Notes
to Unaudited Condensed Financial Statements
September
30, 2017
NOTE
1 – SUMMARY OF BUSINESS
Organization,
Nature of Business and Trade Name
Intelligent
Highway Solutions, Inc. (the “Company” or “IHS”) was formed on April 22, 2011. IHS is a technology based
intelligent highway solutions contractor. Through June 30, 2013, the Company’s primary focus was in the California transportation
market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance
services for the State’s transportation infrastructure. Since that time, the Company has devoted its time to electrical
service contracts. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads,
traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors
and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication
will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler
safety and convenience.
On
March 9, 2017, the Company, through a special purpose entity in which the Company has a controlling interest and 80% ownership,
acquired the outstanding ownership interests in Cresent Construction Company, a full service general contracting firm. The Company
will continue to perform general contracting services as it continues its development of transportation technologies.
NOTE
2 – UNAUDITED CONDENSED CONSOLDIATED INTERIM FINANCIAL STATEMENTS
The
accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows for the periods ended September 30, 2017 and for all periods presented herein,
have been made.
Certain
information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s
December 31, 2016 audited financial statements. The results of operations for the periods ended September 30, 2017 are not necessarily
indicative of the operating results for the full year.
NOTE
3 – GOING CONCERN
The
Company’s unaudited condensed consolidated interim financial statements are prepared using generally accepted accounting
principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation
of liabilities in the normal course of business. As of September 30, 2017, the Company has an accumulated deficit of $14,402,903
a working capital deficit of $6,995,639, continued losses from operations and significant tax liabilities as discussed in
Note
11 – Commitments and Contingencies
which raises substantial doubt of the Company’s ability to continue as a going
concern. While the Company has recently established an ongoing source of revenues, we do not anticipate it to be sufficient
to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern
is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is
unable to obtain adequate capital, it could be forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient
to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
unaudited condensed interim financial statements do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
NOTE
4 - SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of consolidated financial statements in accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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
period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial
condition and results of operations during the period in which such changes occurred.
Actual
results could differ from those estimates. The Company’s condensed consolidated financial statements reflect all adjustments
that management believes are necessary for the fair presentation of their financial condition and results of operations for the
periods presented.
Cash
The
Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The company does not have cash equivalents as of September 30, 2017 or December 31, 2016.
Loss
on Extinguishment of Debt
During
the nine months ended September 30, 2017, the Company entered into a convertible note payable in exchange for two non-convertible
notes payable and two convertible notes payable. The exchange was accounted for as a debt modification and the Company recognized
a loss from the exchange of $61,546 as the difference in principal and accrued interest outstanding on the existing notes payable
and the principal balance of the new convertible note payable. Additionally, the Company recorded a loss on the exchange of debt
from the initial measurement of an embedded derivative liability on the convertible note payable of $451,254 and a gain from derivative
liabilities on the existing convertible notes payable of $53,213 for a total loss on the exchange of debt of $459,587 for the
three and nine months ended September 30, 2017.
Property,
Plant and Equipment
Property
and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments
that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the
period.
Depreciation
is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
|
Estimated
Useful Life
|
Furniture
and fixtures
|
|
3
- 5 years
|
Machinery
and equipment
|
|
5
years
|
Vehicles
|
|
5
years
|
For
federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements
purposes, depreciation is computed under the straight-line method. Balances of each asset class as of September 30, 2017 and December
31, 2016 were:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Machinery
and equipment
|
|
$
|
2,676
|
|
|
$
|
2,149
|
|
Furniture
and fixtures
|
|
|
14,103
|
|
|
|
6,273
|
|
Leasehold
improvements
|
|
|
37,270
|
|
|
|
-
|
|
Vehicles
|
|
|
56,897
|
|
|
|
-
|
|
Sub
Total
|
|
$
|
110,946
|
|
|
$
|
8,422
|
|
Accumulated
depreciation
|
|
|
(29,688
|
)
|
|
|
(8,102
|
)
|
Total
|
|
$
|
81,258
|
|
|
$
|
320
|
|
Depreciation
expense for the three months ended September 30, 2017 and 2016 was $10,633 and $483, respectively.
Depreciation
expense for the nine months ended September 30, 2017 and 2016 was $21,586 and $4,204, respectively.
Accrued
Expenses and Other Liabilities
Accrued
expenses and other liabilities consisted of the following at September 30, 2017 and December 31, 2016:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Payroll
tax liabilities
|
|
$
|
761,396
|
|
|
$
|
761,396
|
|
Other
payroll accruals
|
|
|
290,980
|
|
|
|
162,765
|
|
Federal
and state income taxes payable
|
|
|
127,141
|
|
|
|
128,741
|
|
Accrued
consulting fees due to management
|
|
|
455,712
|
|
|
|
439,876
|
|
Other
|
|
|
178,001
|
|
|
|
168,998
|
|
Total
|
|
$
|
1,813,230
|
|
|
$
|
1,661,776
|
|
Other
accrued expenses mainly consist of accrued consulting fees due to management and other consulting firms. Of the $127,141 and $128,741
accrued for federal and state income taxes payable at September 30, 2017 and December 31, 2016, $127,141 relates to the federal
income tax payable as discussed in Note 11 and $1,600 relates to state income taxes payable as of December 31, 2016.
Revenues
and Cost of Revenues
Revenues
from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term
contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the
ratio of the actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to
be the best available measure of progress on these contracts. Revenues from cost-plus-fee contracts are recognized on the basis
of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.
Cost
of revenues include all direct material, sub-contract, labor, and certain other direct costs, as well as those indirect costs
related to contract performance, such as indirect labor and fringe benefits. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changed in job performance, job conditions and estimated profitability may result in revisions to cost and income,
which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes
in estimates in the current period. Claims for additional contract revenue are recognized when realization of the claim in probable
and the amount can be reasonably determined.
Billings
in Excess of Costs and Estimated Earnings on Uncompleted Contracts
The
following is a summary of the contracts in progress at September 30, 2017 and December 31, 2016:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Costs
incurred on uncompleted contracts
|
|
$
|
2,198,605
|
|
|
$
|
-
|
|
Profit
earned on uncompleted contracts
|
|
|
121,602
|
|
|
|
-
|
|
|
|
|
2,320,207
|
|
|
|
-
|
|
Billings
to date
|
|
|
(2,382,957
|
)
|
|
|
-
|
|
|
|
$
|
(62,750
|
)
|
|
$
|
-
|
|
This
amount is included in the accompanying balance sheet under the following captions at September 30, 2017 and December 31, 2016:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Billings
in excess of costs and estimated earnings on uncompleted contracts
|
|
$
|
62,750
|
|
|
$
|
-
|
|
Fair
Value Measurements
The
fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial
liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used
to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is
defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable market-based inputs or inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market data.
Derivative
Liabilities
The
Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates.
The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase
in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value
of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the
change in fair market values of derivative liabilities over the life of the convertible notes.
Net
Income (Loss) Per Share
Net
income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding
during the specified period. Diluted earnings per common share is computed by dividing net income (loss) by the weighted average
number of common shares and potential common shares during the specified period. For the nine months ended September 30, 2017,
there was 28,859,390,077 such potentially dilutive shares included in the diluted weighted average shares outstanding. During
the three months ended September 30, 2017 and the three and nine months ended September 30, 2016 potential common shares are not
included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares
are excluded when the effect would be to reduce net loss per share. The potentially dilutive shares arise from the following instruments:
|
|
2017
|
|
Convertible
notes payable and accrued interest
|
|
|
28,769,390,077
|
|
Series
A convertible preferred stock
|
|
|
90,000,000
|
|
Total
|
|
|
28,859,390,077
|
|
Recent
Accounting Pronouncements
In
February 2015, the FASB issued ASC 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidation Analysis.”
This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they
should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and requires
either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company adopted has
this standard and determined it does not have a significant impact on its consolidated financial statements.
In
September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period
Adjustments.” This update eliminates the requirement to restate prior period financial statements for measurement period
adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on
prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied
prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim
and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company has adopted this guidance and
the adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash
flows for the three or nine months ended September 30, 2017 or 2016.
In
March 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting
.
”
The amendments in this update simplify several aspects of the accounting for employee share-based
payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well
as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017. The primary impact
of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital. However,
as the Company has a full valuation allowance against its deferred tax asset, a corresponding adjustment was recorded to increase
the valuation allowance.
In
January 2017, the FASB issued ASU 2017-04, “
Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment”.
The amendments in this update simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests
in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will
implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update
will have a material impact on the consolidated financial statements.
Management
believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
NOTE
5 – DERIVATIVE LIABILITIES
As
discussed in Note 4, on a recurring basis, we measure certain financial assets and liabilities based upon the fair value
hierarchy. The following table presents information about the Company’s liabilities measured at fair value as of September
30, 2017 and December 31, 2016:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
September 30, 2017
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,163,181
|
|
|
$
|
2,163,181
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value at
December 31, 2016
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,855,072
|
|
|
$
|
11,855,072
|
|
As
of September 30, 2017, the Company had a $2,163,181 derivative liability balance on the balance sheet and recorded a loss from
derivative liability fair value adjustment of $443,974 and a gain of $10,073,464 during the three and nine months ended September
30, 2017. The Company assessed its outstanding convertible notes payable as summarized in
Note 8 – Convertible Notes
Payable
and determined certain convertible notes payable with variable conversion features contain embedded derivatives and
are therefore accounted for at fair value under
ASC 920, Fair Value Measurements and Disclosures
and
ASC 825, Financial
Instruments.
During
the nine months ended September 30, 2017, the Company recorded derivative liabilities totaling $1,110,163. Of this amount, $451,254
was recorded as a loss on the extinguishment f debt as discussed in
Note 4 – Significant Accounting Policies,
$357,567
as a debt discount which is the amount of derivative liability at initial measurement up to the face value of the underlying convertible
note payable and $301,342 as interest expense from the excess derivative liability upon initial measurement beyond the face value
of the underlying convertible note payable.
Utilizing
Level 3 Inputs, the Company recorded fair market value adjustments related to convertible notes payable for the three months ended
September 30, 2017 and 2016 of $(443,974) and $131,728 and fair value adjustments related to the convertible notes payable for
the nine months ended September 30, 2017 and 2016 of $10,073,464 and $350,003, respectively. The fair market value adjustments
were calculated utilizing the Black-Sholes method using the following assumptions: risk free rates of 0.96% to 1.31%, dividend
yield of 0%, expected lives of 0.10 to 1 years, and volatility between 318% and 544%.
A
summary of the activity of the derivative liability for the nine months ended September 30, 2017 is shown below:
Balance
at December 31, 2016
|
|
$
|
11,855,072
|
|
Derivative
liabilities recorded
|
|
|
1,110,163
|
|
Change
due to note conversion
|
|
|
(675,377
|
)
|
Fair
value adjustment
|
|
|
(10,073,464
|
)
|
Balance
at September 30, 2017
|
|
$
|
2,163,181
|
|
A
summary of the activity of the derivative liability for the nine months ended September 30, 2016 is shown below:
Balance
at December 31, 2015
|
|
$
|
1,005,791
|
|
Derivative
liabilities recorded
|
|
|
100,097
|
|
Change
due to note conversion
|
|
|
(18,978
|
)
|
Fair
value adjustment
|
|
|
(350,003
|
)
|
Balance
at September 30, 2016
|
|
$
|
736,907
|
|
NOTE
6 – CONCENTRATIONS OF RISK
Our
revenues during the three and nine months ended September 30, 2017 were generated completely from nine clients. The loss of any
of these clients will have a material adverse impact on our business. There were no revenues earned during the three or nine months
ended September 30, 2016.
NOTE
7 – NOTES PAYABLE
The
Company has entered into various debt agreements to fund operations. A summary of outstanding non-convertible notes payable is
as follows:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Note
payable to non-related party, unsecured, due on September 1, 2014, interest rate of 0%. Currently in default. Principal due
on demand.
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Note
payable to non-related party, unsecured, due on December 31, 2014, interest rate of 0%. Currently in default. Principal due
on demand.
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Note
payable to non-related party, secured by vehicles owned by the Company, due on October 22, 2016, interest rate of 15%. Currently
in default. Principal and accrued interest due on demand.
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Note
payable to non-related party, unsecured, due on April 29, 2016, interest rate of 8%. Currently in default. Principal and accrued
interest due on demand.
|
|
|
-
|
|
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
Note
payable to non-related party, unsecured, due on June 22, 2016, interest rate of 8%. Currently in default. Principal and accrued
interest due on demand.
|
|
|
-
|
|
|
|
73,455
|
|
|
|
|
|
|
|
|
|
|
Sale
of future receivable to non-related party, secured by future accounts receivable, due on December 31, 2016. Principal due
as future accounts receivable are collected.
|
|
|
27,154
|
|
|
|
27,154
|
|
|
|
|
|
|
|
|
|
|
Seller’s
note from acquisition of Cresent Construction Company, due on March 31, 2022, interest rate of 6%. Semi-annual payments of
$152,693 due in February and August required through maturation. There have been no payments on this note to date with the
first being due no earlier than August 9, 2017. Payments are required upon 30 days’ written notice by the noteholder.
The Company has not yet received the required written notice from the holder regarding payment being due.
|
|
|
1,300,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Bonding
note from acquisition of Cresent Construction Company, due on March 31, 2020, interest rate of 8%. Monthly payments of $7,834
required through maturation.
|
|
|
146,892
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Vehicle
loans. Secured by vehicles of Cresent Construction Company
|
|
|
7,261
|
|
|
|
-
|
|
Total
principal outstanding
|
|
|
1,606,307
|
|
|
|
258,609
|
|
Less:
debt discounts
|
|
|
-
|
|
|
|
-
|
|
Total
balance
|
|
$
|
1,606,307
|
|
|
$
|
258,609
|
|
Required
principal payments from September 30, 2017 forward are as follows:
2017
|
|
$
|
298,379
|
|
2018
|
|
|
335,102
|
|
2019
|
|
|
263,757
|
|
2020
|
|
|
270,965
|
|
2021
|
|
|
287,678
|
|
2022
|
|
|
150,426
|
|
Total
|
|
$
|
1,606,307
|
|
There
was $124,344 and $27,377 of accrued interest payable on non-convertible notes payable as of September 30, 2017 and December 31,
2016.
NOTE
8 – CONVERTIBLE NOTES PAYABLE
The
Company has entered into various convertible debt agreements to fund operations. A summary of outstanding convertible notes payable
is as follows:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on February 13, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on April 8, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on March 21, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on May 9, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on November 4, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on July 15, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on September 3, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on October 31, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on October 21, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on December 30, 2015. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on March 26, 2016. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, unsecured, interest of 10%, due on April 26, 2013. Currently in default. May be converted
at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest of 10%, unsecured, due on June 11, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the
five days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
59,800
|
|
|
|
59,800
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on December 12, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 40% discount from the lowest closing bid price
during the fifteen days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
128,087
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on July 7, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest closing bid price during
the fifteen days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
27,466
|
|
|
|
27,466
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on August 6, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest closing bid price during
the fifteen days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
28,269
|
|
|
|
-
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
29,419
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
-
|
|
|
|
20,134
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on June 25, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
9,245
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
-
|
|
|
|
77,947
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
117,198
|
|
|
|
80,236
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 10%, unsecured, due on June 15, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
19,372
|
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on April 3, 2018. May be converted at the option of
the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
5,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 10, 2018. May be converted at the option of
the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
11,250
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on September 25, 2018. May be converted at the option
of the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
36,430
|
|
|
|
-
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on April 15, 2018. May be converted at the option
of the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
147,463
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 20, 2018. May be converted at the option of
the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
15,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on April 14 2018. May be converted at the option of
the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
38,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on February 16, 2018. May be converted at the option
of the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of the Company’s
common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on July 1, 2017. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 42% discount from the lowest intra-day trading price of
the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
69,990
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 19, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading
prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
-
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on September 30, 2016. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest
trading prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
25,600
|
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 19, 2015. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading
prices during days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
16,018
|
|
|
|
16,018
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 22%, unsecured, due on October 12, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during
the twenty days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
58,941
|
|
|
|
58,941
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 30, 2016. Currently in default. May be converted
at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the
twenty days prior to conversion. The Company may not repay the convertible note in cash.
|
|
|
36,000
|
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on November 3, 2017. May be converted at the option
of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the twenty days prior
to conversion effective May 3, 2017. The Company may not repay the note in cash.
|
|
|
47,725
|
|
|
|
16,500
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on May 11, 2018. May be converted at the option of
the holder into common stock at a price equal to a 50% discount from the average of the lowest three intra-day trading price
of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
38,525
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on June 30, 2018. May be converted at the option of
the holder into common stock at a price equal to a 50% discount from the average of the lowest three intra-day trading price
of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible
note in cash.
|
|
|
39,100
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, unsecured, due on August 7, 2018. May be converted at the option
of the holder into common stock at a price equal to a 50% discount from the average of the lowest three intra-day trading
price of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the
convertible note in cash.
|
|
|
86,250
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 15%, default interest rate of 22%, unsecured, due on September 11, 2015.
Currently in default. May be converted at the option of the holder into common stock at a price equal to a 60% discount from
the average of the the three lowest trading prices during the twenty five days prior to conversion. The Company may not repay
the convertible note in cash.
|
|
|
16,651
|
|
|
|
16,651
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 12%, default interest rate of 20%, unsecured, due on May 3, 2018. Currently
in default. May be converted at the option of the holder into common stock at a price equal to a 45% discount from the lowest
trading price during the twenty five days prior to conversion with a floor of $0.00005. The Company may not repay the convertible
note in cash.
|
|
|
87,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable to non-related party, interest rate of 22%, unsecured, due on October 28, 2015. Currently in default. May be
converted at the option of the holder into common stock at a price equal to a 60% discount from the average of the three lowest
trading prices during the twenty five trading days prior to conversion. The Company may not repay the convertible note in
cash.
|
|
|
-
|
|
|
|
9,050
|
|
Total
principal outstanding
|
|
|
1,596,799
|
|
|
|
987,744
|
|
Less:
debt discounts
|
|
|
(230,070
|
)
|
|
|
(1,581
|
)
|
Total
balance
|
|
$
|
1,366,729
|
|
|
$
|
986,163
|
|
Required
principal payments from September 30, 2017 forward are as follows:
2017
|
|
$
|
1,079,781
|
|
2018
|
|
|
517,018
|
|
Total
|
|
$
|
1,596,799
|
|
There
was $44,722 and $250,452 of accrued interest payable on convertible notes payable as of September 30, 2017 and December 31, 2016.
The
Company has recorded a derivative liability for each convertible note payable with a variable conversion rate. See Note 5 for
further discussion.
During
the nine months ended September 30, 2017, the Company accrued default penalties on convertible notes payable of $298,321. The
default penalties represent agreed upon penalties as stipulated by the individual convertible note agreements calculated as a
percentage of principal outstanding as of the date of default.
NOTE
9 – RELATED PARTY TRANSACTIONS
During
the year ended December 31, 2014, the Company received an interest free $8,000 loan from a related party to fund operations. The
loan is unsecured, due on demand and as such is included in current liabilities. There was $5,000 due as of September 30, 2017
and December 31, 2016, respectively.
During
the year ended December 31, 2014, the Company received an interest free $2,000 loan from a related party to fund operations. The
related party made additional advances of $396 during the year ended December 31, 2016 and additional advances of $100 during
the nine months ended September 30, 2017. The loan is unsecured, due on demand and as such is included in current liabilities.
There was $2,496 due as of September 30, 2017 and December 31, 2016, respectively.
The
Company accrues management and consulting fees for its officers in accordance with employment and consulting agreements in place
with each. As of September 30, 2017, there was a total of $203,455 accrued for unpaid wages, $33,177 for unused vacation time
and $455,712 of accrued consulting fees due to officers for a total of $692,344 of accrued officer compensation as of September
30, 2017. As of December 31, 2016, there was a total of $133,916 accrued for unpaid wages, $28,849 for unused vacation time and
$439,876 of accrued consulting fees due to officers for a total of $602,641 of accrued officer compensation as of December 31,
2016.
NOTE
10 – STOCKHOLDERS’ DEFICIT
The
Company is authorized to issue up to 10,000,000,000 shares of $0.00001 par value common stock and 50,000,000 shares of $0.0001
par value blank check preferred stock of which 10,000,000 has been designated as Series A Convertible Preferred Stock. Each share
of Series A Convertible Preferred Stock may be converted to common stock at the option of the holder at the greater of one share
of common for each share of Series A Convertible Preferred Stock or the par value of the stock divided by a 10% discount from
the volume weighted average price of the common stock of the preceding ten trading days.
During
the nine months ended September 30, 2017, the Company issued a total of 4,575,284,230 shares of common stock for the conversion
of $235,100 of outstanding principal and 834,097,357 shares of common stock for the conversion of $43,057 of outstanding interest
on convertible notes payable. All conversions were performed under the contractual terms of the respective notes payable. Additionally,
during the nine months ended September 30, 2017, the Company issued a total of 260,000,000 common shares valued at $42,000 for
services performed. The common shares issued for services were valued using the close price of the Company’s common stock
on the date of issuance.
During
the nine months ended September 30, 2017, the Company issued a total of 7,500,000 shares of Series A Convertible Preferred Stock
for services rendered in connection with its acquisition of Cresent Construction Company. The shares of Series A Convertible Preferred
Stock were valued on an as converted to common stock basis at $0.0009 per share resulting in a total value of $6,750.
There
were 10,000,000 and 2,500,000 series A convertible preferred shares issued and outstanding at September 30, 2017 and December
31, 2016, respectively.
There
were 8,585,083,257 and 2,915,701,670 common shares issued and 8,585,033,257 and 2,915,651,670 outstanding at September 30, 2017
and December 31, 2016, respectively.
The
Company has 8,585,033,257 common shares outstanding, a total of 28,859,390,077 common share equivalents as discussed in
Note
4 – Significant Accounting Policies
and 448,570 exercisable options and warrants as discussed in
Note 12 –
Stock Options
for a total of 37,444,871,904 shares of common stock and common stock equivalents as of September 30, 2017.
With 10,000,000,000 shares authorized, there are insufficient common shares in treasury to meet all of the Company’s common
share equivalents obligations. 28,769,390,077 of the common share equivalents arise from outstanding convertible notes payable
as discussed in
Note 4 – Significant Accounting Policies
and
Note 8 – Convertible Notes Payable
and
as such have been recognized as a debt obligation in conjunction with the underlying derivative liabilities as discussed in
Note
5 – Derivative Liabilities
. The Company plans to remediate this shortfall either through a reverse stock split or an
increased in the authorized common stock of the Company.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
The
Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of
unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information
known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating
and settling similar matters.
As
of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is
a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental
authorities.
Payroll
Tax Liabilities
As
of September 30, 2017 and December 31, 2016 the Company had accrued $761,396 in payroll tax liabilities. The payment of these
liabilities has not been made due to our limited profitability. Due to the uncertainty regarding our future profitability, it
is difficult to predict our ability to pay these liabilities. As a result, a federal tax lien has been levied that will have to
be satisfied.
Federal
Income Tax Liability
On
January 29, 2015, we received a notification from the Internal Revenue Service (the “IRS”) regarding deficiencies
in our tax return for the year ended December 31, 2011. The notice was the result of not filing our tax return for the year then
ended and included the results of an IRS examination which yielded an income tax amount due of $92,804 plus penalties and interest
totaling $34,337 for a total amount due of $127,141. While we believe we will be able to successfully reduce the tax liability
and assessed penalties to zero or near zero due to our net loss sustained during the year ended December 31, 2011, the possibility
exists we will be unsuccessful and could face an assessment for the full amount of $127,141. As detailed in Note 4, there is an
accrued liability of $127,141 for this potential payout as of September 30, 2017 and December 31, 2016.
Litigation
During
the second quarter of 2017, the Company filed a lawsuit in the Superior Court in the County of Sacramento against TCA Global Credit
Master Fund, LP (“TCA”) alleging lending fraud as TCA is not licensed or authorized to conduct investment banking
or lending business in the State of California under the California Finance Lenders Law and default on the credit line for not
having made the credit line available for use. The Company has requested a summary judgement in the amount of $1,730,046 for damages
and attorney fees. TCA has filed counter suit claiming default on the credit line. Given the uncertain nature of the outcome of
the suit and countersuit, the Company has not accrued for potential costs associated with an unfavorable outcome or potential
gain associated with a favorable outcome.
Office
Lease
On
October 18, 2017, the Company entered into a lease for office space that requires minimum monthly payments for a period of three
years. The monthly base rent during the first year is $2,900 with annual increases of 1% each year thereafter. The lease also
requires monthly payment for common area maintenance of $300. Total future minimum payments under the terms of the lease are:
Year
ended December 31,
|
|
Base
Rent
|
|
|
CAM
|
|
|
Total
|
|
2017
|
|
$
|
8,700
|
|
|
$
|
899
|
|
|
$
|
9,599
|
|
2018
|
|
|
34,887
|
|
|
|
3,597
|
|
|
|
38,484
|
|
2019
|
|
|
35,236
|
|
|
|
3,597
|
|
|
|
38,833
|
|
2020
|
|
|
26,625
|
|
|
|
2,697
|
|
|
|
29,322
|
|
Total
|
|
$
|
105,448
|
|
|
$
|
10,790
|
|
|
$
|
116,238
|
|
NOTE
12 – STOCK OPTIONS
The
following table summarizes all stock option activity for the nine months ended September 30, 2017:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per
Share
|
|
Outstanding,
December 31, 2016
|
|
|
448,570
|
|
|
$
|
0.30
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
|
|
Outstanding,
September 30, 2017
|
|
|
448,570
|
|
|
$
|
0.30
|
|
The
following table discloses information regarding outstanding and exercisable options at September 30, 2017:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
(Years)
|
|
|
Number
of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.30
|
|
|
|
448,570
|
|
|
$
|
0.30
|
|
|
|
0.64
|
|
|
|
448,570
|
|
|
$
|
0.30
|
|
|
|
|
|
|
448,570
|
|
|
$
|
0.30
|
|
|
|
0.649
|
|
|
|
448,570
|
|
|
$
|
0.30
|
|
In
determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
December
31, 2014
|
|
Expected
term of options granted
|
|
|
2
- 5 years
|
|
Expected
volatility range
|
|
|
394
- 408
|
%
|
Range
of risk-free interest rates
|
|
|
1.70
– 1.73
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
NOTE
13 – ACQUISTION
On
March 9, 2017, the Company, through a newly created special purpose entity, executed a share purchase agreement to acquire all
outstanding ownership interests in Crescent Construction Company, Inc. a full service general contracting firm for total consideration
of $1,800,000. The agreement required a cash payment of $500,000 at closing plus a note payable for $1,300,000. The note carries
interest of 6%, matures on March 31, 2022 and requires equal semi-annual payments of $152,693. Additionally, the Company entered
into a separate note payable with the seller for cash proceeds of $160,466. Because this note was executed simultaneously with
the purchase agreement, it was considered part of the acquisition price which brought the total consideration to $1,960,466. The
suit discussed in
Note 11 – Commitments and Contingencies
notwithstanding, TCA fulfilled its obligation to advance
the Company the initial $500,000 against the credit line as discussed in
Note 15 – Line of Credit
which was paid
to the seller as the initial cash payment due at closing.
The
Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, contracts receivable,
equipment, non-compete agreements and contracts in progress) and liabilities assumed (accounts payable and accrued expenses and
notes payable) at fair value as of the acquisition date. The cash, contracts receivable, accounts payable and accrued expenses
and notes payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of
all equipment to be historical book value. The preliminary allocation of the purchase price was based on estimates of the fair
value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final
and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets
and liabilities. Under the purchase agreement, the Company paid cash of $500,000 and issued a total of $1,460,466 of promissory
notes for total consideration of $1,960,466. The following table shows the estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition:
ASSETS
ACQUIRED
|
|
|
|
|
Cash
|
|
$
|
160,466
|
|
Contracts
receivable
|
|
|
611,320
|
|
Equipment
|
|
|
102,524
|
|
Non-compete
agreement
|
|
|
32,468
|
|
Contracts
in progress
|
|
|
157,002
|
|
Goodwill
|
|
|
1,474,907
|
|
Total
assets acquired
|
|
$
|
2,538,687
|
|
|
|
|
|
|
LIABILITIES
ASSUMED
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
565,215
|
|
Billings
in excess of costs on uncompleted contracts
|
|
|
1,827
|
|
Notes
payable
|
|
|
11,179
|
|
Total
liabilities assumed
|
|
|
578,221
|
|
|
|
|
|
|
NET
ASSETS ACQUIRED
|
|
$
|
1,960,466
|
|
In
accordance with ASC 805-10-50, the Company is providing the following unaudited pro-forma condensed consolidated statements of
operations to present a summary of the combined results of the Company’s condensed consolidated operations as if the acquisition
had been completed as of the beginning of the reporting period. Adjustments were made to eliminate any inter-company transactions
in the periods presented.
INTELLIGENT
HIGHWAY SOLUTIONS
PRO-FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
1,186,266
|
|
|
$
|
2,346,558
|
|
|
$
|
3,981,871
|
|
|
$
|
5,961,199
|
|
Cost
of sales
|
|
|
1,149,731
|
|
|
|
2,261,160
|
|
|
|
3,947,497
|
|
|
|
5,406,742
|
|
Gross
profit
|
|
|
36,535
|
|
|
|
85,398
|
|
|
|
34,374
|
|
|
|
554,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
|
41,443
|
|
|
|
45,671
|
|
|
|
149,709
|
|
|
|
172,289
|
|
General
and administrative
|
|
|
161,931
|
|
|
|
115,670
|
|
|
|
561,166
|
|
|
|
359,844
|
|
Total
operating expenses
|
|
|
203,374
|
|
|
|
161,341
|
|
|
|
710,875
|
|
|
|
532,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(166,839
|
)
|
|
|
(75,943
|
)
|
|
|
(676,501
|
)
|
|
|
22,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on extinguishment of debt
|
|
|
(459,587
|
)
|
|
|
-
|
|
|
|
(459,587
|
)
|
|
|
2,142
|
|
Gain
on sale of fixed assets
|
|
|
-
|
|
|
|
2,800
|
|
|
|
-
|
|
|
|
16,550
|
|
Penalties
on convertible notes payable
|
|
|
(298,321
|
)
|
|
|
-
|
|
|
|
(298,321
|
)
|
|
|
-
|
|
Gain
(loss) on derivative fair value adjustment
|
|
|
(443,974
|
)
|
|
|
131,728
|
|
|
|
10,073,464
|
|
|
|
350,003
|
|
Interest
expense
|
|
|
(544,660
|
)
|
|
|
(69,139
|
)
|
|
|
(752,186
|
)
|
|
|
(409,955
|
)
|
Total
other income (expense)
|
|
|
(1,746,542
|
)
|
|
|
65,389
|
|
|
|
8,563,370
|
|
|
|
(41,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(1,913,381
|
)
|
|
|
(10,554
|
)
|
|
|
7,886,869
|
|
|
|
(18,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before non-controlling interest
|
|
|
(1,913,381
|
)
|
|
|
(10,554
|
)
|
|
|
7,886,869
|
|
|
|
(18,936
|
)
|
Net
(loss) income attributable to non-controlling interest
|
|
|
(13,574
|
)
|
|
|
-
|
|
|
|
(37,454
|
)
|
|
|
73,548
|
|
Net
income (loss) attributable to Intelligent Highway Solutions
|
|
$
|
(1,899,807
|
)
|
|
$
|
(10,554
|
)
|
|
$
|
7,924,323
|
|
|
$
|
(92,484
|
)
|
NOTE
14 – EQUITY LINE OF CREDIT
On
August 6, 2015, the Company entered into line of credit whereby it has the right to sell to the investor up to $5,000,000 of common
stock over a period of 24 months. The Company may sell up to $100,000 of common stock, but not less than $5,000, at any time at
is sole discretion by issuing a put notice to the investor. The sales price of the stock will be equal to a 30% discount from
the average of the lowest two closing bid prices in the preceding five trading days. There is a minimum of ten trading days between
put notices. The agreement requires the Company to issue 3% of the total credit line, or $150,000, in common stock with an issue
price equal to the average of the daily volume weighted average prices of the Company’s common stock during the five business
days immediately preceding the due date of the issuance. The Company did not exercise its rights under the agreement during the
period ended September 30, 2017.
NOTE
15 – LINE OF CREDIT
On
March 9, 2017, the Company entered into a revolving line of credit to borrow up to $5,000,000 dollars of which $631,855 was drawn
immediately. Of the amount drawn on March 9, 2017, $500,000 was paid to the seller of Cresent Construction Company as the cash
component of the acquisition and $131,855 was drawn to pay seller and financer acquisition related costs. The credit line carries
interest at 12% per annum and matures on September 9, 2017 with all outstanding principal being due at maturity. Under the terms
of the credit facility, the parties shall not incur or have outstanding funded indebtedness outside of those allowed under the
terms of the agreement, enter into or permit and liens, enter into new investments in additional businesses outside of those permitted
within the agreement, enter into a transfer of shares or merger, make capital expenditures or issue additional shares of stock
without the consent of the credit line maker.
During
the nine months ended September 30, 2017, the Company entered into a convertible note payable for $102,500 in exchange for an
equal amount outstanding on the credit line. As of September 30, 2017, there was borrowing capacity of $4,500,000. There was $500,000
and $0 of principal drawn as of September 30, 2017 and December 31, 2016, respectively. There was $40,305 and $0 of accrued interest
due at September 30, 2017 and December 31, 2016, respectively. The Company has filed suit against TCA claiming default and TCA
has filed countersuit against the Company claiming default as discussed in
Note 11 – Commitments and Contingencies.
NOTE
16 – SUBSEQUENT EVENTS
On
November 4, 2017, the Company issued a total of 119,009,000 common shares for the conversion of $5,950 of outstanding principal
of convertible notes payable. The conversion was performed at contractual terms.
On
November 17, 2017, the Company issued a total of 375,000,000 common shares for the conversion of $20,419 of outstanding interest
on convertible notes payable. The conversion was performed at contractual terms.