The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND ORGANIZATION
BRK, Inc. (“BRK” or the “Company”) was incorporated on May 22, 2008 as a Nevada corporation. The Company has developed a product for the repair of hanging venetian blinds. As part of this development the Company has completed the development and is building a machine to make the parts for blind repair that it is selling. The development and testing of the machine was completed with limited production following and the Company reduced its work in the blind repair kit market space. During the year ended April 30, 2017, the Company terminated the blind repair business and wrote off the equipment related to the line of business.
On December 21, 2015, the Company filed, with the Secretary of State of the State of Nevada, a Certificate of Change, effecting a ten-for-one (10:1) forward split of the Company’s issued and outstanding shares of common. The forward split took effect on the over-the-counter markets on January 12, 2016. All share and per share amounts herein have been retroactively adjusted to reflect the forward stock split.
On May 6, 2016, the Company acquired intangible assets from ISee Automation for 5,000,000 shares of common stock with a fair market value of $1,600,000 based on the Company’s stock price at the date of issuance. The intangible assets consist of a patent application and related know-how, technology and plans to commercialization related to covers the placement of video cameras and supporting equipment into helmets used by various athletics such as hockey. Life video can then be transmitted from the player’s helmet in real time for display on sports events broadcasts. The Company received the RefCam helmets produced by a third party and used the devises to broadcast various hockey events.
On or about February 27, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Agreement for Services. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Agreement for Services and plans to enforce its rights thereunder. Since their usage the helmets and their transmitting devices have been held without permission by ISee Automation.
As of April 30, 2017, ISee Automation was holding the Helmets and transmission equipment. Based on the lack of access to the Equipment the Company has elected to impair the assets related to the ISee Automation agreement resulting in an amortization charge of $105,133 and impairment of intangible assets of $1,494,867 for the intellectual property.
On September 28, 2016, the Company incorporated, in the state of Washington, a wholly owned subsidiary ISEE Sports Inc. Since inception, the subsidiary has not been operational or financially active.
On July 7, 2017, the Company incorporated a wholly owned subsidiary 10337188 Canada, Inc.
Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s fiscal year end is April 30.
The interim consolidated financial statements have been prepared without audit in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended April 30, 2017 included in its Annual Report on Form 10-K filed with the SEC.
The interim consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial position as of July 31, 2017, the consolidated results of its operations and its consolidated cash flows for the three months ended July 31, 2017 and 2016. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements of the Company include the Company and its wholly-owned subsidiary ISee Sports, Inc. All material intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
BRK considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Revenue Recognition
The Company receives revenue though a related party for the use of the Company’s equipment on the broadcasting of hockey games from the ref cam, a camera worn on the helmet of the referees. The revenue is recognized first by a related party which holds the initial agreement with the broadcaster when the event being broadcasted is completed. The related party pays the Company upon receipt of payment from the broadcaster. The revenues are reported on a net basis with the deductions for directs costs being deducted from the revenue.
Property, Equipment and Intangible Assets
Property and equipment are carried at cost, less accumulated depreciation. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Intangible assets consist of a patent application purchased and is carried at cost, less accumulated amortization. Depreciation and amortization is provided principally on the straight-line basis method over the estimated useful lives of the assets which is estimated at 36 months. Patent applications submitted after June 8, 1995 have duration of 20 years. Due to the potential changes in technology the Company has elected to amortize the patent application over 15 years.
Impairment of long-lived assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either discounted cash flow analysis or estimated salvage value.
Basic and diluted net income per share
Basic and diluted net income per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. They include the dilutive effect of common stock equivalents in years with net income. Basic and diluted net income per share is the same due to a net loss for the three month period ended July 31, 2016. Basic shares are 54,692,713 and the diluted shares include the number of shares that may result from the conversion of debt and is measured as of July 31, 2017 at 42,087,118 shares or a total of 96,779,831 for the weighted average.
Income Taxes
BRK recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. BRK provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses and shareholder loans. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Financial assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Level 1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level 3— Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company analyzed the conversion option for derivative accounting and beneficial conversion features consideration and noted one variable convertible note qualified as a derivative and thus tainted the fixed conversion notes requiring the notes to accounted for as derivative liabilities
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of April 30, 2017 and 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
As of April 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,444,137
|
|
|
$
|
2,444,137
|
|
As of July 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
275,575
|
|
|
$
|
275,575
|
|
Beneficial Conversion Features
The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
Recently Issued Accounting Pronouncements
In July 2017, the FASB issued ASU No. 2017-11,
”Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”.
The ASU was issued to address the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the implementation date and the impact of this amendment on its financial statements.
NOTE 2 – GOING CONCERN
As shown in the accompanying financial statements, BRK has retained earnings of $194,796 with negative working capital of $970,180 as of July 31, 2017. Unless profitability and increases in stockholders’ equity continues, these conditions raise substantial doubt as to BRK’s ability to continue as a going concern. The July 31, 2017 financial statements do not include any adjustments that might be necessary if BRK is unable to continue as a going concern. Management plans to continue to raise funds through debt and equity financing to grow the business to profitability.
NOTE 3 – CONCENTRATION OF REVENUE
The Company relies on one customer which is a related party, as it sources of revenue. Should the Company lose that customer, the Company may lose its only source of revenue.
NOTE 4 – RELATED PARTY TRANSACTIONS
During the three months ended July 31, 2017, the Company recorded $31,700 in compensation payable to the President, Chief Technology Officer and former President. As of July 31, 2017, $157,040 was due to the President.
On May 6, 2016, the Company acquired a patent from ISee Automation for 5,000,000 shares of common stock with a value of $1,600,000. Upon the issuance of the shares ISee became a related party.
On May 18, 2016, the Company issued a note for $10,000 in cash to a related party. The note is due on demand and bears an interest rate of 8% per annum.
On June 24, 2016, the Company repaid $125 on a note payable issued to a related party.
On July 1, 2016, the Company issued a note for $3,000 in cash to a related party. The note is due on demand and bears no interest.
On July 22, 2016, the Company issued a note for $5,000 in cash to a related party. The note is due on October 20, 2016 and bears no interest.
On May 17, 2017, the Company paid one related party $26,000 reducing its note to $37,815.
On July 5, 2017, the Company issued a note to a related party for $1,000 in cash.
As of July 31, 2017, the balance of notes payable due to related parties was $50,690 and convertible notes payable of $7,089.
On June 16, 2017 Brian Keasberry resigned as President of the Company, continued as the Secretary and Treasurer. On June 16, 2017 Danie Serruya was elected President, CEO and a Director of the Company.
NOTE 5 – EQUITY
On May 6, 2016, the Company acquired intangible assets from ISee Automation for 5,000,000 shares of common stock with a fair market value of $1,600,000 based on the Company’s stock price at the date of issuance.
On May 18, 2017, the Company issued 3,000,000 shares of common stock at $0.0005 to the convertible note holder 0832322 BC, Ltd. for $1,500 of convertible debt. Per the note agreement 300,000 shares were to be issued at $0.005 per share for the $1,500 conversion, however 3,000,000 shares were issued due to the forward 10:1 split of the Company common stock on December 21, 2015 which occurred subsequent to date of the note issuance.
On May 18, 2017, the Company issued 1,451,905 shares of common stock at $0.013775 to the convertible note holder JSJ for $20,000 of convertible debt.
On June 8, 2017, the Company issued 2,660,000 shares of common stock at $0.01102 to the convertible note holder EMA Financial for $28,563 of convertible debt plus $750 for professional fees.
On June 15, 2017, the Company increased its number of authorized shares to 2,001,000,000 with 1,000,000 designated as preferred shares with a par value of $0.001 and 2,000,000,000 designated as common stock with a par value of $0.001.
On June 15, 2017, the Company designated one share of preferred stock as Series A preferred at a par value of $0.001. The series A preferred carries a voting right equal to 110% of the total voting rights of the outstanding common stocks. In addition, the series A shareholders can elect a director. The Series A director must approve any future amendments of the Company’s articles and other activities of the Company. Brian Keasberry was granted one share of Series A preferred stock on June 15, 2017. The fair value of the series A preferred share was independently valued at $237,630 and was accounted for as stock based compensation.
NOTE 6 – NOTES PAYABLE
As of July 31, 2017, the Company had outstanding notes payable, net of discount of $127,128 to third parties and $50,690 to related parties.
NOTE 7 – CONVERTIBLE NOTES
The Company analyzed the conversion option for derivative accounting and beneficial conversion features consideration under ASC 815-15 “Derivatives and Hedging” and ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted one variable convertible note qualified plus tainted the fixed conversion notes requiring the notes to accounted for as derivative liabilities. (See Note 8 - Fair Value Measurement)
On July 5, 2017, ISee Sports Inc., a wholly owned subsidiary of the Company issued a $20,000 convertible note to one individual for cash. The convertible note bears interest at 8% per annum, matures on July 4, 2019 and is convertible at the note holders option into shares of the subsidiary ISee sports, Inc at $1.00 per share or into shares of the parent BRK, Inc., at 60% of the average closing price of the common stock of BRK for 10 days immediately prior to conversion.
As of July 31, 2017, and April 30, 2017 the Company owes $7,089 in convertible related party notes. The notes bear interest at 0%, are due on demand and are unsecured. The notes are convertible at $0.005 into the Company’s common stock
As of July 31, 2017, and April 30, 2017 the Company owed net of unamortized discount of $260,531 and $292,433 respectively, in non-related party convertible promissory notes.
NOTE 8 – FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITIES
As defined in (Financial Accounting Standards Board ASC 820), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 –
|
Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
|
|
|
Level 2 –
|
Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
|
|
|
Level 3 –
|
Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
|
The Company analyzed the conversion option for derivative accounting and beneficial conversion features consideration and noted one variable convertible note qualified as a derivative and thus tainted the fixed conversion notes requiring the notes to accounted for as derivative liabilities
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as April 30, 2017 and 2016.
Recurring Fair Value Measures
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities as of April 30, 2017
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
2,444,137
|
|
|
$
|
2,444,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities as of July 31, 2017
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
275,575
|
|
|
$
|
275,575
|
|
As of July 31, 2017, and April 30, 2017, the aggregate fair value of the outstanding derivative liabilities was $275,575 and $2,444,137, respectively. For the three months period ended July 31, 2017 and 2016, the net gain on the change of fair value was $1,951,832 and zero, respectively.
The Company estimated the fair value of the derivative liabilities using the Black Scholes option pricing model using the following key assumptions during the three months period ended July 31, 2017:
Expected Dividend
|
|
0%
|
|
Expected terms
|
|
.26-1.00
|
|
Volatility
|
|
215.38% -283.89%
|
|
Risk free rate
|
|
.94% -1.09%
|
|
The following table represents the change in the fair value of the derivative liabilities during the three months period ended July 31, 2017,
Fair value of derivative liabilities as of April 30, 2017
|
|
$
|
2,444,137
|
|
New derivative charged to debt discount
|
|
|
66,000
|
|
Reclassification of derivative to equity due to conversion
|
|
|
(282,730
|
)
|
Change in fair value of derivatives
|
|
|
(1,951,832
|
)
|
Fair value of derivative liabilities as of July 31, 2017
|
|
$
|
275,575
|
|
NOTE 9 – COMMITMENTS AND CONTINGENCIES
On July 25, 2016, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K, disclosing, among other things, that pursuant to the terms and conditions that certain Patent Assignment and Technology Transfer Agreement (the “Patent Assignment and Technology Transfer Agreement”), dated May 6, 2016, by and between BRK, Inc., a Nevada corporation (the “Company”) and iSee Automation Inc., a federal Canada corporation (“iSee Automation”), the Company purchased U.S. Patent Application No. 15/079,847, “Helmet System” (the “Patent”) and related technology for a helmet camera system, including intellectual property covered by the Patent. The Patent covers technology designed to wirelessly transmit video images from a small, mobile camera to live broadcast (the “Helmet Camera and Broadcast Technology”).
Pursuant to the terms and conditions of the Patent Assignment and Technology Transfer Agreement, the Company issued 5,000,000 shares of common stock to iSee Automation.
The U.S. U.S. Patent and Trademark Office subsequently published an Assignment of Abstract of Title, date record July 13, 2017, for conveyance of the Patent from iSee Automation Inc. to BRK, Inc.
In connection with the acquisition of the Patent, the Company also entered into that certain Revenue Assignment and Benefit Transfer Agreement, dated September 16, 2016, by and between the Company and iSee Automation (the “Revenue Assignment Agreement”). Under the Revenue Assignment Agreement, iSee Automation is obligated to “deliver to the Company any and all revenues obtained by iSee Automation based on the Helmet Camera patent application previously purchased by BRK from iSee Automation under the Patent Assignment and Technology Transfer Agreement via wire transfer or via direct delivery from customers.
Although we have clear title to and no restrictions to use our intellectual property, disputes may arise regarding the Revenue Transfer Agreement, including but not limited to, the scope and duration of payment of royalties’ other interpretation-related issues.
On May 17, 2016, the Company entered into that certain Agreement for Services, dated May 17, 2016, by and among the Company, iSee Automation Inc. (Ontario), and Christopher Stramacchia. Pursuant to the terms and conditions of the Agreement for Services, “[any patents derived from the research done jointly and severally by all the above named parties shall be the property of BRK, Inc.,” in consideration for the Company paying $10,000 to iSee Automation (Michigan), which $10,000 the Company paid to iSee Automation (Michigan) on or about May 17, 2016.
On or about February 27, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Agreement for Services. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Agreement for Services and plans to enforce its rights thereunder.
On or about February 28, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Revenue Assignment Agreement. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Revenue Assignment Agreement and plans to enforce its rights thereunder.
NOTE – 10 SUBSEQUENT EVENTS
On August 25, 2017 the Company issued 2,800,000 shares of common stock to Auctus Fund, LLC for the conversion of $8,960 debt.