Notes
to Condensed Consolidated Financial Statements
As
of June 30, 2018
(Unaudited
)
Note
1 – Business Organization and Nature of Operations
Balance
Labs, Inc. (“Balance Labs” or the “Company”) was incorporated on June 5, 2014 under the laws of the State
of Delaware. Balance Labs is a consulting firm that provides business development and consulting services to start up and development
stage businesses. The Company offers services to help businesses in various industries improve and fine tune their business models,
sales and marketing plans and internal operations as well as make introductions to professional services such as business plan
writing, accounting firms and legal service providers.
During
the years ending December 31, 2017 and 2016 the Company added the following wholly owned subsidiaries:
BalanceLabs,
LLC., formed October 12, 2015, Balance AgroTech Co., formed July 11, 2016, Advanced AutoTech Co., formed May 10, 2016, Balance
Medical Marijuana Co., formed December 22, 2015, Balance Cannabis Co. formed May 13, 2016 and majority owned KryptoBank Co., formed
December 27, 2017. All intercompany transactions have been eliminated.
The
Company leverages its knowledge in developing businesses with entrepreneurs and start up companies’ management whereby it
creates a customized plan for them to overcome obstacles so that they can focus on marketing their product(s) and/or service(s)
to their potential customers.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they
do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of
management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary
for a fair presentation of the unaudited condensed consolidated financial position of Balance Labs as of June 30, 2018 and the
unaudited condensed consolidated results of its operations and cash flows for the six months ended June 30, 2018. The unaudited
condensed consolidated results of operations for the six months ended June 30, 2018 are not necessarily indicative of the operating
results for the full year. It is recommended that these unaudited condensed consolidated financial statements be read in conjunction
with the audited financial statements and related disclosures of the Company for the year ended December 31, 2017 which was filed
with the Securities and Exchange Commission on April 12, 2018.
Note
2 – Going Concern
The
condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company
used $228,611 of cash in operating activities and currently has $80,833 in cash. This will not sustain the Company without additional
funds. Management plans to raise additional capital within the next twelve months that will sustain its operations for the next
year. In addition, the company will begin an active marketing campaign to market its services.
There
can be no assurance that such a plan will successful. The accompanying financial statements do not include any adjustments that
might be necessary should the company be unable to continue as a going concern.
Note
3 – Summary of Significant Accounting Policies
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
At June 30, 2018 and December 31, 2017, the Company has $2,000 and $2,000 in cash equivalents, respectively.
Use
of Estimates
The
preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to stock-based
compensation, depreciable lives of fixed assets and deferred tax assets. Actual results could materially differ from those estimates.
Concentrations
and Credit Risk
One
customer provided 100% of revenues during the six months ended June 30, 2017.
Revenue
Recognition
On
January 1, 2018, the Company adopted FASB ASC 606, which is a comprehensive new revenue recognition model that requires revenue
to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration
expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned
when all the five following criteria are met: (1) Identify the Contract with a Customer, (2) Identify the Performance Obligations
in the Contract, (3) Determine the Transaction Price, (4) Allocate the Transaction Price to the Performance Obligations in the
Contract, and (5) Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation. Results for reporting periods
beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported
under the previous accounting standards. There was no impact to revenues as a result of applying ASC 606 for the six months ended
June 30, 2018, and there have not been any significant changes to our business processes, systems, or internal controls as a result
of implementing the standard.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included
or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
The
Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.
Management
has evaluated and concluded that there are no material tax positions requiring recognition in the Company’s condensed consolidated
financial statements as of June 30, 2018. The Company does not expect any significant changes in its unrecognized tax benefits
within twelve months of the reporting date. The Company’s 2014, 2015, 2016 and 2017 tax returns remain open for audit for
Federal and State taxing authorities.
The
Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general
and administrative expenses in the statement of operations.
Investments
Investments
are recorded at fair value on June 30, 2018 and December 31, 2017.
Marketable
Securities
The
Company adopted ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities.” ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting,
or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net
income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments
for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category
and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
The Company has evaluated the potential impact this standard may have on the condensed consolidated financial statements and determined
that it had a significant impact on the condensed consolidated financial statements. Since the Company accounts for its investment
in Bang Holdings, Corp. as available-for-sale securities, the fair value from of the securities from the prior year has been reclassified
to Retained Earnings from Other Accumulated Comprehensive Income. The unrealized gain on the available-for-sale securities during
the six months ended June 30, 2018 has been recorded in Other Income on the Income Statement.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents
and marketable securities. As of June 30, 2018, the carrying value of marketable securities was $260,000, which consist of common
shares held in one (1) investment which currently is trading on the Over-the-Counter Bulletin Board (OTCBB). The Company has classified
this investment as a Level 3 asset on the fair value hierarchy because the investment is valued using unobservable inputs, due
to the fact that observable inputs are not available, or situations in which there is little, if any, market activity for the
asset or liability at the measurement date.
Principles
of Consolidation
The
condensed consolidated financial statements include the Company and its wholly owned corporate subsidiaries (Balance Labs LLC.,
from October 12, 2015, Balance AgroTech Co., from July 11, 2016, Advanced Auto Tech Co., from May 10, 2016, Balance Cannabis Co.,
from May 13, 2016, and Balance Medical Marijuana Co from December 22, 2015, and our 51% majority owned subsidiary KryptoBank Co.,
as of June 30, 2018. All intercompany transactions are eliminated. The Company’s four subsidiaries, Balance AgroTech Co.,
Advanced AutoTech Co., Balance Cannabis Co., and Balance Medical Marijuana Co. are dormant. KryptoBank Co., began operations on
December 27, 2017.
Net
Income (Loss) Per Common Share
Basic
and diluted income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common
shares and warrants from convertible debentures outstanding during the periods. The effect of 2,920,000 and 2,920,000 warrants
and 2,664,876 and 2,387,387 shares from convertible notes payable for the six months ended June 30, 2018 and 2017, respectively,
were anti-dilutive.
Stock-Based
Compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and financial reporting dates until the service period is complete. The fair value amount
is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting
period. Awards granted to directors are treated on the same basis as awards granted to employees.
The
Company has computed the fair value of warrants granted using the Black-Scholes option pricing model. The expected term used for
warrants is the contractual life. Since the Company’s stock has not been publicly traded for a sufficiently long period,
the Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time,
equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry.
The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term
consistent with the expected term of the instrument being valued.
Fair
Value of Financial Instruments
The
Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including
cash, accounts payable, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their
short maturities.
We
adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). This standard defines fair value,
provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value
measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance
does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market
approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach
(cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of
those three levels:
|
●
|
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are
not active.
|
|
|
|
|
●
|
Level
3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed
by us, which reflect those that a market participant would use.
|
The
following table presents certain assets of the Company’s measured and recorded at fair value on the Company’s balance
sheet on a recurring basis and their level within the fair value hierarchy as of June 30, 2018.
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Fair-value
– equity securities
|
|
$
|
260,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
260,000
|
|
Total Assets
measured at fair value
|
|
$
|
260,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
260,000
|
|
The
following table presents certain assets of the Company’s measured and recorded at fair value on the Company’s balance
sheet on a recurring basis and their level within the fair value hierarchy as of December 31, 2017.
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Fair-value
– equity securities
|
|
$
|
80,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,000
|
|
Total Assets
measured at fair value
|
|
$
|
80,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,000
|
|
The
following is a reconciliation of the level 3 Assets:
Beginning Balance as of January 1, 2018
|
|
$
|
80,000
|
|
|
|
|
|
|
Unrealized gain
on (level 3) asset June 30, 2018
|
|
|
180,000
|
|
|
|
|
|
|
Ending Balance as of June 30, 2018
|
|
$
|
260,000
|
|
Business
Segments
The
Company operates in one segment and therefore segment information is not presented.
Advertising,
Marketing and Promotional Costs
Advertising,
marketing and promotional expenses are expensed as incurred and are included in selling, general and administrative expenses on
the accompanying statement of operations. For the six months ended June 30, 2018 and June 30, 2017, advertising, marketing and
promotion expense was $261 and $264, respectively.
Property
and equipment
Property
and equipment consists of furniture and office equipment and is stated at cost less accumulated depreciation. Depreciation is
determined by using the straight-line method for furniture and office equipment, over the estimated useful lives of the related
assets, generally three to five years.
Expenditures
for repairs and maintenance of equipment are charged to expense as incurred. Major replacements and betterments are capitalized
and depreciated over the remaining useful lives of the related assets.
Property
and equipment as of June 30, 2018 and December 31, 2017 consisted of the following:
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
2018
|
|
|
2017
|
|
Computer equipment &
Software
|
|
3 yrs SL
|
|
$
|
5,358
|
|
|
$
|
5,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Website Software
|
|
3 yrs SL
|
|
|
1,561
|
|
|
|
-
|
|
Furniture
|
|
3 yrs SL
|
|
|
4,622
|
|
|
|
4,622
|
|
Total
|
|
|
|
|
11,541
|
|
|
|
9,980
|
|
Less Accumulated
Depreciation
|
|
|
|
|
7,026
|
|
|
|
5,258
|
|
Property
and Equipment, net
|
|
|
|
$
|
4,515
|
|
|
$
|
4,722
|
|
Depreciation
expense for the six months ended June 30, 2018 and 2017 totaled $1,768 and $1,844 respectively. Website additions during the six
months ended June 30, 2018 and 2017 were $1,561 and $0, respectively.
Reclassifications
Certain
2017 amounts have been reclassified for comparative purposes to conform to the fiscal 2018 presentation. These reclassifications
have no impact on the previously reported net loss.
Recently
Issued Accounting Pronouncements
The
Company has evaluated all new accounting standards that are in effect and may impact its condensed consolidated financial statements
and does not believe that there are any other new accounting standards that have been issued that might have a material impact
on its financial position or results of operations.
In
February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize
(i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;
however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard
will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. After
reviewing of this ASU we have determined it will have no impact on our results of operations, cash flows or financial condition.
In
April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations
and Licensing”. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the
amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing
implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on
(a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s
promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied
at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments
in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement
necessary to comply with Topic 606. We adopted this ASU as of January 1, 2018. The adoption of the ASU had no significant impact
on our revenue recognition policies.
On
January 5, 2016 effective January 1, 2018, the FASB issued ASU 2016-01, which amends the guidance in U.S. GAAP on the classification
and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s
accounting related to (1) the classification and measurement of investments in equity Securities and (2) the presentation of certain
fair value changes for financial liabilities measured at fair value, the ASU also amends certain disclosure requirements associated
with the fair value of financial instruments. The ASU requires the entity to carry all investments in equity securities at fair
value through net income.
The
Company adopted ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities.” ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting,
or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net
income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments
for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category
and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
The Company has evaluated the potential impact this standard may have on the condensed consolidated financial statements and determined
that it had a significant impact on the condensed consolidated financial statements. Since the Company accounts for its investment
in Bang Holdings, Corp. as available-for-sale securities, the fair value from of the securities from the prior year has been reclassified
to Retained Earnings from Other Accumulated Comprehensive Income. The unrealized gain on the available-for-sale securities during
the six months ended June 30, 2018 has been recorded in Other Income on the Income Statement.
Note
4 – Stockholders’ Equity
Authorized
Capital
The
Company is authorized to issue 500,000,000 shares of common stock, $0.0001 par value, and 50,000,000 shares of preferred stock,
$0.0001 par value.
Non-Controlling
Interest
On
December 28, 2017, the company sold a non-controlling interest in its subsidiary, KryptoBank Co. for $500 equal to 9% of the outstanding
equity. On January 17, 2018 the company sold an additional 40% in its subsidiary KryptoBank Co. for $4,500. As of June 30, 2018,
the non-controlling interest is 49% of the shares outstanding.
Warrants
On
September 17, 2015, the Company issued an aggregate of 220,000 shares of common stock at $0.50 per unit to investors. In connection
with the purchases, the Company issued three-year warrants to purchase an aggregate of 220,000 shares of common stock at an exercise
price of $2.00 per share. The warrants expire September 17, 2018.
During
2015, the Company issued 100,000 warrants as part of a convertible note offering. The fair value of the warrants was $19,965.
The warrants expire December 23, 2020.
In
conjunction with the Newell Investment Agreement (see Note 8), the company issued warrants to purchase 2,000,000 shares of the
Company’s common stock at an exercise price of $3.50 per share expiring on March 23, 2019.
On
September 30, 2016, The Company’s CEO loaned the Company $120,000 in addition to paying interest at 10%, the Company issued
600,000 warrants at an exercise price of $1.00 per share expiring on September 30, 2021.
The
following table summarizes warrants outstanding as of June 30, 2018 and the related changes during the periods are presented below.
|
|
Weighted
|
|
Number of
|
|
Average
|
|
Warrants
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
2,920,000
|
|
|
$
|
2.62
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2018
|
|
|
2,920,000
|
|
|
$
|
2.62
|
|
Note
5 – Related Party Transactions
The
Company’s CEO earned $10,000 per month. The following compensation was recorded within general and administrative expenses
– related parties on the statements of operations: $60,000 and $60,000 for the six months ended June 30, 2018 and 2017,
respectively. As of June 30, 2018, $426,659 of compensation was unpaid and was included in accounts payable – related parties
on the balance sheet.
As
of June 30, 2018, $5,000 of the rent expense was unpaid and is included in accounts payable-related parties on the balance sheet.
On
September 30, 2016, the CEO loaned $120,000 as a convertible note payable to the Company at an interest rate of 10%, due on October
1, 2017. In addition, the Company issued 600,000 warrants at an execution price of $1.00 which expire on October 1, 2019. See
Note 7. The note is currently in default and has an accrued interest balance of $20,984.
As
of June 30, 2018, the CEO and Company’s controlled by the CEO have loaned the Company a total of $585,939 in addition to
the convertible note discussed above. The loans carry an interest rate of 8% and mature one year and one day from the date of
the loan. The Company accrued interest of $35,057 on the loans. $192,289 of these loans are in default as of June 30, 2018.
On
May 4, 2016, the Company began compensating Aviv Hillo, a member of the board of directors, $2,500 per month. The expense for
the six months ended June 30, 2018 was $15,000 compared to $15,000 for the six months ended June 30, 2017.
The
Company on July 27, 2016 signed a sublease with entity partially owned by a related party to sub-lease approximately 2200 square
feet 1691 Michigan Ave, Miami Beach, Fl. 33139, beginning August 1, 2016 and ending December 31, 2018 at a monthly base rental
of $7,741 per month until July 31, 2017, $7,973 per month from August 1, 2017 to July 31, 2018, and $8,212 from August 1, 2018
to the sublease termination date. In addition to base rent, the Company will have to pay 50% of the CAM charges as additional
rent. On or about January 15, 2017, The Company was made aware that the master lease for the office space was in default. Consequently,
the Company ceased payments. On or about March, 31, 2017, The Company was served with an eviction notice as the Master Lease was
still in default. The Company owes two months’ rent to the master lease holder which has been accrued. The Company has used
its security deposit to partially pay its delinquent rent. On Friday, May 12, 2017 the Company moved its headquarters to 350 Lincoln
Road, Miami Beach, FL 33139. The Company pays $2,718 per month rent. Beginning November 1, 2017, the Company began occupying the
space on a month to month basis. In addition, the company had to pay a security deposit of $4,325. The company is currently looking
for a permanent office space to relocate.
KryptoBank
Co., as part of its initial funding, borrowed an additional $95,000 from its shareholders during the six months ended June 30,
2018. The notes have a stated interest rate of 12% compounded annually and are due on demand. The balance outstanding as of June
30, 2018 is $100,000.
Note
6 – Commitments and Contingencies
Litigation,
Claims and Assessments
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Consulting
Fees
The
Company will continue to pay its CEO $10,000 per month as compensation on a month to month basis. In addition, the company pays
Aviv Hillo, a member of the board of directors, $2,500 per month as compensation. They will be recorded in general and administrative
expenses-related parties on the statement of operations.
Note
7 – Notes Payable
As
of June 30, 2018, the CEO and Company’s controlled by the CEO have loaned the Company a total of $585,939 in addition to
the convertible note discussed below. The loans carry an interest rate of 8% and mature one year and one day from the date of
the loan. $192,289 of these loans are in default as of June 30, 2018. The Company accrued interest of $35,057 on the loans as
of June 30, 2018.
As
of June 30, 2018, KryptoBank Co., as part of its initial funding, borrowed $100,000 from its shareholders. The notes have a stated
interest rate of 12% compounded annually and are due on demand.
Convertible
Notes Payable
On
December 23, 2015, the Company issued a secured convertible promissory note in the amount of $25,000. The note carries a rate
of 8% and was due on March 23, 2016. It is secured by all the assets of the Company. The note further contains a provision that
the lender may convert any part of the note, including accrued interest, that is unpaid into the Company’s common stock
at an exercise price of $0.50 per share. The note also contains a five-year warrant to purchase 100,000 shares of common stock
at an exercise price of $0.50 per share until December 23, 2020. As of March 23, 2016, the note is in default and the interest
rate has been increased to 18%. As of June 30, 2018, the accrued interest on the note is $9,488.
On
April 1, 2016, the Company received $500,000 in exchange for a convertible debenture due April 2, 2017 bearing interest at 10%
and convertible into common stock at $.25 per share unless the note is paid by the Company prior to the election of the holder
to convert. The Company recognized a beneficial conversion feature expense of $500,000 that has been fully amortized. As of June
30, 2018, accrued interest on the note is $112,500 and the note is in default.
On
April 1, 2016, the Company entered into an investment agreement (the “Investment Agreement”) with Newel Trading Group
LLC, a Delaware limited liability company (“Newel”) whereby Newel is obligated, providing the Company has met certain
conditions including the filing of a Registration Statement for the shares to be acquired, to purchase up to Twenty-Five Million
Dollars ($25,000,000) of the Company’s common stock at the rates set forth in the Investment Agreement. Under the Investment
Agreement, the shares are purchased at the discretion of the Company by issuing a Put Notice when funds are needed. In consideration
for the execution and delivery of the Investment Agreement, Company issued 1,000,000 non-registrable shares of Company’s
common stock with a fair value of $125,000 and three year warrants to purchase 2,000,000 shares of the Company’s common
stock at an exercise price of $3.50 per share, expiring March 23, 2019. The black scholes option pricing model with the following
assumptions were used to value the warrants. Expected volatility of 559%, expected life of 3 years, risk free rate of return of
0.9% and expected dividend yield of 0%. The warrants had a fair value of $250,000. Newell is currently in liquidation.
On
September 30, 2016 the Company’s CEO loaned the Company $120,000 with an interest rate of 10% and is convertible into common
stock at $1.00. In addition, the Company issued the CEO 600,000 warrants and recorded a debt discount of $111,428, which has been
fully amortized. The Company valued the warrants using the Black-Scholes option pricing model with the following assumptions:
Expected volatility of 514%, expected life of five years, risk free rate of return of 1.14% and an expected divided yield of 0%.
The warrants had a fair value of $85,714. The note is currently in default and has an accrued interest balance of $20,984 as of
June 30, 2018.
Note
8 - Subsequent Events
From
June 30, 2018 to August 8, 2018, entities controlled by the CEO made short term advances to the Company of $25,000.