The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on March 7, 2008 under the laws of the State of Nevada, as Alcantara Brands Corporation. On October 5, 2010, the Company amended its articles of incorporation and changed its name to Bollente Companies, Inc. On June 4, 2018, the Company amended its articles of incorporation and changed its name to Trutankless, Inc.
The Company is involved in sales, marketing, research and development of a high quality, whole-house, smart electric tankless water heater that is more energy efficient than conventional products. Management anticipates the Company’s trutankless water heater, with Wi-Fi capability and trutankless’ proprietary apps offered in the iOS and Android store, will augment existing products in the home automation space.
Principles of consolidation
The consolidated financial statements include the accounts of Trutankless, Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. All significant inter-company transactions and balances have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. During the year ended December 31, 2019, the Company reclassified certain expenses to General and administrative from professional fees.
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 significantly from those estimates.
Cash and cash equivalents
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. The carrying value of these investments approximates fair value. The Company did not have any cash equivalents as of December 31, 2020 and 2019
Website
The Company capitalizes the costs associated with the development of the Company’s website pursuant to ASC Topic 350. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over the estimated useful lives of 3 years using the straight-line method for financial statement purposes. The Company plans to commence amortization upon completion and release of the Company’s fully operational website.
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
F-7
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
Income Taxes
The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of December 31, 2020 and 2019.
Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of December 31, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive. Potential equivalent shares of Common Stock as of December 31, 2020 that have been excluded from the computation of diluted net loss per share amounted to 28,428,057 shares of Common Stock, which included 14,791,882 shares of Common Stock underlying outstanding warrants and 13,636,175 shares of Common Stock underlying outstanding convertible notes payable.
Accounts receivable
Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $182,191 and $106,958 at December 31, 2020 and 2019, respectively.
Inventory
Inventories are stated at the lower of cost (average cost) or market (net realizable value).
F-8
Revenue recognition
We recognize revenue in accordance with ASC 606, Revenue From Contracts with Customers, which requires that five basic criteria be met before revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
Revenue recognition occurs at the time control transfers to customers which is when the product is shipped to customers, when, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is probable.
Fair value of financial instruments
The Company measures fair value in accordance with ASC 820 - Fair Value Measurements. ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:
Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 - Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 - Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date.
The reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments that could have been realized as of December 31, 2020 or that will be recognized in the future, and do not include expenses that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables from related parties, prepaid expenses and other, accounts payable, accrued liabilities, and related party and third party notes payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties approximates the fair value of such instrument based upon management’s best estimate of terms that would be available to the Company for similar financial arrangements at December 31, 2020 and 2019.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2020:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
-
|
|
$
|
-
|
|
$
|
302,249
|
|
$
|
302,249
|
As of December 31, 2020, the Company’s stock price was $0.20, risk-free discount rate of 0.08% and volatility of 270.90%
F-9
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2019:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
-
|
|
$
|
-
|
|
$
|
613,716
|
|
$
|
613,716
|
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:
|
|
Amount
|
Balance December 31, 2018
|
|
$
|
-
|
Debt discount originated from derivative liabilities
|
|
|
277,069
|
Financing cost recorded
|
|
|
307,218
|
Change in fair market value of derivative liabilities
|
|
|
29,429
|
Balance December 31, 2019
|
|
$
|
613,716
|
Debt discount originated from derivative liabilities
|
|
|
261,845
|
Derivative reclassed to additional paid in capital
|
|
|
(526,452)
|
Change in fair market value of derivative liabilities
|
|
|
(46,860)
|
Balance December 31, 2020
|
|
$
|
302,249
|
Recent Accounting Pronouncements
During the year ended December 31, 2020, the FASB (Financial Accounting Standards Board) issued various Accounting Standards Updates relating to the treatment and recording of certain accounting transactions. Management has determined that these recent accounting pronouncements will have no impact on the financial statements of Lake Forest Minerals Inc.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern within one year from the date of filing. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. As of December 31, 2020, the Company had $151,628 cash on hand. At December 31, 2020 the Company has an accumulated deficit of $42,993,071. For the year ended December 31, 2020, the Company had a net loss of $10,567,089, and cash used in operations of $1,474,939.
Over the next twelve months management plans raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. (See note 12 for subsequent capital raises) However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
COVID-19 Pandemic
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses world-wide, the COVID-19 Pandemic
F-10
has impacted the Company financially; however, management cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.
NOTE 3 - INVENTORY
Inventories consist of the following at:
|
December 31, 2020
|
|
December 31, 2019
|
Finished goods
|
|
24,654
|
|
|
106,958
|
Total
|
$
|
24,654
|
|
$
|
106,958
|
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
|
December 31, 2020
|
|
December 31, 2019
|
Accounts receivable
|
|
292,157
|
|
|
377,222
|
Allowance for doubtful accounts
|
|
(182,191)
|
|
|
(106,958)
|
Total
|
$
|
109,966
|
|
$
|
270,381
|
NOTE 5 - PREPAID CONSULTING EXPENSES
Prepaid consulting expense was $1,462,975 and $481,335 as of December 31, 2020 and 2019, respectively. During the years ended December 31, 2020 and 2019, the Company issued 12,190,000 and 2,094,300 shares of stock for various consulting agreement related to sales, marketing, and payroll with terms ranging between 6 months to two years. The Company considered the market price of the common stock issued and fair value of the services rendered and determined that the market prices of the share issued of $2,754,350 and $1,012,285, respectively were the more readily determinable values. The Company recorded amortization of the prepaid stock compensation amounting to $1,772,710 and to $758,064 for the years ended December 31 2020 and 2019, respectively.
NOTE 6 - RELATED PARTY
As of December 31, 2020 and 2019, the Company had notes payable due to officers and directors of the Company in the amount of $69,350 and $69,150, respectively. The notes have interest rate that range from 0%-12% and are due on demand.
In January 2019, the Company executed a lease agreement with Templar Asset Group, LLC, a related party. The lease term is one year at a rate of $4,200 per month for a period of one year with an option to continue a month to month basis thereafter (See Note 8).
On February 5, 2020, the Company agreed to settle a certain $900,000 convertible note payable issued to a shareholder dated August 2, 2016 and $312,006 in accrued interest. As part of the settlement the Company issued 1,000,000, 5 year warrants exercisable at $0.50 per share valued at $781,755 (See Note 9), 4,000,000 shares of common stock valued at $1,240,000, based on stock price on date of the agreement, in settlement of $400,000 of the principal balance of the note, and issued a new $500,000 11% promissory note. The issuance of the shares and warrants under the agreement resulted in the noteholder becoming a more than 5% shareholder and a related party.
The new note is due in two payments, $250,000 January 2, 2022 and $250,000 on January 2, 2023. Interest will accrue from the date of this Note on the unpaid and outstanding Principal balance to be paid as follows: (a) Fifty-Four Thousand Nine Hundred Ninety-Three and 37/100 Dollars ($54,993.37) on January 4, 2021; plus (b) three hundred thousand (300,000) shares of common Stock, by January 3, 2022, plus (c) six hundred thousand (600,000) shares of common stock on January 3, 2023. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $1,725,879 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt.
Interest expense associated with the related party notes for the years ended December 31, 2020 and 2019 was $68,237 and $7,968, respectively.
F-11
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following at:
|
December 31,
2020
|
|
December 31,
2019
|
Note payable, secured, 12% interest, due July 2020
|
$
|
-
|
|
$
|
150,000
|
Note payable, secured, 12% interest, due July 2020
|
|
-
|
|
|
100,000
|
Note payable, secured, 12% interest, due January 2020
|
|
-
|
|
|
50,000
|
Note payable, secured, 12% interest, due July 2020
|
|
-
|
|
|
100,000
|
Note payable, secured, 12% interest, due June 1, 2022
|
|
249,027
|
|
|
-
|
Note payable, secured, 12% interest, due June 1, 2021
|
|
300,000
|
|
|
-
|
Note payable, secured, 12% interest, due October 2019
|
|
-
|
|
|
5,750
|
Note payable, secured, 12% interest, due March 2020
|
|
-
|
|
|
12,000
|
Note payable, secured, 10% interest, due June 2021
|
|
231,813
|
|
|
-
|
Notes payable, secured, 12% interest, due August 2021
|
|
258,207
|
|
|
-
|
Total Notes Payable
|
$
|
1,039,047
|
|
$
|
417,750
|
|
|
|
|
|
|
Less unamortized debt discounts
|
|
(308,999)
|
|
|
(5,943)
|
Total Notes Payable
|
|
730,048
|
|
|
411,807
|
Less current portion
|
|
(481,021)
|
|
|
(411,807)
|
Total Notes Payable - long term
|
$
|
249,027
|
|
$
|
-
|
On September 2, 2016, the Company issued a $100,000 12% promissory note. The note was due on September 1, 2017. As an incentive to enter into the agreement the noteholder was also granted 25,000 shares valued at $25,000 which was recognized as a debt discount. On May 16, 2019, the maturity date of the note was extended to July 1, 2020 (see below) for the issuance of 50,000 shares of common stock valued at $21,000, which was recognized as a debt discount over the extended maturity date, which was recognized as a debt discount over the extended maturity date. As of December 31, 2020, the full amounts of the debt discount have been amortized.
On February 2, 2018, the Company entered into an agreement with the note holder to split a certain note payable dated July 1, 2015 into two notes in the amount of $150,000 and $50,000, respectively. In addition to splitting the notes the noteholder also agreed to extend the due date of the new $50,000 note to July 1, 2018 and on June 4, 2018, for consideration of 15,000 shares the noteholder further agreed to extend the due date of the new $50,000 note to April 1, 2019. On November 15, 2018, both notes were further extended to January 1, 2020 (see below) for the issuance of 80,000 shares valued $40,800. On May 16, 2019, the maturity dates of both notes were extended to July 1, 2020 for the issuance of 50,000 shares of common stock valued at $21,000. The Company recorded the fair market value of all the shares issued for extensions to financing cost.
On January 1, 2020, the Company entered into an agreement to consolidate three notes payable above dated September 2, 2016 and February 2, 2018 into one $300,000, 12% note due June 1, 2021. On June 1, 2021, the Company granted 1,000,000 $0.125 warrants to extend the date of the note to June 1, 2022 (See note 12). As consideration the Company issued the note holder 175,000 shares of common stock valued at $68,250 which was recorded as financing expense. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $68,250 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. No payments were made and the balance was $300,000 as of December 31, 2020.
On June 11, 2018 the Company issued $160,000 of principal amount of 12% secured convertible promissory notes and warrants to purchase common stock. The notes were due between May and August 2018 and bear interest of percent (12%). The notes are secured by all of the Company’s assets. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $1.00 per share. The notes were issued with warrants to purchase up to 160,000 shares of the Company’s common stock which were valued at $119,616. On May 16, 2019, the maturity date of the note was
F-12
extended to January 11, 2020 for the issuance of 90,000 shares of common stock valued at $45,900. As of December 31, 2020, $165,516 of the debt discount was amortized and the note was shown net of unamortized discount of $0.
On January 30, 2019, the Company issued a $100,000 12% promissory note. The note was due on December 31, 2019. As an incentive to enter into the agreement the noteholder was also granted 100,000 shares valued at $45,000 which was recognized as a debt discount. On May 16, 2019, the maturity date of the note was extended to December 31, 2020 (see below) for the issuance of 55,000 shares of common stock valued at $23,100 The Company recorded the fair market value of all the shares issued for extensions to financing cost.
On January 1, 2020, the Company entered into an agreement to consolidate the above two notes payable dated June 11, 2018 and January 30, 2019 into one $260,000, 12% note due June 1, 2022. On February 24, 2021, the Company issued 500,000 shares to extend the date of the note to May 1, 2023 (See note 12). As consideration the Company issued the note holder 175,000 shares of common stock valued at $68,250, which was recognized as a financing cost. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such, the Company recorded a loss on extinguishment of debt of $68,250 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. During the year ended December 31, 2020, the Company paid $10,973 to the noteholder, and the balance of note was $249,027 as of December 31, 2020.
On March 1, 2019, the Company issued a $12,000 12% promissory note. The note was due on March 1, 2020 has been paid in full as of December 31, 2020.
On March 4, 2020, the Company issued a $12,000 10% promissory note. The note is due on March 4, 2021. On March 4, 2020, the Company issued a $12,000 promissory note. On April 17, 2020, the note and accrued interest in the amount of $12,140 was paid.
On June 2, 2020, the Company entered in to a $345,000 note payable, including an original issue discount of $34,500 promissory note. Interest under the promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due twelve (12) months from funding with monthly payment of $37,150 beginning on September 1, 2020. On September 6, 2020, the note was amended to increase the payments on the note to $41,420 and extended the first payment to October 2, 2020. In addition, as part of the amendment the Company can further extend the due date of the first payment with notice to the noteholder and payment of an extension fee of $4,142. The holder has the right upon an event of default to convert the note and accrued interest into common shares at the closing bid price on the date preceding the notice of conversion. As an incentive to enter into the agreement, the noteholder was also granted 1,468,085 shares valued at $308,298, based on market value of the shares of $0.21 on the date of the agreement which was recognized as a debt discount. During the year ended December 31, 2020, $196,287 of the discount was amortized and the note was shown net of unamortized discount of $146,511. During the year ended December 31, 2020, the Company paid $105,180 to the noteholder, and the balance of note was $239,820 as of December 31, 2020.
On August 20, 2020, the Company entered in to a $278,000 note payable, including an original issue discount of $27,800 promissory note. Interest under the promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due twelve (12) months from funding with monthly payment of $31,136 beginning on November 18, 2020. The holder has the right upon an event of default to convert the note and accrued interest into common shares at the closing bid price on the date preceding the notice of conversion. As an incentive to enter into the agreement, the noteholder was also granted 1,002,919 shares valued at $183,334, based on market value of the shares of $0.1828 on the date of the agreement which was recognized as a debt discount. During the year ended December 31, 2020, $76,934 of the discount was amortized and the note was shown net of unamortized discount of $162,488. During the year ended December 31, 2020, the Company paid $27,800 to the noteholder, and the balance of note was $250,200 as of December 31, 2020.
Interest expense including amortization of the associated debt discount for the years ended December 31, 2020 and 2019 was $384,109 and $85,370, respectively.
Payroll Protection Program
On May 4, 2020, we received funds under the Paycheck Protection Program, a part of the CARES Act. The loan is serviced by Bank of America, and the application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan necessary to support our ongoing operations. We used the funds for payroll and
F-13
related costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on our ability to adhere to the forgiveness criteria. The loan bears interest at a rate of 1.0% per annum and matures on May 4, 2022, with the first payment deferred until November 2020. Under the terms of the PPP, certain amounts may be forgiven if they are used in accordance with the CARES Act. The Company believes that the full amount of the $107,485 Paycheck Protection Program loan will be forgiven, and therefore, the entire loan is classified as a current liability in the accompanying Balance Sheet.
Interest expense for the years ended December 31, 2020 and 2019 was $710 and $0, respectively.
Convertible notes payable, net of debt discount consist of the following:
|
December 31,
2020
|
|
December 31,
2019
|
Convertible note payable, secured, 12% interest, due August 31, 2019, in default
|
|
50,000
|
|
|
50,000
|
Convertible note payable, secured, 12% interest, due 120 days after delivery
of payment notice from lender or November 1, 2019
|
|
-
|
|
|
900,000
|
Convertible note payable, secured, 12% interest, due February 1, 2021
|
|
100,000
|
|
|
100,000
|
Convertible note payable, secured, 12% interest, due February 15, 2021
|
|
50,000
|
|
|
50,000
|
Convertible note payable, secured, 12% interest, due May 22, 2020, in default
|
|
5,000
|
|
|
5,000
|
Convertible note payable, secured, 12% interest, due Feb 15, 2021
|
|
75,000
|
|
|
75,000
|
Convertible notes payable, secured, 4% interest, due October 14, 2020, in default
|
|
75,000
|
|
|
75,000
|
Convertible note payable, secured, 12% interest, due January 11, 2020
|
|
-
|
|
|
160,000
|
Convertible note payable, secured, 10% interest, due February 8, 2020, in default
|
|
50,000
|
|
|
50,000
|
Convertible note payable ,12% interest, due May 2020
|
|
-
|
|
|
337,000
|
Convertible note payable ,12% interest, due May 2020, in default
|
|
162,750
|
|
|
168,500
|
Convertible note payable, secured, 10% interest, due February 8, 2020, in default
|
|
50,000
|
|
|
50,000
|
Convertible note payable, secured, 12% interest, due on demand
|
|
44,060
|
|
|
31,500
|
Convertible note payable, secured, 10% interest, due October 2021
|
|
29,000
|
|
|
23,000
|
Convertible note payable, secured, 10% interest, due April 2022
|
|
26,000
|
|
|
-
|
Convertible note payable, secured, 10% interest, due May 2021, in default
|
|
350,000
|
|
|
-
|
Convertible note payable, secured, 10% interest, due October 18, 2021
|
|
26,083
|
|
|
-
|
Convertible notes payable, secured, 10% interest, due May through November 2022
|
|
435,000
|
|
|
-
|
Total convertible notes payable
|
|
1,527,893
|
|
|
2,075,000
|
|
|
|
|
|
|
Less unamortized discounts
|
|
(465,719)
|
|
|
(474,692)
|
Total convertible notes payable, net
|
$
|
1,062,174
|
|
$
|
1,600,308
|
Less current portion
|
|
(970,839)
|
|
|
(1,583,066)
|
|
|
|
|
|
|
Convertible notes payable, net - Long-term
|
$
|
91,335
|
|
$
|
17,242
|
On June 2, 2016, the Company issued $50,000 of principal amount of 12% secured convertible promissory notes and 50,000 warrants to purchase common stock. The note was due on August 31, 2018, was later extended to August 31, 2019, bears interest of twelve percent (12%) and is currently past due. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $1.00 per share. The notes were issued with warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.50 per share. No payments were made and the balance was $50,000 as of December 31, 2020.
On May 2, 2017, the Company issued $100,000 of principal amount of 12% secured convertible promissory notes and 20,000 warrants to purchase common stock. The note was due on May 2, 2020 and is secured by the Company’s accounts receivable and inventory and on August 1, 2020, for the issuance of 50,000 shares valued at $10,000 based on market value of the shares of $0.20 on the date of issuance, was further extended to February 1, 2021. On April 20, 2021, the noteholder agreed to extend the maturity date of the note to May 2, 2022 for 100,000 shares of common stock (See note 12). The outstanding principal amounts and accrued but unpaid interest of the notes is
F-14
convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes were issued with warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $1.00 per share. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $669 and $1,005, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On May 2, 2017, the Company issued $50,000 of principal amount of 10% secured convertible promissory notes and 10,000 warrants to purchase common stock. The note was due on May 2, 2020 and is secured by the Company’s accounts receivable and inventory. On April 22, 2020, the note was extended to May 2, 2021. As of the date of filing the note has not been paid and is currently past due. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes were issued with warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $1.00 per share. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $334 and $503, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On May 22, 2017, the Company issued $5,000 of principal amount of 10% secured convertible promissory notes and 1,000 warrants to purchase common stock at an exercise price of $1. The note was due on May 22, 2020 and is currently in default secured by the Company’s accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes were issued with warrants to purchase up to 1,000 shares of the Company’s common stock at an exercise price of $1.00 per share. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $32 and $50, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On February 15, 2018, the Company issued a $75,000 12% secured convertible promissory note. The note was due on February 24, 2020 and is secured by the Company’s accounts receivable and inventory. On April 22, 2020, the due date of the note was extended to February 15, 2021 for the issuance of 50,000 shares of common stock valued at $8,995 based on market value of the shares of $0.18 on the date of issuance. On February 12, 2021, the Company issued 500,000 shares to extend the date of the note to February 15, 2022 (See note 12). The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $8,995 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. No payments were made and the balance was $75,000 as of December 31, 2020.
On September 17, 2018, the Company issued a $50,000 10% promissory note. The note was due on September 18, 2020. As an incentive to enter into the agreement the noteholder was also granted 10,000 shares valued at $5,000, based on market value of the shares of $0.50 on the date of issuance. On February 9, 2019, the note was amended for the issuance of 50,000 shares of common stock valued at $30,000 based on market value of the shares of $0.60 on the date of issuance, which was recognized as a debt discount, additionally, the note holder agreed to change the conversion price of the note to a price of $0.50 per share. On February 8, 2021, the Company entered into an agreement to consolidate the notes into one $100,000, 10% note due February 8, 2022 convertible at $0.10 per share (See Note 12). Additionally, the maturity date of the note was changed to February 8, 2020 and the note is currently in default. As of December 31, 2020, the shares have not been issued and were included in stock payable. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $4,204 and $21,513, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On December 14, 2018, the Company issued a $50,000 4% convertible note. The note was originally due on February 14, 2019 and is convertible at a rate of $0.50 per shares. As an incentive to enter into the agreement, the noteholder was also granted 10,000 shares valued at $5,000, based on market value of the shares of $0.60 on the date of issuance, which was recognized as a debt discount. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $0 and $0, respectively, On February 14, 2019, the noteholder agreed to extend the note through October 14, 2020, and is in default as of December 31, 2020. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On January 25, 2019, the Company issued a $100,000 8% convertible note. The note was due on March 1, 2019 and is convertible at a rate of $0.50 per shares. On April 29, 2020, the note was amended to be due on demand but not before January 25, 2021 and the conversion price was changed to $0.10 per share. As consideration, the Company granted 140,000 three year warrants exercisable at $0.125 per share and valued at $21,836.
F-15
The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $34,086 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. Additionally, the reduction of the conversion price resulted in a beneficial conversion feature totaling $12,250. The noteholder is due two shares of common stock for every dollar funded. As of December 31, 2020, the noteholder advanced a total of $79,660 and is due 194,320 shares valued at $56,314, based on market value of the shares on the date of the agreement, and the Company has made payments on the principal balance of $35,600. Subsequent to year end, the Company issued 157,920 shares that are due under the note and included in stock payable as of December 31, 2020 (See note 12).
As of December 31, 2020, there was an outstanding balance on the note in the amount of $44,060. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $6,250 and $31,250, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On February 8, 2019, the Company issued a $50,000 10% convertible note. The note was due on February 8, 2020 and is currently in default. As an incentive to enter into the agreement, the noteholder was also granted 60,000 shares valued at $30,000, which was recognized as a debt discount. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $3,205 and $26,795, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On February 19, 2019, the Company issued a $25,000 4% convertible note. The note was due on August 19, 2019 and is convertible at a rate of $0.50 per share. On February 14, 2019, the noteholder agreed to extend the note through October 14, 2020. As an incentive to enter into the agreement, the noteholder was also granted 5,000 shares valued at $2,500, which was recognized as a debt discount. As of December 31, 2020, the shares have not been issued and were included in stock payable. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $0 and $2,500, respectively. As of December 31, 2020, the note was shown net of unamortized discount of $0.
On October 18, 2019, the Company issued a $23,000 10% convertible note. The note is due on October 17, 2021 and is convertible at a rate of $0.50 per share. As an incentive to enter into the agreement, the noteholder was also granted 46,000 shares valued at $15,175, based on market value of the shares of $0.33 on the date of issuance, which was recognized as a debt discount. During the year ended December 31, 2020, the Company restructured the note to reduce the conversion price to $0.10 per share and the noteholder advanced another $6,000. As consideration, the Company issued an additional 12,000 shares of common stock valued at $4,560 and 232,000 warrants valued at $82,131. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $102,905 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt.
On November 5, 2019, the Company entered into a $562,000 convertible note payable, including an original issue discount of $56,200 pursuant to which we borrowed $337,000, including a $37,000 original issue discount in the first tranche during the year ended December 31, 2019. Interest under the convertible promissory note is 12% per annum, and the principal and all accrued but unpaid interest was due 180 days from funding. The note is convertible at the lesser of (i) 70% multiplied by the lowest Trading Price during the previous twenty-five (25) trading day period ending on the latest complete Trading Day prior to the date of the note and 70% of the market price. As an incentive to enter into the agreement, the noteholder was also granted 854,000 shares valued at $307,440. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $392,061, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the note, the Company recorded a debt discount in the amount of $337,000 to be amortized utilizing the effective interest method of accretion over the term of the note. On January 30, 2020, the Company borrowed an additional $225,000, including a $25,500 original issue discount. As an incentive, the noteholder was also granted an additional 476,493 shares valued at $147,713. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $212,798, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the note, the Company recorded a debt discount in the amount of $225,000 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the excess of $161,011 was recognized as a financing cost on the Statement of Operations. For the years ended December 31,
F-16
2020 and 2019, the Company recorded amortization of the debt discount of $457,735 and $104,265, respectively. As of December 31, 2020, $562,000 of the debt discount has been amortized and the note was shown net of unamortized discount of $0. On May 5, 2020, the Company paid the principal and accrued interest under the first tranche of $357,852 and on August 20, 2020, the Company paid the principal and accrued interest of the second tranche of $239,055. The fair value of the derivative liability associated with the first and second tranches on the date of settlement of $275,728 and $188,276, respectively were reclassified to additional paid in capital.
On November 19, 2019, the Company entered in to a $281,000 convertible note payable, including an original issue discount of $28,100 convertible promissory note pursuant to which $150,000 was borrowed, including a $18,500 discount during the year ended December 31, 2019. Interest under the convertible promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due 180 days from funding. The note is convertible at the lesser of (i) 70% multiplied by the lowest Trading Price during the previous twenty-five (25) trading day period ending on the latest complete Trading Day prior to the date of the note and 70% of the market price. As an incentive to enter into the agreement, the noteholder was also granted 427,000 shares valued at $175,070. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $192,226, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the note, the Company recorded a debt discount in the amount of $168,500 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the excess of $104,041 was recognized as a financing cost on the Statement of Operations On May 20, 2020, the noteholder agreed to extend the due date of the first tranche of funding until July 19, 2020 and is currently past due. On May 20, 2020, the Company incurred a default penalty of 50% of the balance of the note amounting to $54,250. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $129,401 and $39,099, respectively. As of December 31, 2020, $168,500 of the debt discount has been amortized and the note was shown net of unamortized discount of $0. As of December 31, 2020, the Company paid the $60,000 toward the principal balance under the first tranche of $60,000.
The fair value of the derivative liability associated with the tranche on the date of settlement of $62,448 was recorded to additional paid in capital. The fair value of the derivative liability associated with the default penalty of $49,051, was charged it to financing cost.
The embedded conversion feature in the convertible debt instruments above, dated November 5, 2019 and November 19, 2019, were convertible at issuance, which qualified them as a derivative instrument since the number of shares issuable under the note is indeterminate based on guidance in ASC 815-15, “Derivatives and Hedging (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt.
The Black-Scholes model, adopted by management as an appropriate financial model, utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note through December 31, 2020:
Risk free interest rate
|
|
0.08% - 1.57%
|
Expected term (years)
|
|
0.000 - 0.50
|
Expected volatility
|
|
263% - 367
|
Expected dividends
|
|
0%
|
On January 8, 2020, the Company issued a $26,083 convertible note. The note is due on January 8, 2022 and is convertible at a rate of $0.10 per shares. As an incentive to enter into the agreement, the noteholder was also granted 52,166 shares and 208,664 2-year warrants exercisable at $0.125. The issuance of the note and warrants resulted in a discount from the beneficial conversion feature totaling $26,083, including $13,203 attributable to the conversion feature, $10,566 attributable to the warrants, and $2,313 was attributable to the shares. The excess fair value of the consideration given of $19,823 was recorded as financing expense. For the years ended December 31, 2020 and 2019, the Company recorded amortization of the debt discount of $12,574. As of December 31, 2020, the note was shown net of unamortized discount of $13,509.
On May 1, 2020, the Company issued a $350,000 6% convertible note. The note is due on May 1, 2021 and is convertible at a rate of $0.125 per shares, resulting in a debt discount from a beneficial conversion feature $42,000. On April 30, 2021, the noteholder agreed to extend the maturity date of the note to May 1, 2022 for 100,000 shares of common stock (See note 12). As an incentive to enter into the agreement the noteholder was also granted
F-17
1,500,000 shares valued at $207,000, which was also recognized as a debt discount. For the year ended December 31, 2020, the Company recorded amortization of the debt discount of $166,455. As of December 31, 2020, the note was shown net of unamortized discount of $82,545.
On April 30, 2020, the Company issued a $100,000 8% convertible note. The note is due on April 30, 2022 and is convertible at a rate of $0.125 per shares which resulted in a discount from the beneficial conversion feature totaling 20,250. The note holder is due two shares of common stock and eight three-year warrants exercisable at a rate of $0.125 for every dollar funded. As of December 31, 2020, the noteholder advanced a total of $26,000 and is due 52,000 shares valued at $7,740, based on market value of the shares of $0.14 on the date of funding and 208,000 warrants valued at $26,000 which was recorded as financing expense. As of December 31, 2020, the 52,000 shares were not issued and were included in stock payable. For the year ended December 31, 2020, the Company recorded amortization of the debt discount of $11,546. As of December 31, 2020, the note was shown net of unamortized discount of $14,454.
During year ended December 31, 2020, we issued several secured convertible promissory notes dated between May 5th and November 25th, 2020, in the aggregate principal amount of $435,000 to several accredited investors through a private placement. The convertible notes bear interest at a rate of 10% per annum, mature two years from issuance. The notes and accrued interest are convertible at the option of the noteholders into our common stock at $0.125 per share. As an incentive to enter into the agreements the Company also issued 3,480,000 three year warrants exercisable at $0.125 per share. The issuance of the note and warrants resulted in a discount from the beneficial conversion feature totaling $435,000, including $178,565 attributable to the conversion feature, $256,435 attributable to the warrants (Note 9), which was recorded as a debt discount. During the years ended December 31, 2020, $79,789 of the discount was amortized and the note was shown net of unamortized discount of $355,211.
As part of the private placement, the Company paid a consultant a $50,000 retainer and commissions equivalent to 10% of the gross proceeds received from the issuance of convertible notes which were recorded as financing cost.
Interest expense including financing cost and amortization of the associated debt discount on all of the above convertible notes for the year ended December 31, 2020 and 2019 was $1,013,972 and $697,307, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
The Company determines whether or not a contract contains a lease based on whether or not it provides the Company with the use of a specifically identified asset for a period of time, as well as both the right to direct the use of that asset and receive the significant economic benefits of the asset. The Company elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less.
The Company has entered into lease agreements as a lessee for the use of office space. These lease agreements are classified as operating leases and the liability and right-of-use asset are recognized on the balance sheet at lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. As a result of the adoption of ASC 842, the Company recognized an operating lease liability and right-of-use asset of $64,978.
The discount rate utilized for classification and measurement purposes as of the inception date of the lease is based on the Company’s collateralized incremental interest rate to borrow of 12%, as the rate implicit in the lease is not determinable.
During 2018, the Company executed a lease agreement. The lease term is 39 months at a rate of $1,680 per month with 3% increases beginning January 1, 2021 and rent commencing on January 1, 2019. The Company was required to pay a $1,781 security deposit.
In January 2019, the Company executed a lease agreement with Templar Asset Group, LLC, a related party. The lease term is one year at a rate of $4,200 per month for a period of one year with an option to continue a month to
F-18
month basis thereafter. Under ASC 842, this lease is not recorded on the balance sheet as its term is 12 months or less.
Undiscounted Cash Flows
As of December 31, 2020, the right of use asset and lease liability were shown on the consolidated balance sheet at $33,990 and $37,189, respectively. The table below reconciles the fixed component of the undiscounted cash flows and the total remaining years to the operating lease liability recorded on the consolidated balance sheet as of December 31, 2020:
Amounts due as of December 31, 20120
|
|
Operating Leases
|
2021
|
|
|
20,765
|
2022
|
|
|
21,370
|
Total minimum lease payments
|
|
$
|
42,135
|
Less: effect of discounting
|
|
|
(4,946)
|
Present value of future minimum lease payments
|
|
$
|
37,189
|
Less: current obligations under leases
|
|
|
(16,424)
|
Long-term lease obligations
|
|
$
|
20,765
|
Legal Matter
On July 6, 2020 we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff is conducting an informal inquiry into the matter. The Staff has asked the Company to voluntarily submit certain information to it and the Company has done so and is cooperating with the Staff into their inquiry. No formal complaint has been filed and we expect to resolve this matter with the Staff without formal litigation. (See Note 12)
NOTE 9 - STOCK WARRANTS
On January 8, 2020, the Company granted 208,664 warrants with terms of 3.3 years exercisable at $0.125 per share with the issuance of a convertible note payable, valued at $19,277. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.38; b) risk-free rate of 1.61%; c) volatility factor of 166%; d) dividend yield of 0%.
On January 8, 2020, the Company granted 232,000 warrants 3.3 years warrants exercisable at $0.125 per share with the issuance of a convertible note payable, valued at $82,131. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.38; b) risk-free rate of 1.61%; c) volatility factor of 166%; d) dividend yield of 0%.
On February 5, 2020, the Company granted 1,965,094 warrants with a term of 5 years exercisable at $0.50 per shares warrants, valued $566,269 as part of a note settlement agreement. Additionally, as part of the agreement the Company modified 1,666,666 previously issued to include the same terms of the warrants issued under the agreement. The Company valued the modification of warrants at $215,486, which the difference of the fair value of the warrants before and after the modification and recorded the value to loss on extinguishment of notes payable. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.30-$0.31; b) risk-free rate of 1.48-1.49%; c) volatility factor of 175-177.6%; d) dividend yield of 0%.
On February 19, 2020 the Company converted the 76,000 outstanding Series A preferred shares, based on the automatic conversion terms into 205,000 common shares and 76,000 warrants have been issued, with the remaining 175,000 shares of common stock still to be issued and recognized as stock payable.
On April 29, 2020, the Company granted 140,000 3 years warrants exercisable at $0.125 per share with the amendment of a convertible note payable, valued at $21,836. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.17; b) risk-free rate of .24%; c) volatility factor of 192%; d) dividend yield of 0%.
F-19
On May 7, 2020, the Company granted 162,000 3 years warrants exercisable at $0.125 per share with the issuance of a convertible note payable, valued at $10,339. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.14; b) risk-free rate of .19%; c) volatility factor of 192%; d) dividend yield of 0%.
During the period ending December 31, 2020, the Company granted 3,480,000 3 years warrants exercisable at $0.125 per share with the issuance of a convertible note payable, valued at $256,435. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.01 - $0.22; b) risk-free rate of 0.16% - 22.9%; c) volatility factor of 195% - 221%; d) dividend yield of 0%.
During the period ending December 31, 2020 the Company issued 6,050,000 units, which included 6,050,000 3 years warrants exercisable at $0.125 per share and 6,050,000 shares of common stock for $632,000 cash.
The following is a summary of stock warrants activity during the period ended December 31, 2020.
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
Balance, December 31, 2019
|
2,478,124
|
|
$1.00
|
Warrants granted and assumed
|
13,979,758
|
|
$0.23
|
Warrants expired
|
-
|
|
-
|
Warrants canceled
|
(1,666,000)
|
|
$1.00
|
Warrants exercised
|
-
|
|
|
Balance outstanding and exercisable, December 31, 2020
|
14,791,882
|
|
$0.27
|
The following is a summary of stock warrants activity during the period ended December 31, 2019.
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
Balance, December 31, 2018
|
2,395,624
|
|
$1.00
|
Warrants granted and assumed
|
82,500
|
|
$1.00
|
Warrants expired
|
-
|
|
-
|
Warrants canceled
|
-
|
|
-
|
Warrants exercised
|
-
|
|
-
|
Balance outstanding and exercisable, December 31, 2019
|
2,478,124
|
|
$1.00
|
NOTE 10 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company recorded the valuation allowance due to the uncertainty of future realization of federal and state net operating loss carryforwards. -The deferred income tax assets are comprised of the following at December 31, 2020 and 2019:
|
2020
|
|
2019
|
Deferred income tax assets:
|
$
|
11,980,119
|
|
$
|
9,866,701
|
Valuation allowance
|
|
(11,980,119)
|
|
|
(9,866,701)
|
Net deferred tax asset
|
$
|
-
|
|
$
|
-
|
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2020 and 2019:
|
2020
|
|
2019
|
Effective Tax Rate Reconciliation:
|
|
|
|
Federal statutory tax rate
|
|
21.0%
|
|
|
21.0%
|
State taxes, net of federal benefit
|
|
0.0%
|
|
|
0.0%
|
Change in valuation allowance
|
|
(21.0)%
|
|
|
(21.0)%
|
Effective tax rate
|
|
0.0%
|
|
|
0.0%
|
F-20
As of December 31, 2020, the Company had net operating loss carryforwards of approximately $27,291,089 and net operating loss carryforwards expire in 2021 through 2030. The current year’s net operating loss will carryforward indefinitely, limited to 80% of the current year taxable income.
The current income tax benefit of $2,219,089 generated for the year ended December 31, 2020 was offset by an equal increase in the valuation allowance. The valuation allowance was increased due to uncertainties as to the Company’s ability to generate sufficient taxable income to utilize the net operating loss carryforwards which is the only significant component of deferred taxes.
The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2020 and 2019 the Company has no unrecognized uncertain tax positions, including interest and penalties.
NOTE 11 - STOCKHOLDERS’ EQUITY
The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its $0.001 par value common stock. On October 26, 2020, the Board of Directors (the Board), authorized the Company to amend the Articles of Incorporation of the Corporation to increase the authorized capital stock of the Corporation to 1,010,000,000 shares, of which 1,000,000,000 shall be authorized as common shares and 10,000,000 shall be authorized as preferred shares. Additionally, the Board authorized the execution of a reverse split of the issued and outstanding shares of the Corporation’s common stock at a ratio of up to one post-split share per twenty-five pre-split shares (1:25) at a time and exact ratio amount the Board of Directors deems appropriate. On May 25, 2021, the Board of Directors increased the authorized shares from 100,000,000 to 150,000,000.
The Company has also designated 76,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock is convertible, at any time, at the option of the holder, into five shares of our common stock and one warrant to purchase one share of our common stock at $1.00 per share. All Preferred Stock automatically converts into shares of the Company’s common stock and warrants after three years from the original issue date of the Preferred Stock. On February 19, 2020 the Company converted the 76,000 outstanding Series A preferred shares, based on the automatic conversion terms into 205,000 common shares and 76,000 warrants have been issued, with the remaining 175,000 shares of common stock still to be issued and recognized as stock payable.
On January 3, 2020, the Company issued 200,000 shares of common stock for $50,000 cash at $0.25 per share.
On January 3, 2020, the Company issued 100,000 shares for services with a fair value of $39,000, based on stock price of $0.39 on date of the agreement.
On January 30, 2020, the Company issued 15,000 shares for services with a fair value of $6,390 that were due during the year ended December 31, 2019 and included in stock payable.
On February 5, 2020, the Company issued 4,000,000 shares for the settlement of debt with a fair value of $1,240,000, based on stock price of $0.31 on date of the agreement.
On February 5, 2020, the Company issued 3,600,000 shares for services with a fair value of $1,116,000, based on stock price of $0.31 on date of the agreement.
On March 9, 2020, the Company cancelled a consulting agreement entered into during the year ended December 31, 2019. As a result, the Company received and cancelled 500,000 shares of common stock valued $125,000, based on stock price of $0.25 on date of reacquisition.
On March 10, 2020, the Company issued 300,000 shares for services with a fair value of $103,000 based on stock price of $0.23-$0.40 on date of the agreement.
On March 11, 2020, the Company received $100,000 in cash proceeds for the issuance of 500,000 shares of common stock, which were issued on April 1, 2020.
On April 2, 2020, the Company filed a certificate of designation of preferences, rights and limitations of a new Series B Preferred Stock with the Secretary of State of Nevada, designating 10,000 shares of preferred stock, par
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value $0.001 of the Company, as Series B Preferred Stock. The new Series B Preferred Stock does not pay a dividend, does not have any liquidation preference over other securities issued by the Company and are not convertible into shares of the Company’s common stock. For so long as any shares of the Series B Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have voting power equal to a controlling 51% of the total vote on all shareholder matters of the Company. Upon or after the third anniversary of the initial issuance date, the Company shall have the right, at the Company’s option, to redeem all or a portion of the shares of Series B Preferred Stock, at a price per share equal to par value.
On April 2, 2020, the Board issued 5,000 shares of the Series B Preferred Stock to the Company’s Chief Executive Officer and President, Michael Stebbins, and 5,000 shares of the Series B Preferred Stock to the Company’s Secretary and Treasurer, Robertson Orr for the purpose of assuring that they retains voting control of the Company. The shares were valued at $3,073,595 which was based on the value of the voting rights, which was determined based on the equity value of 51% of outstanding shares using a stock price of $0.11 on April 2, 2020. The $3,073,595 was recognized as shares issued for services included in professional fees expenses on the consolidated Statement of Operations.
On May 1, 2020, the Company issued 1,500,000 shares of common stock for $210,000 as commitment shares for the issuance of a certain note payable issued on May 1, 2020.
On July 9, 2020 the company sold 70,000 shares of common stock and 70,000 warrants for cash proceeds of $7,000. These shares were issued.
On June 5, 2020, the Company issued 1,468,085 shares of common stock $308,298 as commitment shares for the issuance of a certain note payable issued on June 5, 2020.
On June 10, 2020, the Company received and cancelled 674,000 shares of common stock valued $175,240, based on stock price on date of reacquisition.
On June 12, 2020, the Company issued 1,300,000 shares of common stock for $175,000.
On June 12, 2020, the Company issued 25,000 shares for services with a fair value of $8,000 based on stock price of $0.32 on date of the agreement.
On June 1, 2020 the Company entered into an agreement to provide 250,000 shares of common stock with a fair value of $60,000 based on stock price of $0.24 on date of the agreement in connection with consulting services.
On June 15, 2020 the Company entered into an agreement to provide 250,000 shares of common stock with a fair value of $42,500 based on stock price of $0.17 on date of the agreement in connection with consulting services.
On July 9, 2020, the Company issued 420,000 of common stock for $42,000 cash.
On July 30, 2020, the Company issued 15,000 shares for services with a fair value of $2,805 based on stock price of $0.19 on date of the agreement.
On August 1, 2020, the Company issued 80,000 shares for services with a fair value of $15,760 based on stock price of $0.20 on date of the agreement.
On August 1, 2020, the Company issued 50,000 shares to extend the due date of a certain note payable dated May 2, 2017 with a fair value of $9,850, based on stock price of $0.20 on date of the agreement.
On August 3, 2020, the Company issued 320,000 shares for services, of which 220,000 shares were bonus shares with a fair value of $41,800 based on stock price of $0.19 on date of grant.
On August 3, 2020, the Company issued 750,000 of common stock for $75,000 cash.
On August 10, 2020, the Company issued 750,000 shares for services with a fair value of $157,500 based on stock price of $0.21 on date of the agreement.
On August 10, 2020, the Company issued 500,000 of common stock for $50,000 cash.
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On August 20, 2020, the Company issued 1,002,919 shares of common stock $183,334 as commitment shares for the issuance of a certain note payable issued on August 20, 2020.
On August 30, 2020, the Company issued 250,000 shares for services with a fair value of $60,000 based on stock price of $0.24 on date of the agreement.
On August 23, 2020, the Company issued 500,000 shares for services with a fair value of $90,000 based on stock price of $0.18 on date of the agreement.
On August 25, 2020, the Company issued 500,000 shares for services with a fair value of $75,000 based on stock price of $0.15 on date of the agreement.
On August 31, 2020, the Company issued 150,000 shares for services with a fair value of $18,000 based on stock price of $0.12 on date of the agreement.
On September 1, 2020, the Company issued 500,000 shares for services with a fair value of $100,000 based on stock price of $0.20 on date of the agreement.
On September 4, 2020, the Company issued 300,000 shares for services with a fair value of $30,000 based on stock price of $0.10 on date of the agreement.
On September 8, 2020, the Company issued 875,000 of common stock for $87,500 cash.
On September 13, 2020, the Company issued 250,000 shares for services with a fair value of $42,500 based on stock price of $0.17 on date of the agreement.
On September 15, 2020, the Company issued 175,000 shares for services with a fair value of $33,750 based on stock price of $0.13 to $0.024 on date of the agreement.
On September 15, 2020, the Company issued 25,000 shares for services with a fair value of $6,000 based on stock price of $0.24 on date of the agreement.
On September 28, 2020, the Company issued 600,000 shares for services with a fair value of $110,000 based on stock price of $0.10 to $0.20 on date of the agreement.
On September 29, 2020, the Company issued 350,000 of common stock for $35,000 cash.
On September 29, 2020, the Company issued 250,000 shares for services with a fair value of $45,000 based on stock price of $0.18 on date of the agreement.
On September 30, 2020, the Company issued 100,000 of common stock for $10,000 cash.
On October 1, 2020 the Company issued 1,950,000 shares of common stock with a fair value of $390,000 based on stock prices between $0.20 in connection with consulting services.
On October 5, 2020 the Company sold 1,500,000 shares of common stock and 1,500,000 warrants for cash proceeds of $150,000. As of December 31, 2020, the shares were not issued and included were included in stock payable.
On October 22, 2020, the Company issued 1,210,000 shares for services with a fair value of $269,200 based on stock price between $0.17 and $0.27 on date of the agreement.
On October 22, 2020 the Company sold 500,000 shares of common stock and 500,000 warrants for cash proceeds of $50,000.
On December 16, 2020, the Company issued 1,700,000 shares for services with a fair value of $306,000 based on stock price between $0.15 and $0.20 on date of the agreement.
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On December 31, 2020 the Company sold 325,000 shares of common stock and 325,000 warrants for cash proceeds of $32,500.
During the year ended December 31, 2020, the Company issued 500,000 shares to consultant in error and is in the process of the having the shares returned. As of the date of filing the shares have not been returned.
NOTE 12 - SUBSEQUENT EVENT
On January 4, 2021, the Company entered into an agreement with the note holder of a certain related party notes payable dated February 5, 2020 to convert $200,000 of the principal balance of the note and to extend the payment date of the first interest payment of $54,993.87 to January 2, 2023. As consideration, the Company issued the noteholder 2,200,000 shares of common stock.
On January 6, 2021, the Company entered into a $275,000, 12% convertible note payable including an original issue discount of $25,000. As part of the note agreement the Company also granted the noteholder 982,861 shares of common stock valued $167,086. In addition the Company granted 152,000 five year warrants exercisable at $0.125 to a broker as a finder’s fee.
On January 8, 2021, the Company entered into a $125,000, 30% note payable due on June 8, 2021. Under the note the Company must make interest only payments of $3,125 starting on February 10, 2021 and continuing through maturity.
On March 12, 2021, the Company entered into a $101,125, 24% note payable due on July 12, 2021.
On March 3, 2021, the Company entered into a $25,000, 4% note payable due on March 3, 2022. The note is convertible at the option of the noteholder at $0.10 per share.
On February 8, 2021, the Company entered into an agreement to consolidate two $50,000 notes payable dated September 17, 2018 and February 8, 2019 into one $100,000, 10% note due February 8, 2022 convertible at $0.10 per share. As consideration the Company is to issue the note holder 100,000 shares of common stock. As of the date of filing the shares have not been issued.
On February 4, 2021, the Company issued 2,175,000 shares for services.
On February 8, 2021, the Company sold 150,000 shares of common stock and 150,000 warrants for cash proceeds of $15,000.
On February 8, 2021, the Company issued 60,000 shares for services.
On February 17, 2021, the Company issued 116,320 shares in connection with shares due from a certain note payable dated January 25, 2019 and included in stock payable as of December 31, 2020.
On February 17, 2021, the Company issued 35,000 shares for services.
On February 17, 2021, the Company sold 1,500,000 shares of common stock and 1,500,000 warrants for cash proceeds of $150,000.
On February 24, 2021, the Company issued 500,000 shares to extend a certain note payable dated January 25, 2019.
On February 24, 2021, the Company sold 100,000 shares of common stock and 100,000 warrants for cash proceeds of $10,000.
On February 12, 2021, the noteholder of a certain note dated February 15, 2018, agreed to extend the maturity date of the note to February 15, 2022 for 50,000 shares of common stock. As of the date of filing the shares have not been issued.
On February 24, 2021, the Company issued 3,900,000 shares for services.
On March 17, 2021, the Company sold 2,000,000 shares of common stock for cash proceeds of $200,000.
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On April 20, 2021, the noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 2, 2022 for 100,000 shares of common stock. As of the date of filing the shares have not been issued.
On April 30, 2021, the noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 1, 2022 for 100,000 shares of common stock. As of the date of filing the shares have not been issued.
On June 1, 2021, the noteholder of a certain note dated January 1, 2020, agreed to extend the maturity date of the note to June 1, 2022. In addition, the note was amended to allow for the note holder to covert the note at $0.10 per share. As consideration the Company granted the noteholder 1,000,000 three year warrants exercisable at $0.125.
On July 6, 2020 we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff is conducting an informal inquiry into the matter. On April 29, 2021, the Company agreed to pay civil penalties of $25,000 to the Securities and Exchange Commission in settlement of the matter. Payment shall be made in the following four installments: (1) $5,000 within 14 days of entry of the order; (2) $7,500 within 180 days of entry of the order; (3) $6,250 within 270 days of entry of the order; and (4) $6,250 within 360 days of entry of the order.
On June 15, 2021, the Company sold 1,500,000 shares of common stock for cash proceeds of $150,000 which was received during the year ended December 31, 2020 and included in stock payable.
On June 15, 2021, the Company sold 792,590 shares of common stock for cash proceeds of $79,259.
On June 15, 2021, the Company issued 41,600 shares of common stock, in connection with an additional $20,800 advance received on March 3, 2021 related to a certain note payable dated January 25, 2019.
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