, fair value adjustments, depreciation and amortization, and so forth. The Company has also taken note of Section
350-30-50, the Disclosure Section that provides guidance regarding the disclosure in the notes to the financial statements. In
some cases, disclosure may relate to disclosure on the face of the financial statements.
The
Licensed Products
The
Basic Licensed Products for Licensor’s affiliates (i.e. athletes, masters and leaders) shall mean: Kimono Karate, Complete
Suit, Protection Woman/Man, Official Complete Suit, Hakama Complete Judge Suit, Embroidered Badge, Karate Belts Kyu Dan, Official
Complete Suit (all together “Basic Equipment”).
The
Additional Licensed Products for Licensor’s affiliates (i.e. athletes, masters and leaders) and available for fans and amateurs,
and for general costumers shall mean: Sport Suit, Running Top, Running Shorts, T-Shirts, Sport Shoes, Sport bag, Sport Cap, Cap,
Gloves, Scarf, Socks, Karate Slippers, other products need to be approved by the Parties (all together “Additional Sporting
Merchandise”).
NOTE
6 – CONVERTIBLE PROMISSORY NOTES
On
November 9, 2016, the Company issued to GPL a Convertible Promissory Note (the “Note”) in the principal amount of
$250,000 as payment of a commitment fee to induce GPL to enter into the Agreements. The Note accrues interest at the rate of 5%
per annum and is due in full on or before July 30, 2017. The Note also prohibits prepayment of the principal. GPL has the right
to convert all or any portion of the note balance at any time at a conversion price per share of 75% of the lowest Trading Price
during the Valuation Period (as defined and calculated pursuant to the Note), which is adjustable in accordance with the Note
terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the Note.
On
December 9, 2016, the Company issued to GPL a Convertible Promissory Note in the principal amount of $5,000 in exchange for $5,000
in cash (the “5K Note”). The 5K Note accrues interest at the rate of 5% per annum and is due in full on or before
June 9, 2017. The 5K Note also prohibits prepayment of the principal. GPL has the right to convert all or any portion of the note
balance at any time at a conversion price per share of 75% of the lowest Trading Price during the Valuation Period (as defined
and calculated pursuant to the 5K Note), which is adjustable in accordance with the 5K Note terms in the event certain capital
reorganization, merger, or liquidity events of the Company as further described in the 5K Note.
On
June 28, 2016, upon the signing of the Term Sheet (“Term Sheet”) related to the Equity Purchase Agreement, the Company
issued to KCG a Convertible Promissory Note (the “June Note”) in the principal amount of $215,000 as payment of a
commitment fee to induce KCG to enter into the Agreements. The June Note is due in full on or before January 28, 2017. The Company
may prepay this June Note in whole or in part at any time following at least 15 and no more than 60 days’ advance written
notice to the Holder, provided that the Holder shall retain all rights of conversion until the date of repayment, notwithstanding
the pendency of any prepayment notice. KCG has the right to convert all or any portion of the June Note balance at any time at
a conversion price per share of 50% of the Current Market Price (as defined and calculated pursuant to the June Note), which is
adjustable in accordance with the June Note terms in the event certain capital reorganization, merger, or liquidity events of
the Company as further described in the June Note. Upon an Event of Default (as defined in the June Note), the principal amount
increases to $250,000 and the conversion price shall decrease to 25% of the Current Market Price (as defined and calculated pursuant
to the June Note). During the period ended June 30, 2017, the June Note is in default and the principal of the June Note was increased
to $250,000 and the conversion price was 25% of the Current Market Price.
On
December 27, 2016, the Company and KCG entered an Amendment and Waiver (the “Amendment and Waiver”), pursuant to which
KCG waived certain defaults of the Company under the Note and amended the Note to delete a default provision requiring the Company
to file a registration statement by a certain date, amend a default provision to reflect the Company’s listing on the OTCPink
market, and extend the maturity date to July 28, 2017. The Original Equity Purchase Agreement, Amended Equity Purchase Agreement,
Registration Agreement, Term Sheet, Note, and Amendment and Waiver contain other provisions customary to transactions of this
nature.
On
December 27, 2016, the Company and KCG entered into a Securities Purchase Agreement to which the Company sold to KCG a convertible
promissory note in the amount of $60,000 for a purchase price of $50,000. The Company issued to KCG a 15% Convertible Note (the
“December Note”) in the principal amount of $60,000. The December Note accrues interest at the rate of 15% per year
and is due in full on or before December 27, 2017. The Company may prepay this Note in whole at any time prior to 6 months from
the issue date on at least 5 Trading Days (as defined in the December Note) but not more than 10 Trading Days notice, provided
that the Holder shall retain all rights of conversion until the date of repayment, notwithstanding the pendency of any prepayment
notice. KCG has the right to convert all or any portion of the note balance at any time at a conversion price per share of forty
percent (40%) lowest sale price for the Company’s Common Stock during the thirty (30) consecutive Trading Days immediately
preceding the Conversion Date (as defined and calculated pursuant to the December Note), which is adjustable in accordance with
the December Note terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described
in the December Note.
On
February 17, 2017, the Company and Power Up Lending Group, Ltd. (“Power Up”) entered into a Securities Purchase Agreement
(the “Power Up Securities Purchase Agreement”), pursuant to which the Company sold to Power Up a convertible promissory
note in the amount of $33,000. Pursuant to the Power Up Securities Purchase Agreement, the Company issued to Power Up a 12% Convertible
Note (the “Power Up Note”) in the principal amount of $33,000. The Power Up Note accrues interest at the rate of 12%
per year and is due in full on or before September 12, 2017. The Company may prepay this Power Up Note in whole at any time prior
to 6 months from the issue date on at least 3 Trading Days’ notice, subject to a variable prepayment penalty. Power Up has
the right to convert all or any portion of the note balance at any time at a conversion price per share of sixty-one percent (61%)
of the average of the three (3) lowest sale price for the Company’s Common Stock during the fifteen (15) consecutive Trading
Days immediately preceding the Conversion Date (as defined and calculated pursuant to the Power Up Note), which is adjustable
in accordance with the Power Up Note terms in the event certain capital reorganization, merger, or liquidity events of the Company
as further described in the Power Up Note.
On
April 11, 2017, the Company and GPL Ventures, LLC (“GPL”) entered into a Securities Purchase Agreement (the “GPL
Securities Purchase Agreement”), pursuant to which the Company sold to GPL a convertible promissory note in the amount of
$10,000 for a purchase price of $10,000. Pursuant to the GPL Securities Purchase Agreement, the Company issued to GPL a 12% Convertible
Note (the “GPL Note”) in the principal amount of $10,000. The GPL Note accrues interest at the rate of 12% per year
and is due in full on or before October 11, 2017. The Company may prepay this GPL Note in whole at any time prior to 30 days from
the issue date on at least 3 Trading Days’ notice, upon payment of 125% of the outstanding balance of the GPL Note. GPL
has the right to convert all or any portion of the note balance at any time at a conversion price per share of fifty percent (50%)
lowest sale price for the Company’s Common Stock during the twenty (20) consecutive Trading Days immediately following the
clearing of the converted shares (as defined and calculated in the GPL Note), which is adjustable in accordance with the GPL Note
terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the GPL
Note. On May 24, 2017, the Company amended the GPL Note to be issued on May 24, 2017 and mature on November 24, 2017.
On
May 10, 2017, the Company and Auctus Funds, LLC (“Auctus”) entered into a Securities Purchase Agreement (the “Auctus
Securities Purchase Agreement”), pursuant to which the Company sold to Auctus a convertible promissory note in the amount
of $72,000 for a purchase price of $72,000. Pursuant to the Auctus Securities Purchase Agreement, the Company issued to Auctus
a 12% Convertible Note (the “Auctus Note”) in the principal amount of $72,000. The Auctus Note accrues interest at
the rate of 12% per year and is due in full on or before February 10, 2018. The Company may prepay this Note in whole at any time
prior to 60 days from the issue date on at least 5 Trading Days’ notice, upon payment of (i) 125% of the outstanding balance
of the Auctus Note within 30 days of the issue date, or (ii) 130% of the outstanding balance of the Auctus Note if between 30
and 60 days after the issue date. The Company shall have no prepayment right after 60 days. Auctus has the right to convert all
or any portion of the note balance at any time at a conversion price per share of thirty percent (30%) lowest sale price for the
Company’s Common Stock during the twenty-five (25) consecutive Trading Days immediately preceding the Conversion Date (as
defined and calculated pursuant to the Auctus Note), which is adjustable in accordance with the Auctus Note terms in the event
certain capital reorganization, merger, or liquidity events of the Company as further described in the Auctus Note.
On
March 27, 2017, Kodiak Capital Group, LLC, (“KCG”) has claimed an event of default under a convertible promissory
note in the principal amount of $215,000 issued by the company pursuant to the Company’s failure to deliver shares of the
Company’s common stock pursuant to a conversion notice served on the company. KCG has also alleged various defaults with
reference to a convertible promissory note in the principal amount of $60,000. The claimed defaults are the result of KCG’s
inability to sell the Company’s common stock under Rule 144 due to the Company’s then delinquent filings. As a result
of these various alleged defaults KCG has sent the Company a claim in the sum of $2,608,572 as of March 27, 2017. KCG claims that
the claim amount continues to increase in accordance to the terms of the notes. The Company is disputing the payment of the $215,000
note with Kodiak and is considering initiating an action against KCG for obtaining the note by fraudulent means and may claim
damages as well. There is no litigation currently pending. The Company issued 3,661,150 shares of treasury common stock of the
Company (the “Shares”) related to the conversion of convertible notes held by KCG amounting to $40,800 in the first
quarter of 2017.
The
Company is late in filing it’s 10Q for the second quarter of 2017. Its Convertible Promissory Notes are in Default as a
result of the late filing.
On
June 28, 2016, November 9, 2016, December 9, 2016, December 27, 2016, February 17, 2017, April 11, 2017, and May 10, 2017, the
Company recorded a discount on the various convertible promissory notes. This discount is amortized using the effective interest
rate method at an interest rate of 58.70%, 100.04%, 132.66%, 48.38%, 96.16%, 105.71%, and 46.38% for the June 28, 2016, November
9, 2016, December 9, 2016, December 27, 2016, February 17, 2017, April 11, 2017, and May 10, 2017, Notes, respectively, over the
term of the Notes.
|
|
Period ended
|
|
|
|
June 30, 2017
|
|
Face value of June 28, 2016, promissory note payable
|
|
$
|
215,000
|
|
Face value of November 9, 2016, promissory note payable
|
|
|
250,000
|
|
Face value of December 9, 2016, promissory note payable
|
|
|
5,000
|
|
Face value of December 27, 2016, promissory note payable
|
|
|
60,000
|
|
Total face value of promissory notes payable
|
|
|
530,000
|
|
Discount on promissory notes payable
|
|
|
(436,938
|
)
|
Accretion of discount on promissory notes payable
|
|
|
109,234
|
|
Balance December 31, 2016
|
|
$
|
202,296
|
|
Face value of February 17, 2017, promissory note payable
|
|
|
33,000
|
|
Face value of June 28, 2016, promissory note payable converted into common stock
|
|
|
(40,800
|
)
|
Face value of April 11, 2017, promissory note payable
|
|
|
10,000
|
|
Face value of May 10, 2017, promissory note payable
|
|
|
72,000
|
|
Discount on promissory notes payable
|
|
|
(110,486
|
)
|
Accretion of discount on promissory notes payable
|
|
|
376,547
|
|
Accrued interest
|
|
|
13,872
|
|
Balance June 30, 2017
|
|
$
|
556,429
|
|
During
the six months ended June 30, 2017, accretion of discount of the various convertible promissory notes amounted to $376,547 (June
30, 2016 - $Nil).
During
the three months ended June 30, 2017, accretion of discount of the various convertible promissory notes amounted to $244,099 (June
30, 2016 - $Nil).
During
the six months ended June 30, 2017, interest expense on the various convertible promissory notes amounted to $13,872 (June 30,
2016 - $Nil).
During
the three months ended June 30, 2017, interest expense on the various convertible promissory notes amounted to $7,967 (June 30,
2016 - $Nil).
NOTE
7 – CONVERSION OPTION DERIVATIVE LIABILITY
The
Company accounted for the conversion option of the Notes in accordance with ASC Topic 815 (“Derivatives and Hedging”),
under which the conversion option meets the definition of a derivative instrument.
This
conversion option derivative liability was measured at fair value on the dates of issue and at June 30, 2017, and December 31,
2016, using a binomial lattice model, with changes in the fair value charged or credited, as applicable, to the unaudited condensed
interim statements of operations and comprehensive loss.
The
inputs into the binomial lattice model for each issuance and at June 30, 2017, March 31, 2017 and December 31, 2016, are as follows:
|
|
Closing share price
|
|
|
Conversion
price
|
|
|
Risk free rate
|
|
|
Expected volatility
|
|
|
Dividend yield
|
|
|
Expected life
|
June 28, 2016
|
|
$
|
2.50
|
|
|
$
|
1.25
|
|
|
|
0.45
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.59 year
|
November 9, 2016
|
|
$
|
1.60
|
|
|
$
|
1.20
|
|
|
|
0.72
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.72 year
|
December 9, 2016
|
|
$
|
1.60
|
|
|
$
|
0.80
|
|
|
|
0.85
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.50 year
|
December 27, 2016
|
|
$
|
1.60
|
|
|
$
|
0.64
|
|
|
|
0.89
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
1 year
|
December 31, 2016
|
|
$
|
1.60
|
|
|
$
|
0.64- $1.20
|
|
|
|
0.85
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.08 - 0.99 year
|
February 17, 2017
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
1.27
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.75 year
|
March 31, 2017
|
|
$
|
0.02
|
|
|
$
|
0.00- $0.01
|
|
|
|
1.27
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.19 – 0.74 year
|
April 11, 2017
|
|
$
|
0.0121
|
|
|
$
|
0.005
|
|
|
|
1.20
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.51 year
|
May 10, 2017
|
|
$
|
0.01
|
|
|
$
|
0.003
|
|
|
|
1.20
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.75 year
|
June 30, 2017
|
|
$
|
0.0009
|
|
|
$
|
0.0018 - $0.0048
|
|
|
|
1.20
|
%
|
|
|
118
|
%
|
|
|
0
|
%
|
|
0.08 – 0.61 year
|
The
fair value of the conversion option derivative liability, as determined using the binomial lattice model, was $757,934 at June
30, 2017, $2,271,221 at March 31, 2017 ($507,668 – December 31, 2016). The change in the fair value of the conversion option
derivative liability of $190,867 was primarily due to a decrease in the price of the Company’s common stock, and was recorded
as a loss in the unaudited condensed interim statement of operations and comprehensive loss for the period ended June 30, 2017.
Conversion option derivative liability, beginning
balance
|
|
$
|
-
|
|
Origination of conversion option derivative liability on June 28, 2016
|
|
|
215,000
|
|
Origination of conversion option derivative liability on November 9, 2016
|
|
|
158,854
|
|
Origination of conversion option derivative liability on December 9, 2016
|
|
|
5,000
|
|
Origination of conversion option derivative liability on December 27, 2016
|
|
|
60,000
|
|
Loss on change in fair value of conversion option derivative liability, December 31, 2016
|
|
|
68,814
|
|
Balance, December 31, 2016
|
|
$
|
507,668
|
|
Origination of conversion option derivative liability on February 17, 2017
|
|
|
28,486
|
|
Value of conversion option derivative liability on June 28, 2016 convertible promissory note converted into common stock
|
|
|
(51,088
|
)
|
Loss on change in fair value of conversion option derivative liability, March 31, 2017
|
|
|
1,786,155
|
|
Balance, March 31, 2017
|
|
$
|
2,271,221
|
|
Origination of conversion option derivative liability on April 11, 2017
|
|
|
10,000
|
|
Origination of conversion option derivative liability on May 10, 2017
|
|
|
72,000
|
|
Gain on change in fair value of conversion option derivative liability, June 30, 2017
|
|
|
(1,595,287
|
)
|
Balance, June 30, 2017
|
|
$
|
757,934
|
|
NOTE
8 – SUBSEQUENT EVENTS
On
July 28, 2017, the Company and GPL Ventures, LLC (“GPL”) entered into a Securities Purchase Agreement (the “GPL
Securities Purchase Agreement”), pursuant to which the Company sold to GPL a convertible promissory note in the amount of
$10,000 for a purchase price of $10,000. Pursuant to the GPL Securities Purchase Agreement, the Company issued to GPL a 12% Convertible
Note (the “GPL Note”) in the principal amount of $10,000. The GPL Note accrues interest at the rate of 12% per year
and is due in full on or before February 28, 2018. The Company may prepay this Note in whole at any time prior to 30 days from
the issue date on at least 3 Trading Days’ notice, upon payment of 125% of the outstanding balance of the GPL Note. GPL
has the right to convert all or any portion of the note balance at any time at a conversion price per share of fifty percent (50%)
lowest sale price for the Company’s Common Stock during the twenty (20) consecutive Trading Days immediately following the
clearing of the converted shares (as defined and calculated in the GPL Note), which is adjustable in accordance with the Note
terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the Note.
On
July 31, 2017, GPL elected to convert part ($500.00) of the principal amount of the promissory note issued by the Company to GPL
dated December 9, 2016 in the amount of $5,000 into 5,000,000 shares of the Company’s common stock.
On
August 4, 2017, the Company and Jabro Funding (“Jabro”) entered into a Securities Purchase Agreement (the “Jabro
Securities Purchase Agreement”), pursuant to which the Company sold to Jabro a convertible promissory note in the amount
of $10,000 for a purchase price of $10,000. Pursuant to the Jabro Securities Purchase Agreement, the Company issued to Jabro a
12% Convertible Note (the “Jabro Note”) in the principal amount of $10,000. The Jabro Note accrues interest at the
rate of __% per year and is due in full on or before May 18, 2018. The Company may prepay this Note in whole at any time prior
to 30 days from the issue date on at least 3 Trading Days’ notice, upon payment of 125% of the outstanding balance of the
Jabro Note. Jabro has the right to convert all or any portion of the note balance at any time at a conversion price per share
of fifty percent (50%) lowest sale price for the Company’s Common Stock during the twenty (20) consecutive Trading Days
immediately following the clearing of the converted shares (as defined and calculated in the Jabro Note), which is adjustable
in accordance with the Note terms in the event certain capital reorganization, merger, or liquidity events of the Company as further
described in the Note.
On
August 9, 2017, the Company and GPL Ventures, LLC (“GPL”) entered into a Securities Purchase Agreement (the “GPL
Securities Purchase Agreement”), pursuant to which the Company sold to GPL a convertible promissory note in the amount of
$10,000 for a purchase price of $10,000. Pursuant to the GPL Securities Purchase Agreement, the Company issued to GPL a 12% Convertible
Note (the “GPL Note”) in the principal amount of $10,000. The GPL Note accrues interest at the rate of 12% per year
and is due in full on or before March 9, 2018. The Company may prepay this Note in whole at any time prior to 30 days from the
issue date on at least 3 Trading Days’ notice, upon payment of 125% of the outstanding balance of the GPL Note. GPL has
the right to convert all or any portion of the note balance at any time at a conversion price per share of fifty percent (50%)
lowest sale price for the Company’s Common Stock during the twenty (20) consecutive Trading Days immediately following the
clearing of the converted shares (as defined and calculated in the GPL Note), which is adjustable in accordance with the Note
terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the Note.
On
August 11, 2017, the Company and Power Up Lending Group, Ltd. (“Power Up”) entered into a Securities Purchase Agreement
(the “Power Up Securities Purchase Agreement”), pursuant to which the Company sold to Power Up a convertible promissory
note in the amount of $45,000. Pursuant to the Power Up Securities Purchase Agreement, the Company issued to Power Up a 12% Convertible
Note (the “Power Up Note”) in the principal amount of $45,000. The Power Up Note accrues interest at the rate of 12%
per year and is due in full on or before February 10, 2018. The Company may prepay this Note in whole at any time prior to 6 months
from the issue date on at least 3 Trading Days’ notice, subject to a variable prepayment penalty. Power Up has the right
to convert all or any portion of the note balance at any time at a conversion price per share of sixty-one percent (61%) of the
average of the three (3) lowest sale price for the Company’s Common Stock during the fifteen (15) consecutive Trading Days
immediately preceding the Conversion Date (as defined and calculated pursuant to the Power Up Note), which is adjustable in accordance
with the Note terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described
in the Note.
On
August 11, 2017, the Company and Auctus Funds, LLC (“Auctus”) amended their Securities Purchase Agreement dated May
10, 2017 (the “Auctus Securities Purchase Agreement”), to increase by $10,000 the total amount of the Promissory Note
from $72,000 to $82,000 in exchange for an additional $10,000 in cash.
The
Company appointed Olde Monmouthe Stock Transfer Co. Inc. as its new Transfer Agent on August 10
th
, 2017
On
August 14, 2017, the Company filed a Certificate of Amendment with the Nevada Secretary of State increasing the Company’s
authorized stock to ten billion, seven hundred three million (10,703,000,000) which consist of: (a) Three Million Ten (3,000,010)
shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”); and (b) Ten billion, six hundred ninety-nine
million, nine hundred ninety-nine thousand, nine hundred ninety (10,699,999,990) shares of common stock, par value $0.0001 per
share (the “Common Stock”). In addition, Certificates of Designation for Series A preferred stock and Series B preferred
stock were filed with the Nevada Secretary of State on August 14, 2017 (the “Designations”). Pursuant to the Designations,
a total of 10 shares of the Corporation’s Preferred Stock was authorized as a series known as Series A Preferred Stock,
par value $0.0001 per share (the “Series A Stock”) and a total of 3,000,000 shares of the Corporation’s Preferred
Stock was authorized as a series known as Series B Preferred Stock, par value $0.0001 per share (the “Series B Stock”).
The designations set forth the voting rights, dividend rights, conversion rights, dividend entitlements and other rights and obligations
of the Common, Preferred A and Preferred B Classes of Stock, each in accordance with the Company’s Form
14C
filing on April 20, 2017
.
On
August 17, 2017 under a convertible promissory note for $45,000, the Company issued 10,000,000 restricted shares to the Power
Up Lending Group Ltd.