UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number: 000-55154
INTELLIGENT HIGHWAY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 30-0680119 | |
| State
or other jurisdiction of incorporation or organization |
(I.R.S.
Employer Identification No.) |
9516 Rossport Way Ell Grove, CA |
95624 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (720) 460-1390
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, par value $0.00001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2015: $413,429
As of April 5, 2017, the registrant had 3,375,651,670 shares of its common stock outstanding.
Documents Incorporated by Reference: None.
TABLE OF CONTENTS
Overview
On August 22, 2013, Intelligent Highway Solutions, Inc. (the “Company”) entered into a distribution agreement (the “Distribution Agreement”) with SCS Lighting Solutions Inc. (“SCS”), whereby SCS appointed the Company as its exclusive distributer of SCS products in Sacramento, California and other locations, as determined by both parties in the future. The SCS products include standard lighting solutions, as well as custom lighting products for indoor and outdoor applications. The Distribution Agreement is no longer exclusive.
The Distribution Agreement’s term automatically renews for one (1) year increments, unless either party elects to terminate the Agreement by giving not less than sixty (60) days’ notice prior to the end of the current term.
On March 19, 2014, the Company announced it had received a significant purchase order from Honeywell International Inc. (“Honeywell”) for the installation of a temperature control system and associated sensors in a state owned office building in Alameda, California.
On July 1, 2014, the Company announced it had received a second purchase order from Honeywell. The purchase order is for additional work in office buildings owned by the State of California.
Expatriate Corporation Status and Eligibility to Bid and Receive California Contracts
California Public Contract Code Section 10286 (the “Code”) disallows any California state agency to enter into any contract with an Expatriate Corporation. Section 10286.1 of the Code defines Expatriate Corporation. The definition of Expatriate Corporation includes foreign incorporated entities that publicly trade in the United States. However, foreign incorporated entities are entities that are created or organized under the laws of a foreign country or reside in a foreign country. We do not believe we are an Expatriate Corporation within the definition expressed in the Code.
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In addition, the Company possesses a C-10 Electrical License from the Contractors State License Board from the State of California and is licensed as a small business with the State of California. This license allows us to contract with the State and grants us a five percent bidding preference over non-qualified entities.
Given that we are not an Expatriate Corporation, we possess a C-10 Electrical License, and we are licensed as a small business with the State of California, we believe that we are qualified to bid on, receive and enter into contracts with the State of California.
Going Concern
Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We have generated very little revenue and have limited tangible assets. Our company has a limited operating history. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
Our Corporate History and Background
Devon Jones and Philip Kirkland have worked together for several years as independent electrical contractors involved with a number of contracts associated within the transportation sector. These contracts included, but were not limited to, the pulling of fiber optic cable, installation of video equipment, and the service, maintenance and installation of traffic operations systems for Caltrans. After over five years of working in the transportation industry, they decided to pool their talents and contacts and the two formed a new company to expand beyond a services based business and introduce new technology to the transportation market.
In April 2011, Jones and Kirkland re-organized their operations under Intelligent Highway Solutions, Inc.
Growth Strategy
IHS plans on expanding beyond the service business and plans to become more involved with all aspects of the intelligent transportation systems (“ITS”) sector. The Company will service other electrical contracting opportunities as they arise during the development phase of intelligent transportation systems technologies.
Phase One: The Traffic Operations Systems Networks contract with our customer was completed. There are currently no plans to pursue similar agreements.
Phase Two: Growth will occur in the installation division: this includes but is not limited to the installation of the new technology that the Company has licensed, acquired and/or developed. It also includes expansion beyond the borders of California.
Phase Three: Introduction of the Company’s proprietary technology, including, but not limited to, a new wireless and battery-less traffic sensor that can be embedded in the road and used to measure traffic flow, speed, and approximate vehicle weight.
Research and Development
Development of an alternative to inductive loop system
The Company entered into an agreement with a third party to test market, distribute and install an alternative to the existing loop detection technology. The flexible, dependable, low-cost, wireless vehicle detection system uses magneto-resistive wireless sensors—with what the Company’s management believes is an unprecedented 10-year battery life—to detect vehicle presence and movement.
The Company’s management believes the in-ground wireless sensors are rugged, install in minutes, deploy in a matter of hours, and can begin transmitting accurate, real-time detection data to signal controllers, traffic management centers, and traveler information systems. The Company’s management believes installation is fast and simple, minimizing road closures and worker exposure, and greatly reducing operating and maintenance spending. The Company’s management believes the in-ground wireless sensors have the following qualities:
| ● | In-pavement installation with no wires or lead-in cabling | |
| ● | 10-year battery life | |
| ● | Impervious to weather | |
| ● | Rapid installation and deployment reduces road closures and worker exposure | |
| ● | Patented, ultra-low “NanoPower” communications protocol |
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| ● | Superior accuracy, dependability, and extensibility | |
| ● | Universal platform for all traffic detection applications | |
| ● | Self-calibrating, self-tuning | |
| ● | Re-usable and remotely upgradeable | |
| ● | Easily deployed in complex configurations | |
| ● | Capable of over 300 million detections |
The objective is to use existing sensor technology and existing wireless technology to reduce the development time of this project.
The Company’s management expects that once fully developed and tested, the new system would replace traditional inductive loop systems. To install a loop detector and calibrate it, it is sometimes necessary to shut down traffic on the road for as much as 2 days. The Company’s management believes the new sensors can be installed by drilling a slot across the lane in the road surface of 1 inch width and 2 inches depth. Most importantly, no wiring is needed from the traffic lane to the roadside data acquisition unit. It is expected that the installation will only take a few minutes.
The new sensor on the roadway require no external power supply while inductive loop detectors have to be continuously powered all the time, even during the night when traffic flow might be really low.
The new sensors can measure number of axles and vehicle length, in addition to traffic flow rate. Thus they can be used for vehicle classification.
Future Products and Their Market
In the future, the Company plans on developing ITS to improve traffic flow, reduce emissions and synchronize traffic signals for public safety and public transportation vehicle priority. ITS can collect information at signals all around the city, correlate the real-time data and automatically regulate traffic policies across a city. ITS includes a range of applications that can benefit cities such as:
| ● | Intelligent Traffic Signal Management - Actively managed and coordinated traffic signals can reduce congestion and moderate traffic speeds, smoothing traffic flow and reducing auto emission levels. |
| ● | Video Analytics - Real-time video enables traffic controllers to identify problems, record and ticket red light runners, gather traffic analytics information and enforce special traffic zones. Public safety workers may also access the video to identify traffic conditions so they can route around congested roads when responding to an emergency. |
| ● | Information and Alerts - Variable message signs can quickly broadcast information such as weather, road conditions, stolen vehicle and other timely local information to drivers. |
Customers
Currently, our only customer is Honeywell.
Employees
We currently have 2 full time employees, consisting of two executives.
Not applicable because we are a smaller reporting company.
Item 1B. Unresolved Staff Comments.
Not applicable because we are a smaller reporting company.
Our principal executive office is located at 9516 Rossport Way, Ell Grove, CA 95624, and our telephone number is (720) 460-1390. We leased our office space, which consisted of 9,300 square feet of office and warehouse space and paid a monthly rent of $3,700. Our lease expired on January 9, 2016.
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We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company, threatened against or affecting our company, our common stock, any of our company’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
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. The Company has accrued $127,414 for this liability as of December 31, 2015.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the OTCQB and OTCBB under the symbol “IHSI”. The OTCQB and OTCBB are quotation services that display real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. The closing price of the common stock on April 13, 2016 was $0. 0112 per share. As our stock started trading on April 24, 2013, the high and low bid prices for trading of our stock for each of the second, third, and fourth quarters of 2014 as well as each quarter of 2015 was as follows:
| High | Low | |||||||
| Fiscal Year 2014 | ||||||||
| First quarter ended March 31, 2014 | $ | 0.70 | $ | 0.20 | ||||
| Second quarter ended June 30, 2014 | $ | 0.58 | $ | 0.12 | ||||
| Third quarter ended September 30, 2014 | $ | 0.30 | $ | 0.038 | ||||
| Fourth quarter ended December 31, 2014 | $ | 0.0999 | $ | 0.0199 | ||||
| Fiscal Year 2015 | ||||||||
| First quarter ended March 31, 2015 | $ | 0.0440 | $ | 0.0062 | ||||
| Second quarter ended June 30, 2015 | $ | 0.0189 | $ | 0.003 | ||||
| Third quarter ended September 30, 2015 | $ | 0.0055 | $ | 0.0001 | ||||
| Fourth quarter ended December 31, 2015 | $ | 0.0002 | $ | 0.0001 |
Approximate Number of Equity Security Holders
As of March 31, 2016, there were approximately 60 stockholders of record.
Dividends
Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have in effect any compensation plans under which our equity securities are authorized for issuance.
Item 6. Selected Financial Data.
Not applicable because we are a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
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Overview
Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was formed in April 22, 2011; IHS is a technology based intelligent highway solutions contractor. The Company’s primarily focus is 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. 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. While the Company develops technologies related transportation technology, it will accept general electrical contracting work as a revenue source.
Plan of Operations
On August 22, 2013, the Company entered into the Distribution Agreement with SCS, whereby SCS appointed the Company as its exclusive distributer of SCS products in Sacramento, California and other locations, as determined by both parties in the future. The SCS products include standard lighting solutions, as well as custom lighting products for indoor and outdoor applications. The Distribution Agreement is no longer exclusive.
The Distribution Agreement’s term automatically renews for one (1) year increments, unless either party elects to terminate the Agreement by giving not less than sixty (60) days’ notice prior to the end of the current term.
On March 19, 2014, the Company announced it had received a significant purchase order from Honeywell for the installation of a temperature control system and associated sensors in a state owned office building in Alameda, California.
On July 1, 2014, the Company announced it had received a second purchase order from Honeywell. The purchase order is for additional work in office buildings owned by the State of California.
These purchase orders with Honeywell were the Company’s sole source of income in 2014.
Results of Operations
Comparison of the year ended December 31, 2015 and 2014
Revenue
In 2014 and 2015, we generated revenue through our purchase orders from Honeywell for the installation of a temperature control system.
| Year ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| Revenue | $ | 236,068 | $ | 1,016,489 | $ | (780,421 | ) | |||||
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Revenues for the year ended December 31, 2015 were $236,068 compared to $1,016,489 for the year ended December 31, 2014. The decrease of $780,421 or 77% is the result of the Company receiving purchase orders from Honeywell in 2014 which did not exist in 2015 due to the winding down of the project. The Honeywell project was completed during the first quarter of 2015. We will continue to accept general electrical contracting projects while we develop technologies related to our planned business of intelligent transportation services.
Cost of Goods Sold
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.
| Year ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| Labor | $ | 110,415 | $ | 666,304 | $ | (555,889 | ) | |||||
| Fuel | 2,523 | 5,421 | (2,898 | ) | ||||||||
| Vehicle Lease | 24,519 | 49,804 | (25,285 | ) | ||||||||
| Other | 76,997 | 66,370 | 10,627 | |||||||||
| Total | $ | 214,454 | $ | 787,899 | $ | (573,445 | ) | |||||
Cost of goods sold for the year ended December 31, 2015 was $214,454 compared to $787,899 during the year ended December 31, 2014. The decrease of $573,445 or 73% is the result of decreased opportunities to provide revenue generating activities during the year ended December 31, 2015 when compared to the year ended December 31, 2014. The decrease in cost of goods sold of 73% is consistent with the decrease in revenue on a percentage basis over the same periods of 77%.
Operating Expenses
| Year ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| Salaries and wages | $ | 498,926 | $ | 279,735 | $ | 219,191 | ||||||
| Professional services | 743,550 | 1,328,814 | (585,264 | ) | ||||||||
| Other | 318,229 | 154,290 | 163,939 | |||||||||
| Total | $ | 1,560,705 | $ | 1,762,839 | $ | (202,134 | ) | |||||
Operating expenses for the year ended December 31, 2015 were $1,560,705 compared to $1,762,839 for the year ended December 31, 2014. The decrease of $202,134 or 11% is the result of decreased professional services resulting from the recognition of stock based professional fees existing during the year ended December 31, 2014 that did not exist during the year ended December 31, 2015. However, salaries and wages increased during the year ended December 31, 2015 when compared to the year ended December 31, 2014 due to additional stock based compensation issued to our executive officers during the year ended December 31, 2015.
Other Income and Expenses
Other income and expenses consist of interest expense on our notes payable net of interest income, fair value adjustments to our derivative liabilities, gains or losses on extinguishments of debt and losses on settlements.
| Year ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| Interest expense, net | $ | (1,461,974 | ) | $ | (1,535,044 | ) | $ | 73,070 | ||||
| Gain on extinguishment of debt | 170,231 | 108,576 | 61,655 | |||||||||
| Loss on settlement | - | (354,064 | ) | 354,064 | ||||||||
| Penalties and settlements | (215,591 | ) | (124,398 | ) | (91,193 | ) | ||||||
| Loss on derivative fair value adjustment | (522,468 | ) | (128,969 | ) | (393,499 | ) | ||||||
| Total | $ | (2,029,802 | ) | $ | (2,033,899 | ) | $ | 4,097 | ||||
Other income and expenses during the year ended December 31, 2015 were $2,029,802 compared to $2,033,899 during the year ended December 31, 2014. The decrease of $4,097 or approximately 0% was the result decreased recognition of losses on settlements and penalties during the year ended December 31, 2015 compared to the year ended December 31, 2014 offset by a $393,499 increase in the losses recognized on derivative fair value adjustments.
Income Tax Expense
| Year ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| Income tax expense | $ | 92,804 | $ | - | $ | 92,804 | ||||||
Income tax expense during the year ended December 31, 2015 was $92,804 compared to $0 during the year ended December 31, 2014. The increase in income tax expense of $92,804 is the result of a notice of deficiency the Company received from the Internal Revenue Service related to its income tax for the year ended December 31, 2011.
Net loss
| Year ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| Net loss | $ | (3,661,697 | ) | $ | (3,568,148 | ) | $ | (93,549 | ) | |||
| As a percentage of revenue | -1551 | % | -351 | % | ||||||||
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Net loss for the year ended December 31, 2015 was $3,661,697 or (1,551%) of revenue, compared to $3,568,148, or (351%) of revenue, for the year ended December 31, 2014. The increase in net loss of $93,549 is the result of decreased revenue and gross margin on a dollar basis and increased income tax expense partially offset by slightly lower operating and other expenses.
Liquidity and Capital Resources
As of December 31, 2015, we had no cash on hand, total current assets of $51,595 and total current liabilities of $3,662,273 creating a working capital deficit of $3,610,678. Current assets consisted of $36,376 in prepaid expenses and $15,219 in deferred loan costs. Current liabilities consisted of bank overdrafts totaling $2,981, accounts payable $176,694, current notes payable net of discounts of $151,066, current convertible notes payable net of discounts of $799,976, a derivative liabilities of $1,005,791, accrued interest of $148,655 and accrued expenses, related party payables totaling $10,000 and other liabilities of $1,367,110.
Cash Flows from Operating Activities
Net cash used in operating activities during the year ended December 31, 2015 was $386,867 which consisted of a net loss of $3,661,697, non-cash expenses and gains of $2,592,279 and positive changes in working capital of $682,551. Net cash used in operating activities during the same period in 2014 was $703,809 which consisted of a net loss of $3,568,148, non-cash expenses and gains of $2,942,236 and negative changes in working capital of $77,897. The change in net cash used in operating activities was primarily due to an a greater change in accounts payable and accrued expenses and fewer non-cash expenses and gains.
We expect our cash used in operating activities will increase over the next twelve months as we are uncertain of our opportunities to generate revenue in the near term while we will still recognize significant non-cash expenses.
Cash Flows from Financing Activities
Cash flows from financing activities during the year ended December 31, 2015 were $291,616 compared to $790,708 during the same period in 2014. Cash provided by financing activities during the year ended December 31, 2015 consisted of proceeds from bank overdrafts totaling $2,941, proceeds from convertible notes payable of $218,075, proceeds from notes payable of $100,000, repayments of convertible notes payable of $10,000, repayments of notes payable of $13,400 and repayments of related party payables of $6,000. Cash provided by financing activities during the year ended December 31, 2014 consisted of proceeds from convertible notes payable of $583,500, proceeds from notes payable of $435,000, repayments of notes payable of $150,000, repayments of convertible notes payable of $171,508, proceeds from related party notes payable was $10,000, proceeds from common stock issued for cash of $87,916, and the cost of purchase of treasury stock of $4,200.
During the next twelve months, we anticipate generating additional cash from financing activities from entering into additional debt agreements and the additional issuance of common stock for cash as these activities will be required to fund operations.
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Outstanding Loans
On April 14, 2014, the Company received a loan in the amount of $90,000 from Innovest, LLC. The loan was due on August 14, 2014 with a $30,000 payment due on each June 14, 2014; July 14, 2014 and August 14, 2014. The loan is unsecured and non-interest bearing. In the event of default, the note shall bear interest at 18% per annum. Additionally, the Company was obligated to issue 50,000 shares of common stock in the event of late payments. The note holder was also issued 75,000 shares of common stock as an incentive to enter into the note. The Company did not make the required principal payment on July 17, 2014 resulting in 50,000 shares of common stock being issued to Innovest and the note beginning to accrue interest at the rate of 18% per annum. Additionally, the Company did not make the required principal payment on August 17, 2014 resulting in an additional 50,000 shares of common stock being issued to Innovest. The unpaid principal and accrued interest as of August 4, 2015 was purchased by an existing convertible note holder. There was $0 and $60,000 of principal as of December 31, 2015 and 2014 plus accrued interest of $0 and $900 outstanding as of December 31, 2015 and 2014.
On August 5, 2014, the Company entered into two separate note agreements for $50,000 ($100,000 total). The notes carried a fixed interest amount of $800 and are due on October 4, 2014. If the loans were not repaid by the due date, the Company had the obligation to issue 25,000 shares of common stock to each note holder for each consecutive week the notes were outstanding. The notes were purchased by non-related parties on August 11, 2015 and August 19, 2015, respectively, resulting in 1,125,000 and 1,150,000 common shares being issued to each note holder (2,275,000 total common shares) as penalties. Additionally, the note holders each received 125,000 shares of common stock as an incentive to enter into the notes and had the right to sell back 50,000 shares of common stock to the Company for $4,200. There was a total of $0 and $100,000 in principal and $0 and $1,600 of accrued interest due at December 31, 2015 and 2014.
On April 17, 2014, the Company received a loan in the amount of $20,000 from Seton Securities. An additional $5,000 was received on July 15, 2014. The loans are unsecured, due on demand and non-interest bearing. There was $25,000 in principal and no accrued interest due at December 31, 2015 and 2014.
On October 22, 2014, the Company received a loan from an unrelated party totaling $100,000. The note carries an interest rate of 12% per annum and is due on October 22, 2016. During the first quarter of 2015, the note was amended retroactively to October 22, 2014 to adjust the interest rate to 15% per annum. Additionally, the note is secured by the vehicles owned by the company. There was $100,000 of principal and accrued interest of $6,627 and $2,301 due as of December 31, 2015 and 2014.
On August 1, 2015, the Company received a short term loan of $10,000 carrying fixed interest of $1,000. The loan was repaid in full during September 2015. There was no principal or accrued interest outstanding as of December 31, 2015.
On August 1, 2015, the Company received a short term interest free loan of $3,700. The loan was repaid in full during September 2015. There was no principal or accrued interest outstanding as of December 31, 2015.
On October 29, 2015, the Company received a loan from an unrelated party of $33,000 of which $27,000 was lent to the Company in cash and $6,000 is considered an original issue discount. The note is unsecured, carries an interest rate of 8% per annum and is due on April 29, 2016. There was $33,000 and $0 of principal and $456 and $0 of accrued interest due as of December 31, 2015 and 2014.
On October 26, 2012, the Company received a loan totaling $30,000 from an unrelated party. The note bears interest at 10% per annum and had an original maturity date of April 26, 2013; however, the Company is in negotiations to extend the maturity date. There was $30,000 in principal plus accrued interest of $9,542 and $6,542 at December 31, 2015 and 2014. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30.
On February 27, 2014, the Company received a loan totaling $339,026 from an unrelated party. The note bears interest at 10% per annum and matured on February 27, 2015. Of the $339,026 total note, $212,526 was paid to former note holders on our behalf and $1,500 was withheld as debt issue costs resulting in net cash proceeds to the Company of $125,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not less than $0.00004. On various dates during the year ended December 31, 2014, the Company accepted twenty separate partial conversions of the note resulting in a total of 4,063,247 shares of common stock being issued in exchange for $242,526 of principal. On various dates during the year ended December 31, 2015, the Company accepted eighteen separate partial conversions of the note resulting in 74,600,243 shares of common stock being issued in exchange for $96,500 of principal. Additionally, the Company accepted a single conversion of accrued interest during the year ended December 31, 2014 resulting in 408,727 shares being issued in exchange for $8,369 of accrued interest. There was $0 and $96,500 in principal plus $14,037 and $10,165 in accrued interest due at December 31, 2015 and 2014.
On June 11, 2015, the Company received a loan totaling $59,800 from an unrelated party. The note bears interest at 10% per annum and matures on June 11, 2016. Of the $59,800 total note, $5,000 was paid to service providers on our behalf, $7,800 was an original issue discount and $2,000 was withheld as debt issue costs resulting in net cash proceeds to the company of $45,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 50% discount from the lowest trading price during the five days prior to conversion. There was $59,800 and $0 in principal plus $3,325 and $0 in accrued interest due at December 31, 2015 and 2014.
On November 13, 2014, the Company received a loan totaling $104,000 from an unrelated party. The note carries interest at 8% per annum and is due on August 17, 2015 with a default interest rate of 22% should the note not be repaid by the maturity date. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date, or May 12, 2015, at a 52% discount from the average of the lowest three trading prices of the Company’s common stock during the preceding ten trading days. The Company incurred a default penalty of $52,000 which was added to the principal balance of the note on August 17, 2015. During the year ended December 31, 2015, the Company accepted twenty five separate conversions resulting in a total of 229,814,736 common shares being issued in exchange for $104,000 of principal and two separate conversion resulting in a total of 29,714,286 common shares being issued in exchange for $4,160 of accrued interest. There was $0 and $104,000 of principal and $2,032 and $1,094 of accrued interest payable at December 31, 2015 and 2014.
| 8 |
On December 16, 2014, the Company received a loan totaling $54,000 from an unrelated party. The note carries interest at 8% per annum and is due on September 18, 2015 with a default interest rate of 22% should the note not be repaid by the maturity date. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note, or June 15, 2015, date at a 52% discount from the average of the lowest three trading prices of the Company’s common stock during the preceding ten trading days. The Company incurred a default penalty of $27,000 which was added to the principal balance of the note on September 18, 2015. During the year ended December 31, 2015, the Company accepted three separate conversion notices resulting in 41,153,361 common shares being issued in exchange for $6,140 of principal. On October 7, 2015, an existing noteholder purchased the remaining principal and all accrued interest outstanding as of that date. There was $0 and $54,000 of principal and $0 and $178 of accrued interest payable at December 31, 2015 and 2014.
On December 12, 2014, the Company received a loan totaling $50,000 from an unrelated party. The note carries interest at 10% per annum and is due on December 12, 2015. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date, or June 10, 2015, at a 40% discount from the lowest closing bid price for the Company’s common stock for the fifteen prior trading days. During the year ended December 31, 2015, the Company incurred a default penalty equal to 10% of the principal amount of the note, or $5,000, which was added to the existing principal outstanding. There was $55,000 and $50,000 of principal and $5,687 and $260 of accrued interest payable at December 31, 2015 and 2014.
On June 26, 2015, the Company received a loan totaling $55,000 from an unrelated party. The note bears interest at 10% per annum and is due March 24, 2016. Of the $55,000 total note, $5,000 was an original issue discount resulting in net cash proceeds to the company of $50,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 45% discount from the lowest trading price during the twenty days prior to conversion but not less than $0.00005. During the year ended December 31, 2015, the Company accepted seven separate conversion notices resulting in 57,406,767 common shares being issued in exchange for a reduction of principal totaling $55,000. There was $0 in principal plus $2,137 and $0 in accrued interest due at December 31, 2015 and 2014.
On May 14, 2015, the Company received a loan totaling $4,812 from an unrelated party. The note carries interest at 12% per annum and is due on February 18, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date at a 55% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and unpaid interest as of that date resulting in prepayment penalties totaling $2,406. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
On May 29, 2015, the Company received a loan totaling $5,500 from an unrelated party. The note carries interest at 12% per annum and is due on February 21, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date at a 55% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and unpaid interest as of that date resulting in prepayment penalties totaling $2,750. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
On July 8, 2015, the Company received a loan totaling $27,466 from an unrelated party. The note carries interest at 10% per annum and is due on July 7, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date, or June 10, 2015, at a 40% discount from the lowest closing bid price for the Company’s common stock for the fifteen prior trading days. There was $27,466 and $0 of principal and $1,324 and $0 of accrued interest payable at December 31, 2015 and 2014.
On July 23, 2015, the Company received a loan totaling $43,000 from an unrelated party. The note carries interest at 12% per annum and is due on May 3, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date at a 52% discount from the average of the three lowest trading prices for the Company’s common stock for the ten prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and unpaid interest as of that date resulting in prepayment penalties totaling $21,500. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
On August 20, 2015, the Company received a loan totaling $60,000 from an unrelated party of which $5,000 was considered an original issue discount and $5,000 was paid to third parties on the Company’s behalf resulting in net cash proceeds of $50,000. The note carries interest at 12% per annum and is due on May 19, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. There was $60,000 and $0 of principal and $2,624 and $0 of accrued interest payable at December 31, 2015 and 2014.
On September 30, 2015, the Company received a loan totaling $47,000 from an unrelated party of which $4,000 was considered an original issue discount and $3,000 was paid to third parties on the Company’s behalf resulting in net cash proceeds of $40,000. The note carries interest at 12% per annum and is due on September 30, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. There was $47,000 and $0 of principal and $1,422 and $0 of accrued interest payable at December 31, 2015 and 2014.
| 9 |
On August 19, 2015, the Company received a loan totaling $50,800 from an unrelated party which was paid directly to an existing noteholder to retire the prior note in full. The note carries interest at 12% per annum and 22% per annum in the event of default and was due on August 19, 2015 which resulted in the note being in default immediately. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. During the year ended December 31, 2015, the Company accepted nine partial conversions resulting in 188,595,810 common shares being issued in exchange for $29,617 of principal. There was $21,183 and $0 of principal and $2,213 and $0 of accrued interest payable at December 31, 2015 and 2014.
On August 11, 2015, the Company received a loan totaling $60,800 from an unrelated party of which $50,800 was paid directly to an existing noteholder to retire the prior note in full and $10,000 was considered an original issue discount. The note carries interest at 15% per annum and 22% per annum in the event of default and was due on September 11, 2015. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company accepted six partial conversions resulting in 619,892,000 common shares being issued in exchange for $27,649 of principal. On October 28, 2015, the noteholder assigned a total of $16,500 of principal to two separate parties. There was $16,651 and $0 of principal and $1,828 and $0 of accrued interest payable at December 31, 2015 and 2014.
On August 18, 2015, the Company received a loan totaling $57,500 from an unrelated party of which $7,500 was paid directly to third parties on the Company’s behalf resulting in net cash proceeds of $50,000. The note carries interest at 15% per annum and is due on February 17, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. On October 12, 2015, the noteholder assigned a total of $57,500 of principal plus $1,441 of accrued interest to an existing noteholder. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
During the year ended December 31, 2015, the Company entered into six separate notes payable totaling $255,633 with an existing noteholder. Of the $97,450 total, $227,633 was paid to a prior noteholders on the Company’s behalf and $2,925 was considered an original issue discount resulting in net cash proceeds to the Company of $25,075. The unpaid principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days immediately preceding the conversion date. During the year ended December 31, 2015, the Company issued a total of 708,610,688 common shares in exchange for $70,386. There was $185,248 and $0 of principal and $4,838 and $0 of accrued interest due as of December 31, 2015 and 2014.
On October 12, 2015, the Company entered into a note payable totaling $58,941 which was paid to an existing noteholder on behalf of the Company. The note carries interest at 22% per annum and was due on October 12, 2015. The outstanding principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 50% discount from the lowest price of the Company’s common stock in the twenty trading days immediately preceding the conversion. There was $58,941 and $0 of principal plus accrued interest of $2,842 and $0 outstanding as of December 31, 2015 and 2014.
On November 5, 2015, the Company entered into a note payable totaling $36,000 of which $6,000 was an original issue discount resulting in cash proceeds to the Company of $30,000. The note carries interest at 12% per annum and is due on August 30, 2016. The outstanding principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 50% discount from the lowest price of the Company’s common stock in the twenty trading days immediately preceding the conversion. There was $36,000 and $0 of principal plus accrued interest of $663 and $0 outstanding as of December 31, 2015 and 2014.
On October 28, 2015 the Company entered into a note payable for $15,000 which was paid to an existing noteholder on behalf of the Company. The note was due immediately on October 28, 2015 and carries an interest rate of 22% per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company issued a total of 119,009,000 shares of common stock as the conversion of $5,950 of principal. There was $9,050 and $0 of principal and $374 and $0 of accrued interest due as of December 31, 2015 and 2014.
On October 5, 2015 the Company entered into a note payable for $1,500 which was paid to an existing noteholder on behalf of the Company. The note was due immediately on October 5, 2015 and carries an interest rate of 0% per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company issued a total of 150,000,000 shares of common stock as the conversion of $1,500 of principal. There was $0 of principal and $0 of accrued interest due as of December 31, 2015 and 2014.
On September 9, 2015 the Company entered into a note payable for $11,500 of which $10,000 was paid to a third party on behalf of the Company and $1,500 is an original issue discount. The note is due on June 15, 2016 and carries an interest rate of 10% per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 45% discount from the lowest intraday trading price for the Company’s common stock for the twenty prior trading days. There was $11,500 and $0 of principal due as of December 31, 2015 and 2014.
| 10 |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable because we are a smaller reporting company.
| 11 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Intelligent Highway Solutions, Inc.
9516 Rossport Way
Ell Grove, CA 95624
We have audited the accompanying balance sheet of Intelligent Highway Solutions, Inc. (the “Company”) as of December 31, 2015, and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015, and the results of its operations, changes in stockholders’ equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The financial statements have been prepared assuming that the Company will continue as a going concern. As shown in Note 2 to the financial statements, the Company has incurred an accumulated deficit of $10,566,712 as of December 31, 2015. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The financial statements of Intelligent Highway Solutions, Inc. as of December 31, 2014, were audited by other auditors whose report dated May 7, 2015, did not contain an adverse opinion or a disclaimer of opinion, nor was either qualified or modified as to uncertainty, audit scope, or accounting principles, except that such report contained an explanatory paragraph which raised substantial doubt on its ability to continue as a going concern.
/s/ Anton & Chia, LLP
Newport Beach, California
December 23, 2016
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Intelligent Highway Solutions, Inc.
We have audited the accompanying balance sheet of Intelligent Highway Solutions, Inc. (the Company) as of December 31, 2014 and the related statements of operations, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Intelligent Highway Solutions, Inc. as of December 31, 2014, and the results of their operations and cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
May 7, 2015
| F-2 |
Item 8. Financial Statements and Supplementary Data.
INTELLIGENT HIGHWAY SOLUTIONS
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | - | $ | 95,251 | ||||
| Contracts receivable, net | - | 139,908 | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | - | 115,801 | ||||||
| Prepaid expenses | 36,376 | 77,161 | ||||||
| Deferred loan costs, current | 15,219 | 96,705 | ||||||
| Total current assets | 51,595 | 524,826 | ||||||
| Property and equipment, net of accumulated depreciation of $18,713 and $8,731 | 4,958 | 14,940 | ||||||
| Deferred loan costs, net | - | 1,904 | ||||||
| Prepaid expenses, net | 34,965 | 69,371 | ||||||
| Total assets | $ | 91,518 | $ | 611,041 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | 2,981 | $ | 40 | ||||
| Accounts payable | 176,694 | 170,529 | ||||||
| Accrued expenses and other liabilities | 1,367,110 | 1,002,854 | ||||||
| Notes payable, current portion, net of discounts of $3,934 and $0 | 151,066 | 185,000 | ||||||
| Convertible notes payable, current portion, net of discounts of $177,862 and $95,571 | 799,976 | 528,929 | ||||||
| Notes payable, related party, current portion | 10,000 | 10,000 | ||||||
| Derivative liability | 1,005,791 | 167,970 | ||||||
| Accrued interest | 148,655 | 76,671 | ||||||
| Total current liabilities | 3,662,273 | 2,141,993 | ||||||
| Notes payable, net of current portion | - | 100,000 | ||||||
| Convertible notes payable, net of discounts of $0 and $49,829 | - | 30,171 | ||||||
| Total liabilities | 3,662,273 | 2,272,164 | ||||||
| Stockholders’ deficit | ||||||||
| Series A convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized; 2,500,000 and 0 issued and outstanding at December 31, 2015 and 2014 | 25 | - | ||||||
| Common stock, $0.00001 par value; 10,000,000,000 shares authorized; 2,552,409,195 and 30,589,839 issued; 2,552,359,195 and 30,539,839 outstanding at December 31, 2015 and 2014 | 25,524 | 306 | ||||||
| Additional paid-in capital | 6,974,608 | 5,247,786 | ||||||
| Treasury stock, 50,000 shares at $.084 per share | (4,200 | ) | (4,200 | ) | ||||
| Accumulated deficit | (10,566,712 | ) | (6,905,015 | ) | ||||
| Total stockholders’ deficit | (3,570,755 | ) | (1,661,123 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 91,518 | $ | 611,041 | ||||
See accompanying notes to financial statements.
| F-3 |
INTELLIGENT HIGHWAY SOLUTIONS
CONDENSED STATEMENTS OF OPERATIONS
| Year ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenue | $ | 236,068 | $ | 1,016,489 | ||||
| Cost of sales | 214,454 | 787,899 | ||||||
| Gross profit | 21,614 | 228,590 | ||||||
| Operating expenses | ||||||||
| Salaries and wages | 498,926 | 279,735 | ||||||
| General and administrative | 1,061,779 | 1,483,104 | ||||||
| Total operating expenses | 1,560,705 | 1,762,839 | ||||||
| Loss from operations | (1,539,091 | ) | (1,534,249 | ) | ||||
| Other income (expense) | ||||||||
| Gain on extinguishment of debt | 170,231 | 108,576 | ||||||
| Loss on derivative fair value adjustment | (522,468 | ) | (128,969 | ) | ||||
| Penalties and settlements | (215,591 | ) | (124,398 | ) | ||||
| Loss on settlement | - | (354,064 | ) | |||||
| Interest expense | (1,461,974 | ) | (1,535,044 | ) | ||||
| Total other expense | (2,029,802 | ) | (2,033,899 | ) | ||||
| Loss before income taxes | (3,568,893 | ) | (3,568,148 | ) | ||||
| Provision for income taxes | 92,804 | - | ||||||
| Net loss | $ | (3,661,697 | ) | $ | (3,568,148 | ) | ||
| Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.19 | ) | ||
| Basic and diluted weighted average shares outstanding | 779,738,830 | 19,204,776 | ||||||
See accompanying notes to financial statements.
| F-4 |
INTELLIGENT HIGHWAY SOLUTIONS
STATEMENT OF STOCKHOLDERS’ DEFICIT
| Common Stock | Preferred Stock | Additional | ||||||||||||||||||||||||||||||
| Paid-in | Treasury | Accumulated | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||||||||
| Balance, December 31, 2013 | 11,933,666 | $ | 119 | - | $ | - | $ | 2,071,274 | $ | - | $ | (3,336,867 | ) | $ | (1,265,474 | ) | ||||||||||||||||
| Common stock issued for services | 5,275,000 | 53 | - | - | 828,270 | - | - | 828,323 | ||||||||||||||||||||||||
| Common stock issued for loan costs | 650,000 | 6 | - | - | 115,244 | - | - | 115,250 | ||||||||||||||||||||||||
| Common stock issued for conversion of notes payable | 8,796,579 | 88 | - | - | 952,900 | - | - | 952,988 | ||||||||||||||||||||||||
| Common stock issued for conversion of interest payable | 582,928 | 6 | - | - | 63,721 | - | - | 63,727 | ||||||||||||||||||||||||
| Common stock issued as settlement of accounts payable | 7,500 | - | - | - | 3,000 | - | - | 3,000 | ||||||||||||||||||||||||
| Common stock issued as legal settlement | 752,616 | 8 | - | - | 354,056 | - | - | 354,064 | ||||||||||||||||||||||||
| Common stock issued for penalties | 1,160,000 | 12 | - | - | 93,404 | - | - | 93,416 | ||||||||||||||||||||||||
| Common stock issued for cash | 1,431,550 | 14 | - | - | 87,902 | - | - | 87,916 | ||||||||||||||||||||||||
| Common stock repurchased | (50,000 | ) | - | - | - | - | (4,200 | ) | - | (4,200 | ) | |||||||||||||||||||||
| Options issued for loan costs | - | - | - | - | 11,331 | - | - | 11,331 | ||||||||||||||||||||||||
| Debt discounts recorded on convertible notes payable | - | - | - | - | 80,000 | - | - | 80,000 | ||||||||||||||||||||||||
| Change in fair market value of derivative liabilities | - | - | - | - | 586,684 | - | - | 586,684 | ||||||||||||||||||||||||
| Net loss, year ended December 31, 2014 | - | - | - | - | - | - | (3,568,148 | ) | (3,568,148 | ) | ||||||||||||||||||||||
| Balance, December 31, 2014 | 30,539,839 | 306 | - | - | 5,247,786 | (4,200 | ) | (6,905,015 | ) | (1,661,123 | ) | |||||||||||||||||||||
| Common stock issued for services | 80,200,000 | 802 | - | - | 503,233 | - | - | 504,035 | ||||||||||||||||||||||||
| Preferred stock issued for services | - | - | 2,500,000 | 25 | 475 | - | - | 500 | ||||||||||||||||||||||||
| Common stock issued for conversion of notes payable | 2,403,780,070 | 24,038 | - | - | 424,704 | - | - | 448,742 | ||||||||||||||||||||||||
| Common stock issued for conversion of interest payable | 29,714,286 | 297 | - | - | 3,863 | - | - | 4,160 | ||||||||||||||||||||||||
| Common stock issued as legal settlement | 6,500,000 | 65 | - | - | 19,835 | - | - | 19,900 | ||||||||||||||||||||||||
| Common stock issued for penalties | 1,625,000 | 16 | - | - | 21,399 | - | - | 21,415 | ||||||||||||||||||||||||
| Change in fair market value of derivative liabilities | - | - | - | - | 753,313 | - | - | 753,313 | ||||||||||||||||||||||||
| Net loss, year ended December 31, 2015 | - | - | - | - | - | - | (3,661,697 | ) | (3,661,697 | ) | ||||||||||||||||||||||
| Balance, December 31, 2015 | 2,552,359,195 | $ | 25,524 | 2,500,000 | $ | 25 | $ | 6,974,608 | $ | (4,200 | ) | $ | (10,566,712 | ) | $ | (3,570,755 | ) | |||||||||||||||
See accompanying notes to financial statements.
| F-5 |
INTELLIGENT HIGHWAY SOLUTIONS
| Year ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (3,661,697 | ) | $ | (3,568,148 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Preferred stock issued for services | 500 | — | ||||||
| Common stock issued for services | 504,035 | 828,323 | ||||||
| Common stock issued for penalties | 21,415 | 93,417 | ||||||
| Common stock issued for settlement | 19,900 | 354,064 | ||||||
| Excess fair value of common stock issued for conversion of note payable | — | 25,000 | ||||||
| Increase in convertible notes payable for default penalties | 138,122 | — | ||||||
| Loss (gain) on forgiveness of debt | (170,231 | ) | (108,576 | ) | ||||
| Depreciation | 9,982 | 7,124 | ||||||
| Loss on derivative fair value adjustment | 522,468 | 128,969 | ||||||
| Amortization of deferred loan costs | 103,390 | 243,130 | ||||||
| Amortization of debt discount | 668,905 | 994,126 | ||||||
| Amortization of prepaid expenses | 75,191 | 232,949 | ||||||
| Expenses paid on behalf of company | 61,712 | 34,500 | ||||||
| Excess derivative liability charged to interest | 579,609 | 109,210 | ||||||
| Allowances for doubtful accounts | 57,281 | — | ||||||
| Changes in operating assets and liabilities | ||||||||
| Contracts receivable | 82,627 | (139,908 | ) | |||||
| Earnings in excess of billings | 115,801 | (115,801 | ) | |||||
| Accounts payable | 34,831 | 47,015 | ||||||
| Accrued interest | 85,036 | 37,048 | ||||||
| Accrued expenses and other liabilities | 364,256 | 93,749 | ||||||
| Net cash used in operating activities | (386,867 | ) | (703,809 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | — | (20,312 | ) | |||||
| Net cash used in investing activities | — | (20,312 | ) | |||||
| Cash flows from financing activities | ||||||||
| Proceeds from bank overdraft | 2,941 | — | ||||||
| Proceeds from convertible notes payable | 218,075 | 583,500 | ||||||
| Repayments of convertible notes payable | (10,000 | ) | (171,508 | ) | ||||
| Proceeds from notes payable | 100,000 | 435,000 | ||||||
| Repayments of notes payable | (13,400 | ) | (150,000 | ) | ||||
| Proceeds from related party notes payable | — | 10,000 | ||||||
| Repayment of related party notes payable | (6,000 | ) | — | |||||
| Proceeds from common stock issued for cash | — | 87,916 | ||||||
| Purchase of treasury stock | — | (4,200 | ) | |||||
| Net cash provided by financing activities | 291,616 | 790,708 | ||||||
| Change in cash | (95,251 | ) | 66,587 | |||||
| Cash at beginning of period | 95,251 | 28,664 | ||||||
| Cash at end of period | $ | — | $ | 95,251 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | 9,000 | $ | 16,129 | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Common stock issued for prepaid expenses | $ | — | $ | 185,000 | ||||
| Common stock issued for note conversion | $ | 448,742 | $ | 952,988 | ||||
| Common stock issued for accrued interest conversion | $ | 4,160 | $ | 63,727 | ||||
| Common stock issued for debt issuance costs | $ | — | $ | 69,251 | ||||
| Assumption of note payable | $ | — | $ | 212,526 | ||||
| Debt discount from warrants and beneficial conversion features issued with debt | $ | — | $ | 11,331 | ||||
| Debt discount on convertible notes | $ | 516,036 | $ | 80,000 | ||||
| Conversion of notes payable to convertible notes payable | $ | 160,000 | $ | — | ||||
| Conversion of accrued interest payable to convertible notes payable | $ | 11,050 | $ | — | ||||
| Conversion of derivative liabilities | $ | — | $ | 586,683 | ||||
| Initial measurements of derivative liabilities | $ | 1,475,481 | $ | 470,451 | ||||
| Convertible note payable entered into for reduction of account payable | $ | 10,000 | $ | — | ||||
See accompanying notes to financial statements.
| F-6 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
December 31, 2015 and 2014
NOTE 1 – ORGANIZATION
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.
NOTE 2 – GOING CONCERN
The Company’s 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. The Company has not yet established an ongoing source of revenues 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 financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of 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 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.
| F-7 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Contracts Receivable
Contracts receivable from construction, operations and maintenance are based on amounts billed to customers. The Company provides an allowance for doubtful collections which is based upon a review of outstanding receivable, historical collection information, and existing economic conditions. Normal contracts receivable are due 30 days after issuance of the invoice. Contract retentions are usually due 30 days after completion of the project and acceptance by the owner. Contracts receivable past due more than 60 days are considered delinquent. Delinquent contracts receivable are written off based on individual credit evaluation and specific circumstances of the customer. The Company had bad debt expense of $181,778and $0 during the years ended December 31, 2015 and 2014, respectively. The allowance for doubtful accounts is $57,281 as of December 31, 2015.
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 December 31, 2015 and 2014 were:
| F-8 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment (continued)
| December 31, 2015 | December 31, 2014 | |||||||
| Machinery and equipment | $ | 2,149 | $ | 2,149 | ||||
| Furniture and fixtures | 6,273 | 6,273 | ||||||
| Vehicles | 15,249 | 15,249 | ||||||
| Sub Total | $ | 23,671 | $ | 23,671 | ||||
| Accumulated depreciation | (18,713 | ) | (8,731 | ) | ||||
| Total | $ | 4,958 | $ | 14,940 | ||||
Depreciation expense for the years ended December 31, 2015 and 2014 was $9,984 and $7,123, respectively.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at December 31, 2015 and 2014:
| December 31, 2015 | December 31, 2014 | |||||||
| Deferred rent payable | $ | - | $ | (51 | ) | |||
| Payroll tax liabilities | 758,773 | 767,109 | ||||||
| Other payroll accruals | 45,851 | 25,234 | ||||||
| Other | 562,486 | 210,562 | ||||||
| Total | $ | 1,367,110 | $ | 1,002,854 | ||||
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.
| F-9 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues and Cost of Revenues (continued)
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.
The asset, “cost and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.
Cost of sales totaled $214,454 and $787,899 during the years ended December 31, 2015 and 2014, respectively.
Reclassifications
Certain prior-year amounts have been reclassified in order to conform to the current-year presentation.
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.
Convertible debt
The Company records a beneficial conversion feature related to the issuance of convertible debts that have conversion features at fixed or adjustable rates. The beneficial conversion feature 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 beneficial conversion feature will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes.
Net Loss Per Share
Net loss per share is computed by dividing net 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 by the weighted average number of common shares and potential common shares during the specified period. For the years ended December 31, 2015 and 2014, 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. There were 13,660,833,053 and 9,303,825 such potentially dilutive shares excluded for the years ended December 31, 2015 and 2014, respectively.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
| F-10 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 4 – CONTRACTS RECEIVABLE, NET
Contracts receivable consisted of the following at December 31, 2015 and 2014:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Completed contracts | $ | - | $ | - | ||||
| Contracts in progress | 57,281 | 139,908 | ||||||
| Unbilled | - | - | ||||||
| 57,281 | 139,908 | |||||||
| Retentions: | ||||||||
| Completed contracts | - | - | ||||||
| Contracts in progress | - | - | ||||||
| - | - | |||||||
| 57,281 | 139,908 | |||||||
| Allowance for doubtful accounts | (57,281 | ) | - | |||||
| $ | - | $ | 139,908 | |||||
NOTE 5 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The following is a summary of the contracts in progress at December 31, 2015 and 2014:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Costs incurred on uncompleted contracts | $ | - | $ | 1,001,458 | ||||
| Estimated net loss on uncompleted contracts | - | - | ||||||
| - | 1,001,458 | |||||||
| Billings to date | - | (885,657 | ) | |||||
| $ | - | $ | 115,801 | |||||
This amount is included in the accompanying balance sheet under the following captions at December 31, 2015 and 2014:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | $ | - | $ | 115,801 | ||||
NOTE 6 - FAIR VALUE MEASUREMENTS
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 December 31, 2015 and 2014:
| Level 1 | Level 2 | Level 3 | Fair
Value at December 31, 2015 | |||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability | - | $ | 1,005,791 | - | $ | 1,005,791 | ||||||||||
| Level 1 | Level 2 | Level 3 | Fair
Value at December 31, 2014 | |||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability | - | 167,970 | - | 167,970 | ||||||||||||
The changes in the fair value of recurring fair value measurements are measured using the Black Scholes valuation model, and relate solely to the derivative liability as follows:
| Balance at December 31, 2014 | $ | 167,970 | ||
| Derivative liabilities recorded | 1,495,504 | |||
| Change due to note conversion | (753,313 | ) | ||
| Gain on convertible note exchange | (426,838 | ) | ||
| Fair value adjustment | 522,468 | |||
| Balance at December 31, 2015 | $ | 1,005,791 |
NOTE 7 – NOTES PAYABLE
On April 14, 2014, the Company received a loan in the amount of $90,000 from Innovest, LLC. The loan was due on August 14, 2014 with a $30,000 payment due on each June 14, 2014; July 14, 2014 and August 14, 2014. The loan is unsecured and non-interest bearing. In the event of default, the note shall bear interest at 18% per annum. Additionally, the Company was obligated to issue 50,000 shares of common stock in the event of late payments. The note holder was also issued 75,000 shares of common stock as an incentive to enter into the note. The Company did not make the required principal payment on July 17, 2014 resulting in 50,000 shares of common stock being issued to Innovest and the note beginning to accrue interest at the rate of 18% per annum. Additionally, the Company did not make the required principal payment on August 17, 2014 resulting in an additional 50,000 shares of common stock being issued to Innovest. The unpaid principal and accrued interest as of August 4, 2015 was purchased by an existing convertible note holder. There was $0 and $60,000 of principal as of December 31, 2015 and 2014 plus accrued interest of $0 and $900 outstanding as of December 31, 2015 and 2014.
| F-11 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 7 – NOTES PAYABLE (CONTINUED)
On August 5, 2014, the Company entered into two separate note agreements for $50,000 ($100,000 total). The notes carried a fixed interest amount of $800 and are due on October 4, 2014. If the loans were not repaid by the due date, the Company had the obligation to issue 25,000 shares of common stock to each note holder for each consecutive week the notes were outstanding. The notes were purchased by non-related parties on August 11, 2015 and August 19, 2015, respectively, resulting in 1,125,000 and 1,150,000 common shares being issued to each note holder (2,275,000 total common shares) as penalties. Additionally, the note holders each received 125,000 shares of common stock as an incentive to enter into the notes and had the right to sell back 50,000 shares of common stock to the Company for $4,200. There was a total of $0 and $100,000 in principal and $0 and $1,600 of accrued interest due at December 31, 2015 and 2014.
On April 17, 2014, the Company received a loan in the amount of $20,000 from Seton Securities. An additional $5,000 was received on July 15, 2014. The loans are unsecured, due on demand and non-interest bearing. There was $25,000 in principal and no accrued interest due at December 31, 2015 and 2014.
On October 22, 2014, the Company received a loan from an unrelated party totaling $100,000. The note carries an interest rate of 12% per annum and is due on October 22, 2016. During the first quarter of 2015, the note was amended retroactively to October 22, 2014 to adjust the interest rate to 15% per annum. Additionally, the note is secured by the vehicles owned by the company. There was $100,000 of principal and accrued interest of $6,627 and $2,301 due as of December 31, 2015 and 2014.
On August 1, 2015, the Company received a short term loan of $10,000 carrying fixed interest of $1,000. The loan was repaid in full during September 2015. There was no principal or accrued interest outstanding as of December 31, 2015.
On August 1, 2015, the Company received a short term interest free loan of $3,700. The loan was repaid in full during September 2015. There was no principal or accrued interest outstanding as of December 31, 2015.
On October 29, 2015, the Company received a loan from an unrelated party of $33,000 of which $27,000 was lent to the Company in cash and $6,000 is considered an original issue discount. The note is unsecured, carries an interest rate of 8% per annum and is due on April 29, 2016. There was $33,000 and $0 of principal and $456 and $0 of accrued interest due as of December 31, 2015 and 2014.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
On October 26, 2012, the Company received a loan totaling $30,000 from an unrelated party. The note bears interest at 10% per annum and had an original maturity date of April 26, 2013; however, the Company is in negotiations to extend the maturity date. There was $30,000 in principal plus accrued interest of $9,542 and $6,542 at December 31, 2015 and 2014. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30.
| F-12 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
On January 30, 2014, the Company entered into a note with an unrelated party to borrow up to $300,000 which would carry $35,000 as an original issue discount bringing the total note to $335,000 if fully borrowed. Upon closing the agreement, the Company received a loan totaling $50,000 which carried a prorated original issue discount of $5,833 bringing the total note to $55,833. An additional $55,000 was borrowed during the year ended December 31, 2014 which carried a prorated original issue discount of $17,137. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to the lesser of $0.65 or 60% of the lowest trade price in the twenty five (25) trading days prior to conversion and become convertible 180 days after the effective date which is July 29, 2014. The note requires a minimum of two million five hundred thousand (2,500,0000) to be held in reserve in the instance of conversion. The note carried interest at 12% per annum and is due on January 30, 2016. During the year ended December 31, 2014, the Company accepted six separate partial conversions from the note holder resulting in 2,500,000 shares of common stock being issued in exchange for $66,462 of principal and made cash repayments of $27,917. There was no interest or principal due as of December 31, 2015 or 2014.
On September 3, 2014, the Company received a loan totaling $100,000 from an unrelated party. The note carried fixed interest of $10,000 and was due on September 11, 2014. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not less than $0.00004. The note holder did not elect to convert any portion of the note and the principal plus fixed interest totaling $110,000 was repaid on September 11, 2014. There was no interest or principal due as of December 31, 2015 or 2014.
On February 27, 2014, the Company received a loan totaling $339,026 from an unrelated party. The note bears interest at 10% per annum and matured on February 27, 2015. Of the $339,026 total note, $212,526 was paid to former note holders on our behalf and $1,500 was withheld as debt issue costs resulting in net cash proceeds to the company of $125,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not less than $0.00004. On various dates during the year ended December 31, 2014, the Company accepted twenty separate partial conversions of the note resulting in a total of 4,063,247 shares of common stock being issued in exchange for $242,526 of principal. On various dates during the year ended December 31, 2015, the Company accepted eighteen separate partial conversions of the note resulting in 74,600,243 shares of common stock being issued in exchange for $96,500 of principal. Additionally, the Company accepted a single conversion of accrued interest during the year ended December 31, 2014 resulting in 408,727 shares being issued in exchange for $8,369 of accrued interest. There was $0 and $96,500 in principal plus $14,037 and $10,165 in accrued interest due at December 31, 2015 and 2014.
On June 11, 2015, the Company received a loan totaling $59,800 from an unrelated party. The note bears interest at 10% per annum and matures on June 11, 2016. Of the $59,800 total note, $5,000 was paid to service providers on our behalf, $7,800 was an original issue discount and $2,000 was withheld as debt issue costs resulting in net cash proceeds to the company of $45,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 50% discount from the lowest trading price during the five days prior to conversion. There was $59,800 and $0 in principal plus $3,325 and $0 in accrued interest due at December 31, 2015 and 2014.
On November 13, 2014, the Company received a loan totaling $104,000 from an unrelated party. The note carries interest at 8% per annum and is due on August 17, 2015 with a default interest rate of 22% should the note not be repaid by the maturity date. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date, or May 12, 2015, at a 52% discount from the average of the lowest three trading prices of the Company’s common stock during the preceding ten trading days. The Company incurred a default penalty of $52,000 which was added to the principal balance of the note on August 17, 2015. During the year ended December 31, 2015, the Company accepted twenty five separate conversions resulting in a total of 229,814,736 common shares being issued in exchange for $104,000 of principal and two separate conversion resulting in a total of 29,714,286 common shares being issued in exchange for $4,160 of accrued interest. There was $0 and $104,000 of principal and $2,032 and $1,094 of accrued interest payable at December 31, 2015 and 2014.
On December 16, 2014, the Company received a loan totaling $54,000 from an unrelated party. The note carries interest at 8% per annum and is due on September 18, 2015 with a default interest rate of 22% should the note not be repaid by the maturity date. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note, or June 15, 2015, date at a 52% discount from the average of the lowest three trading prices of the Company’s common stock during the preceding ten trading days. The Company incurred a default penalty of $27,000 which was added to the principal balance of the note on September 18, 2015. During the year ended December 31, 2015, the Company accepted three separate conversion notices resulting in 41,153,361 common shares being issued in exchange for $6,140 of principal. On October 7, 2015, an existing noteholder purchased the remaining principal and all accrued interest outstanding as of that date. There was $0 and $54,000 of principal and $0 and $178 of accrued interest payable at December 31, 2015 and 2014.
On December 12, 2014, the Company received a loan totaling $50,000 from an unrelated party. The note carries interest at 10% per annum and is due on December 12, 2015. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date, or June 10, 2015, at a 40% discount from the lowest closing bid price for the Company’s common stock for the fifteen prior trading days. During the year ended December 31, 2015, the Company incurred a default penalty equal to 10% of the principal amount of the note, or $5,000, which was added to the existing principal outstanding. During the year ended December 31, 2015, the original noteholder sold the outstanding principal and accrued interest to a separate noteholder leaving the original terms of the note unchanged. There was $55,000 and $50,000 of principal and $5,687 and $260 of accrued interest payable at December 31, 2015 and 2014.
| F-13 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
On June 26, 2015, the Company received a loan totaling $55,000 from an unrelated party. The note bears interest at 10% per annum and is due March 24, 2016. Of the $55,000 total note, $5,000 was an original issue discount resulting in net cash proceeds to the company of $50,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 45% discount from the lowest trading price during the twenty days prior to conversion but not less than $0.00005. During the year ended December 31, 2015, the Company accepted seven separate conversion notices resulting in 57,406,767 common shares being issued in exchange for a reduction of principal totaling $55,000. There was $0 in principal plus $2,137 and $0 in accrued interest due at December 31, 2015 and 2014.
On May 14, 2015, the Company received a loan totaling $4,812 from an unrelated party. The note carries interest at 12% per annum and is due on February 18, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date at a 55% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and unpaid interest as of that date resulting in prepayment penalties totaling $2,406. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
On May 29, 2015, the Company received a loan totaling $5,500 from an unrelated party. The note carries interest at 12% per annum and is due on February 21, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date at a 55% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and unpaid interest as of that date resulting in prepayment penalties totaling $2,750. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
On July 8, 2015, the Company received a loan totaling $27,466 from an unrelated party. The note carries interest at 10% per annum and is due on July 7, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date, or June 10, 2015, at a 40% discount from the lowest closing bid price for the Company’s common stock for the fifteen prior trading days. During the year ended December 31, 2015, the original noteholder sold the outstanding principal and accrued interest to a separate noteholder leaving the original terms of the note unchanged. There was $27,466 and $0 of principal and $1,324 and $0 of accrued interest payable at December 31, 2015 and 2014.
On July 23, 2015, the Company received a loan totaling $43,000 from an unrelated party. The note carries interest at 12% per annum and is due on May 3, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 180 days from the note date at a 52% discount from the average of the three lowest trading prices for the Company’s common stock for the ten prior trading days. On October 7, 2015, an existing noteholder purchased the outstanding principal and unpaid interest as of that date resulting in prepayment penalties totaling $21,500. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
On August 20, 2015, the Company received a loan totaling $60,000 from an unrelated party of which $5,000 was considered an original issue discount and $5,000 was paid to third parties on the Company’s behalf resulting in net cash proceeds of $50,000. The note carries interest at 12% per annum and is due on May 19, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. There was $60,000 and $0 of principal and $2,624 and $0 of accrued interest payable at December 31, 2015 and 2014.
On September 30, 2015, the Company received a loan totaling $47,000 from an unrelated party of which $4,000 was considered an original issue discount and $3,000 was paid to third parties on the Company’s behalf resulting in net cash proceeds of $40,000. The note carries interest at 12% per annum and is due on September 30, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. There was $47,000 and $0 of principal and $1,422 and 0 of accrued interest payable at December 31, 2015 and 2014.
| F-14 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
On August 19, 2015, the Company received a loan totaling $50,800 from an unrelated party which was paid directly to an existing noteholder to retire the prior note in full. The note carries interest at 12% per annum and 22% per annum in the event of default and was due on August 19, 2015 which resulted in the note being in default immediately. The holder has the right to convert the principal and accrued but unpaid interest to common stock at any time after 90 days from the note date at a 50% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty prior trading days. During the year ended December 31, 2015, the Company accepted nine partial conversions resulting in 188,595,810 common shares being issued in exchange for $29,617 of principal. There was $21,183 and $0 of principal and $2,213 and $0 of accrued interest payable at December 31, 2015 and 2014.
On August 11, 2015, the Company received a loan totaling $60,800 from an unrelated party of which $50,800 was paid directly to an existing noteholder to retire the prior note in full and $10,000 was considered an original issue discount. The note carries interest at 15% per annum and 22% per annum in the event of default and was due on September 11, 2015. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company accepted six partial conversions resulting in 619,892,000 common shares being issued in exchange for $27,649 of principal. On October 28, 2015, the noteholder assigned a total of $16,500 of principal to two separate parties. There was $16,651 and $0 of principal and $1,828 and $0 of accrued interest payable at December 31, 2015 and 2014.
On August 18, 2015, the Company received a loan totaling $57,500 from an unrelated party of which $7,500 was paid directly to third parties on the Company’s behalf resulting in net cash proceeds of $50,000. The note carries interest at 15% per annum and is due on February 17, 2016. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. On October 12, 2015, the noteholder assigned a total of $57,500 of principal plus $1,441 of accrued interest to an existing noteholder. There was $0 of principal and $0 of accrued interest payable at December 31, 2015 and 2014.
During the year ended December 31, 2015, the Company entered into six separate notes payable totaling $255,633 with an existing noteholder. Of the $97,450 total, $227,633 was paid to a prior noteholders on the Company’s behalf and $2,925 was considered an original issue discount resulting in net cash proceeds to the Company of $25,075. The unpaid principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days immediately preceding the conversion date. During the year ended December 31, 2015, the Company issued a total of 708,610,688 common shares in exchange for $70,386. There was $185,248 and $0 of principal and $4,838 and $0 of accrued interest due as of December 31, 2015 and 2014.
On October 12, 2015, the Company entered into a note payable totaling $58,941 which was paid to an existing noteholder on behalf of the Company. The note carries interest at 22% per annum and was due on October 12, 2015. The outstanding principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 50% discount from the lowest price of the Company’s common stock in the twenty trading days immediately preceding the conversion. There was $58,941 and $0 of principal plus accrued interest of $2,842 and $0 outstanding as of December 31, 2015 and 2014.
On November 5, 2015, the Company entered into a note payable totaling $36,000 of which $6,000 was an original issue discount resulting in cash proceeds to the Company of $30,000. The note carries interest at 12% per annum and is due on August 30, 2016. The outstanding principal and interest may be converted to common stock at the option of the noteholder at a rate equal to a 50% discount from the lowest price of the Company’s common stock in the twenty trading days immediately preceding the conversion. There was $36,000 and $0 of principal plus accrued interest of $663 and $0 outstanding as of December 31, 2015 and 2014.
On October 28, 2015 the Company entered into a note payable for $15,000 which was paid to an existing noteholder on behalf of the Company. The note was due immediately on October 28, 2015 and carries an interest rate of 22% per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company issued a total of 119,009,000 shares of common stock as the conversion of $5,950 of principal. There was $9,050 and $0 of principal and $374 and $0 of accrued interest due as of December 31, 2015 and 2014.
On October 5, 2015 the Company entered into a note payable for $1,500 which was paid to an existing noteholder on behalf of the Company. The note was due immediately on October 5, 2015 and carries an interest rate of 0% per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 60% discount from the average of the three lowest trading prices for the Company’s common stock for the twenty five prior trading days. During the year ended December 31, 2015, the Company issued a total of 150,000,000 shares of common stock as the conversion of $1,500 of principal. There was $0 of principal and $0 of accrued interest due as of December 31, 2015 and 2014.
On September 9, 2015 the Company entered into a note payable for $11,500 of which $10,000 was paid to a third party on behalf of the Company and $1,500 is an original issue discount. The note is due on June 15, 2016 and carries an interest rate of 10% per annum. The holder has the right to convert the principal and accrued but unpaid interest to common stock at a 45% discount from the lowest intraday trading price for the Company’s common stock for the twenty prior trading days. There was $11,500 and $0 of principal due as of December 31, 2015 and 2014.
During the year ended December 31, 2014, the Company entered into debt agreements with various individuals to borrow a total of $80,000 which was $75,000 in cash and $5,000 as a reduction of accounts payable. The notes accrue interest at 10% per annum and are due in are due in full between March and April 2016 with no repayments due before maturity. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30. The intrinsic value of the conversion feature in these notes resulted in debt discounts totaling $80,000 which will be amortized over the lives of the notes. $30,171 of the debt discounts were recognized in interest expense during the year ended December 31, 2014 leaving an unamortized discount of $49,829 at December 31, 2014. Additionally, during the year ended December 31, 2014, the Company accepted the full conversion of nine notes and the partial conversion of another to common stock at $0.30 per share resulting in 1,733,332 shares of common stock being issued in consideration of $610,000 of principal plus 174,201 shares of common stock being issued in consideration of $55,358 of accrued interest.
| F-15 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
The following table depicts the amounts due for each convertible note as of December 31, 2014:
| Maturity Date | Principal | Debt Discount | Carrying Amount, Current Portion | Carrying Amount, Long Term Portion | Accrued Interest | |||||||||||||||
| Note holder 1 | 1/24/2015 | $ | 50,000 | $ | - | $ | 50,000 | $ | - | $ | 14,124 | |||||||||
| Note holder 1 | 4/28/2016 | 15,000 | (9,842 | ) | - | 5,158 | 732 | |||||||||||||
| Note holder 4 | 3/21/2016 | 30,000 | (18,288 | ) | - | 11,712 | 2,342 | |||||||||||||
| Note holder 7 | 5/9/2015 | 50,000 | (8,836 | ) | 41,164 | - | 8,233 | |||||||||||||
| Note holder 10 | 11/4/2015 | 25,000 | (10,548 | ) | 14,452 | - | 2,890 | |||||||||||||
| Note holder 11 | 7/15/2024 | 50,000 | (13,425 | ) | 36,575 | - | 7,315 | |||||||||||||
| Note holder 12 | 9/3/2015 | 25,000 | (8,425 | ) | 16,575 | - | 3,315 | |||||||||||||
| Note holder 12 | 10/31/2015 | 25,000 | (10,411 | ) | 14,589 | - | 2,918 | |||||||||||||
| Note holder 13 | 10/21/2015 | 20,000 | (8,055 | ) | 11,945 | - | 2,389 | |||||||||||||
| Note holder 16 | 12/30/2015 | 45,000 | (22,438 | ) | 22,562 | - | 4,512 | |||||||||||||
| Note holder 17 | 3/26/2016 | 25,000 | (15,411 | ) | - | 9,589 | 1,918 | |||||||||||||
| Note holder 18 | 4/4/2016 | 10,000 | (6,288 | ) | - | 3,712 | 742 | |||||||||||||
| Note holder 19 | 4/26/13 | 30,000 | - | 30,000 | - | 6,542 | ||||||||||||||
| Note holder 20 | 2/27/15 | 96,500 | (13,434 | ) | 83,066 | - | 10,165 | |||||||||||||
| Note holder 21 | 8/17/15 | 104,000 | - | 104,000 | - | 1,094 | ||||||||||||||
| Note holder 21 | 9/18/15 | 54,000 | - | 54,000 | - | 178 | ||||||||||||||
| Note holder 22 | 12/12/15 | 50,000 | - | 50,000 | - | 260 | ||||||||||||||
| Total | $ | 704,500 | $ | (145,400 | ) | $ | 528,929 | $ | 30,171 | $ | 69,669 | |||||||||
During the year ended December 31, 2015, the Company made repayments on convertible notes payable of $10,000. Additionally, $113,425 of the debt discounts were recognized in interest expense during the year ended December 31, 2015 leaving an unamortized discount of $8,541 at December 31, 2015.
The following table depicts the amounts due for each convertible note as of December 31, 2015:
| Maturity Date | Principal | Debt Discount | Carrying Amount | Accrued Interest | ||||||||||||||
| Note holder 1 | 2/13/2015 | $ | 50,000 | $ | - | $ | 50,000 | $ | 19,124 | |||||||||
| Note holder 1 | 4/8/2016 | 15,000 | (2,342 | ) | 12,658 | 2,232 | ||||||||||||
| Note holder 4 | 3/21/2016 | 30,000 | (3,288 | ) | 26,712 | 5,342 | ||||||||||||
| Note holder 7 | 5/9/2015 | 50,000 | - | 50,000 | 13,233 | |||||||||||||
| Note holder 10 | 11/4/2015 | 25,000 | - | 25,000 | 5,389 | |||||||||||||
| Note holder 11 | 7/15/2015 | 50,000 | - | 50,000 | 12,315 | |||||||||||||
| Note holder 12 | 9/3/2015 | 25,000 | - | 25,000 | 5,814 | |||||||||||||
| Note holder 12 | 10/31/2015 | 25,000 | - | 25,000 | 5,417 | |||||||||||||
| Note holder 13 | 10/21/2015 | 20,000 | - | 20,000 | 4,389 | |||||||||||||
| Note holder 16 | 12/30/2015 | 45,000 | - | 45,000 | 9,012 | |||||||||||||
| Note holder 17 | 3/26/2016 | 25,000 | (2,911 | ) | 22,089 | 4,417 | ||||||||||||
| Note holder 19 | 4/26/2013 | 30,000 | - | 30,000 | 9,542 | |||||||||||||
| Note holder 20 | 2/27/2015 | - | - | - | 14,037 | |||||||||||||
| Note holder 20 | 6/11/2016 | 59,800 | (26,552 | ) | 33,248 | 3,325 | ||||||||||||
| Note holder 21 | 8/17/2015 | - | - | - | 2,032 | |||||||||||||
| Note holder 21 | 9/18/2015 | - | - | - | - | |||||||||||||
| Note holder 23 | 12/12/2015 | 55,000 | - | 55,000 | 5,687 | |||||||||||||
| Note holder 23 | 7/7/2016 | 27,466 | - | 27,466 | 1,324 | |||||||||||||
| Note holder 23 | 3/24/2016 | - | - | - | 2,137 | |||||||||||||
| Note holder 23 | 3/24/2016 | - | - | - | 51 | |||||||||||||
| Note holder 23 | 3/24/2016 | - | - | - | 49 | |||||||||||||
| Note holder 23 | 5/15/2016 | 21,564 | - | 21,564 | 1,643 | |||||||||||||
| Note holder 23 | 6/25/2016 | 5,500 | (2,582 | ) | 2,918 | 148 | ||||||||||||
| Note holder 23 | 7/7/2016 | 77,947 | - | 77,947 | 1,452 | |||||||||||||
| Note holder 23 | 7/7/2016 | 80,236 | (44,151 | ) | 36,085 | 1,495 | ||||||||||||
| Note holder 23 | 6/15/2016 | 11,500 | (3,719 | ) | 7,781 | - | ||||||||||||
| Note holder 24 | 2/18/2016 | - | - | - | - | |||||||||||||
| Note holder 24 | 2/21/2016 | - | - | - | - | |||||||||||||
| Note holder 24 | 5/3/2016 | - | - | - | - | |||||||||||||
| Note holder 25 | 5/19/2016 | 60,000 | (45,660 | ) | 14,340 | 2,624 | ||||||||||||
| Note holder 25 | 9/30/2016 | 47,000 | (46,657 | ) | 343 | 1,422 | ||||||||||||
| Note holder 25 | 8/19/2015 | 21,183 | - | 21,183 | 2,213 | |||||||||||||
| Note holder 25 | 10/12/2015 | 58,941 | - | 58,941 | 2,842 | |||||||||||||
| Note holder 25 | 8/30/2016 | 36,000 | - | 36,000 | 663 | |||||||||||||
| Note holder 26 | 9/11/2015 | 16,651 | - | 16,651 | 1,828 | |||||||||||||
| Note holder 26 | 2/17/2016 | - | - | - | - | |||||||||||||
| Note holder 27 | 10/28/2015 | 9,050 | - | 9,050 | 374 | |||||||||||||
| Total | $ | 977,838 | $ | (177,862 | ) | $ | 799,976 | $ | 141,572 | |||||||||
| F-16 |
NOTE 9 – RELATED PARTY TRANSACTIONS
We have engaged an entity controlled by the director of the Company to perform consulting services related to the development of new technologies. Payments to this party totaled $6,909 and $2,500 during the year ended December 31, 2015 and 2014, respectively.
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 $8,000 due as of December 31, 2015 and 2014.
During the year ended December 31, 2014, the Company received an interest free $2,000 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 $2,000 due as of December 31, 2015 and 2014.
During the year ended December 31, 2014, the Company received a $10,000 loan from a related party to fund operations. The loan plus fixed interest of $1,000 was repaid in December 2014.
During the year ended December 31, 2015, the Company received three separate $3,000 loans from a related party to fund operations. Each loan was entered into by the lender paying expenses on behalf of the company. The loans plus fixed interest of $500 were repaid during the year ended December 31, 2015.
During the year ended December 31, 2015, the Company issued a total of 75,000,000 common shares as bonuses to officers at a total value of $481,500. The Company also issued a total of 2,500,000 series A preferred shares as bonuses to officers and directors at a total value of $500.
NOTE 10 – COMMON STOCK
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 year ended December 31, 2014, the Company issued a total of 5,275,000 common shares for services provided by various consultants; 7,500 common shares as settlement of a payable; 752,616 common shares as settlements of certain claims brought against the company by two separate entities; 8,796,579 common shares for total note conversions of $927,988; 582,928 common shares for total accrued interest conversions of $63,727; 1,431,550 common shares for total cash proceeds of $87,916; 1,160,000 common shares valued at $93,416 for default penalties on notes payable; 650,000 common shares as debt issue costs and repurchased a total of 50,000 common shares for $4,200 of cash.
During the year ended December 31, 2015, the Company issued 75,000,000 common shares valued at $481,500 as bonuses to officers, 5,200,000 common shares valued at $22,513 for services provided by consultants; 2,403,780,070 common shares for total note conversions of $448,742 and 1,625,000 common shares valued at $21,415 for default penalties on notes payable.
On June 29, 2015, the Company entered into a consulting agreement whereby the consultant would provide services for a period of 30 days in exchange for 5,000,000 shares of common stock. The common shares were valued equal to the close price as of the date of the agreement, or $0.006 per share, resulting in a total value of $30,000.
On July 9, 2015, the Company entered into a settlement agreement with a former note holder of the Company. The settlement agreement required the Company to issue 500,000 shares of common stock which were valued equal to the close price as the date of the agreement, or $0.0038 per share, resulting in a total value of $1,900.
There were 2,552,409,195 shares issued and 2,552,359,195 outstanding as of December 31, 2015.
There was 30,589,839 shares issued and 30,539,839 outstanding as of December 31, 2014.
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 December 31, 2015 and 2014, the Company had accrued $758,773 and $767,109 and 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. Because of the undeterminable nature of our ability to successfully reduce or eliminate the amount due, the Company has accrued $127,141 as of December 31, 2015 for these amounts due.
Office and Warehouse Lease
The Company is required under the terms of the rental lease to make monthly lease payments.
The Company’s property lease is for an initial period of thirteen months from October 2011 and may be extended in two separate thirteen-month increments for up to a total term of 39 months. The lease was not extended beyond the expiration date of January 9, 2016. The minimum future annual rental commitments are as follows:
| 2016 | $ | - | ||
| Total annual lease commitments | $ | - |
| F-17 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY
As of December 31, 2015 the Company had a $1,005,791 derivative liability balance on the balance sheet and recorded a loss from derivative liability fair value adjustment of $522,468 during the year ended December 31, 2015. The derivative liability activity comes from convertible notes payable as follows:
As discussed in Note 8 – “Convertible Notes Payable”, during 2012, the Company issued an aggregate of $30,000 Convertible Promissory Notes to an unrelated party that matured on April 26, 2013. The Company is currently negotiating an extension of the maturity date and anticipates to successfully do so. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate of $0.30 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $73,451. Of the total, $30,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $43,451 was charged to operations as non-cash interest expense. The fair value of $73,451 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the note was amortized over the term of our stock’s opening trading day to the original maturity, or two days. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to note and determined an aggregate fair value of $0 and recorded a gain of $1,594 from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 493%, (3) risk-free interest rate of ..01%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on February 27, 2014, the Company issued an aggregate of $339,026 Convertible Promissory Notes to an unrelated party that mature on February 27, 2015. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not less than $0.00004. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $312,128 which was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. The fair value of $368,056 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015, the noteholder converted the outstanding principal of the note in full. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $4,106 loss from change in fair value of derivatives for the year ended December 31, 2015.
| F-18 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on June 11, 2015, the Company issued an aggregate of $59,800 Convertible Promissory Notes to an unrelated party that mature on June 11, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest daily volume weighted average price in the five days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $118,374. Of the total, $59,800 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $58,574 was charged to operations as non-cash interest expense. The fair value of $118,374 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note, or one year. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $102,408 and recorded a $15,966 gain from change in fair value of derivatives for year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 377%, (3) risk-free interest rate of .49%, (4) expected life of 0.45 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on November 17, 2014 , the Company issued an aggregate of $104,000 Convertible Promissory Notes to an unrelated party that mature on August 17, 2015. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option after 180 days from issuance, at the conversion rate equal to a 52% discount from the average of the lowest three trading prices in the ten trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability. The derivative was not accounted for until the conversion features were in effect during the year ended December 31, 2015 and as such no derivative liability was recorded during the year ended December 31, 2014.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $180,678. Of the total, $104,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $76,678 was charged to operations as non-cash interest expense. The fair value of $180,678 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015, the noteholder converted the outstanding principal of the note in full to common shares. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $94,164 gain from change in fair value of derivatives for year ended December 31, 2015.
As discussed in Note 8 – “Convertible Notes Payable”, on November 17, 2014 , the Company issued an aggregate of $104,000 Convertible Promissory Notes to an unrelated party that mature on August 17, 2015. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option after 180 days from issuance, at the conversion rate equal to a 52% discount from the average of the lowest three trading prices in the ten trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability. The derivative was not accounted for until the conversion features were in effect during the year ended December 31, 2015 and as such no derivative liability was recorded during the year ended December 31, 2014.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $97,019. Of the total, $54,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $43,019 was charged to operations as non-cash interest expense. The fair value of $97,019 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015, the note was purchased by a separate noteholder. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $133,918 gain from change in fair value of derivatives for the year ended December 31, 2015.
| F-19 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on December 12, 2014 , the Company issued an aggregate of $50,000 Convertible Promissory Notes to an unrelated party that mature on December 12, 2015. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option after 180 days from issuance, at the conversion rate equal to a 40% discount from the lowest closing price in the fifteen trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability. The derivative was not accounted for until the conversion features were in effect during the year ended December 31, 2015 and as such no derivative liability was recorded during the year ended December 31, 2014.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $105,838. Of the total, $50,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $55,838 was charged to operations as non-cash interest expense. The fair value of $105,838 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note, or one year. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $49,398 and recorded a $56,440 gain from change in fair value of derivatives for year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .49%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on June 26, 2015, the Company issued an aggregate of $55,000 Convertible Promissory Notes to an unrelated party that mature on March 24, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $96,762. Of the total, $55,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $41,762 was charged to operations as non-cash interest expense. The fair value of $96,762 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note, or one year. During the year ended December 31, 2015, the noteholder converted the full principal balance of the note to common stock of the Company. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $24,686 gain from change in fair value of derivatives for the year ended December 31, 2015.
As discussed in Note 8 – “Convertible Notes Payable”, on July 29, 2015, the Company issued an aggregate of $11,000 Convertible Promissory Notes to an unrelated party that mature on March 24, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $20,740. Of the total, $11,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $9,260 was charged to operations as non-cash interest expense. The fair value of $20,740 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes was amortized over the term of the note. During the year ended December 31, 2015, the noteholder converted the full principal balance of the note to common stock of the Company. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $15,100 gain from change in fair value of derivatives for the year ended December 31, 2015.
| F-20 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on August 6, 2015, the Company issued an aggregate of $11,500 Convertible Promissory Notes to an unrelated party that mature on March 24, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $26,121. Of the total, $11,500 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $14,621 was charged to operations as non-cash interest expense. The fair value of $26,121 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes was amortized over the term of the note. During the year ended December 31, 2015, the noteholder converted the full principal balance of the note to common stock of the Company. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $19,939 gain from change in fair value of derivatives for the year ended December 31, 2015.
As discussed in Note 8 – “Convertible Notes Payable”, on August 4, 2015, the Company issued an aggregate of $69,450 Convertible Promissory Notes to an unrelated party that mature on May 15, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $130,775. The fair value of $130,775 was recorded as a derivative liability on the balance sheet and the Company recognized an equal amount as a loss on the extinguishment of debt on the inception date.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $31,887 and recorded a $14,721 loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 372%, (3) risk-free interest rate of .16%, (4) expected life of 0.37 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on September 24, 2015, the Company issued an aggregate of $5,500 Convertible Promissory Notes to an unrelated party that mature on June 25, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest closing price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $19,590. Of the total, $5,500 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $14,090 was charged to operations as non-cash interest expense. The fair value of $19,590 was recorded as a derivative liability on the balance sheet on the inception date.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $8,584 and recorded a $11,006 gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 373%, (3) risk-free interest rate of .49%, (4) expected life of 0.48 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
| F-21 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on August 19, 2015, the Company issued an aggregate of $50,800 Convertible Promissory Notes to an unrelated party that matured on August 19, 2015. The note bears interest at a rate of 22% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the average of the lowest three trading prices in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $55,714. The fair value of $55,714 was recorded as a derivative liability on the balance sheet and the Company recognized an equal amount as a loss on the extinguishment of debt on the inception date.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $25,127 and recorded a $29,500 loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on August 11, 2015, the Company issued an aggregate of $60,800 Convertible Promissory Notes to an unrelated party that matured on September 11, 2015. The note bears interest at a rate of 15% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 60% discount from the average of the lowest three trading prices in the twenty five trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $59,626 which was recorded as a liability on the balance sheet and the Company recognized an equal amount as a loss on the extinguishment of debt .
The debt discount for the notes will be amortized over the term of the note. During the year ended December 31, 2015, the noteholder sold a $16,500 of its interest in the note resulting in a change of derivative fair value of $3,289 which was recorded as a gain on the extinguishment of debt. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $149,571 and recorded a $204,722 loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
| F-22 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on August 18, 2015, the Company issued an aggregate of $57,500 Convertible Promissory Notes to an unrelated party that matures on February 17, 2016. The note bears interest at a rate of 15% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 60% discount from the average of the lowest three trading prices in the twenty five trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $41,244 which was recorded as a liability on the balance sheet and a debt discount, which is up to but not more than the net proceeds of the notes.
The debt discount for the notes will be amortized over the term of the note. During the year ended December 31, 2015, the noteholder sold its interest in the full balance of the note payable resulting in a gain on the extinguishment of debt of $449,034. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $407,790 loss from change in fair value of derivatives for the year ended December 31, 2015.
As discussed in Note 8 – “Convertible Notes Payable”, on August 20, 2015, the Company issued an aggregate of $60,000 Convertible Promissory Notes to an unrelated party that matures on May 19, 2016. The note bears interest at a rate of 12% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the average of the lowest three trading prices in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $107,382. The fair value of $107,382 was recorded as a derivative liability on the balance sheet with $47,382 being recognized as excess value of derivatives and immediately charged to interest expense.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $99,012 and recorded a $8,370 gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 368%, (3) risk-free interest rate of .49%, (4) expected life of 0.38 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on September 30, 2015, the Company issued an aggregate of $47,000 Convertible Promissory Notes to an unrelated party that matures on September 30, 2016. The note bears interest at a rate of 12% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the average of the lowest three trading prices in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
| F-23 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $86,920. The fair value of $86,920 was recorded as a derivative liability on the balance sheet with $39,920being recognized as excess value of derivatives and immediately charged to interest expense.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $86,776 and recorded a $144 gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 368%, (3) risk-free interest rate of .65%, (4) expected life of 0.75 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on October 7, 2015, the Company issued an aggregate of $80,236 Convertible Promissory Notes to an unrelated party that matures on July 7, 2016. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $173,413. The fair value of $173,413 was recorded as a derivative liability on the balance sheet with $93,177 being recognized as excess value of derivatives and immediately charged to interest expense.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $159,135 and recorded a $14,278 gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 386%, (3) risk-free interest rate of .49%, (4) expected life of 0.52 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on October 7, 2015, the Company issued an aggregate of $77,947 Convertible Promissory Notes to an unrelated party that matures on July 7, 2016. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $137,398. The fair value of $137,398 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as interest expense as the note was entered into as a reduction to an existing note with identical conversion terms. However, there was a $25,485 loss on the extinguishment of debt recognized due to the exchange.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $124,692 and recorded a $99,207 loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 386%, (3) risk-free interest rate of .65%, (4) expected life of 0.52 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
| F-24 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on October 12, 2015, the Company issued an aggregate of $58,941 Convertible Promissory Notes to an unrelated party that matured on October 12, 2015. The note bears interest at a rate of 22% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $98,458. The fair value of $98,458 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as interest expense as the note was entered into as a reduction to an existing note with identical conversion terms resulting in a derivative exchange between the convertible notes payable.
December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $69,916 and recorded a $69,916 loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
As discussed in Note 8 – “Convertible Notes Payable”, on October 28, 2015, the Company issued an aggregate of $15,000 Convertible Promissory Notes to an unrelated party that matured on October 28, 2015. The note bears interest at a rate of 22% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $139,095. The fair value of $139,095 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as interest expense as the note was entered into as a reduction to an existing note with identical conversion terms resulting in a derivative exchange between the convertible notes payable.
December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $81,535 and recorded a $86,930 loss from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198%, (3) risk-free interest rate of .16%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
| F-25 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 12 – DERIVATIVE LIABILITY (CONTINUED)
As discussed in Note 8 – “Convertible Notes Payable”, on October 5, 2015, the Company issued an aggregate of $1,500 Convertible Promissory Notes to an unrelated party that matured on October 5, 2015. The note bears interest at a rate of 0% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $14,146. The fair value of $14,146 was recorded as a derivative liability on the balance sheet. No excess derivative was recognized as interest expense as the note was entered into as a reduction to an existing note with identical conversion terms resulting in a derivative exchange between the convertible notes payable.
During the year ended December 31, 2015, the noteholder converted the outstanding principal of the note in full resulting in a fair value as of December 31, 2015 of $0.
As discussed in Note 8 – “Convertible Notes Payable”, on September 9, 2015, the Company issued an aggregate of $11,500 Convertible Promissory Notes to an unrelated party that matures on June 15, 2016. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $20,023. The fair value of $20,23 was recorded as a derivative liability on the balance sheet with $8,523 being recognized as excess value of derivatives and immediately charged to interest expense.
The debt discount for the notes will be amortized over the term of the note. On December 31, 2015, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $17,750 and recorded a $2,273 gain from change in fair value of derivatives for the year ended December 31, 2015. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 373%, (3) risk-free interest rate of .49%, (4) expected life of 0.46 of a year, and (5) estimated fair value of the Company’s common stock of $0.0001 per share.
| F-26 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
NOTE 13 – STOCK OPTIONS AND WARRANTS
The following table summarizes all stock option and warrant activity for the year month period ended December 31, 2015:
| Shares | Weighted- Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2014 | 631,905 | $ | 0.30 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited | - | - | ||||||
| Expired | - | - | ||||||
| Outstanding, December 31, 2015 | 631,905 | $ | 0.30 | |||||
The following table discloses information regarding outstanding and exercisable options and warrants at December 31, 2015:
| 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 | 631,905 | $ | 0.30 | 1.48 | 631,905 | $ | 0.30 | ||||||||||||||
| 631,905 | $ | 0.30 | 1.48 | 631,905 | $ | 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, 2015 | ||||
| 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 | % | ||
| F-27 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
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 year ended December 31, 2015.
NOTE 15 – INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for the year ended December 31, 2014 due to the operating losses experienced from inception to December 31, 2014. We recorded income tax expense of $92,804 for a federal income tax due arising from an examination by the Internal Revenue Service as discussed in Note 11 – Commitments and Contingencies. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 2014 or 2013 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
| Income tax provision at the federal statutory rate | 35.00 | % | ||
| California state corporation income tax rate | 5.75 | % | ||
| Effect on operating losses | (40.75 | )% |
Net deferred tax assets consist of the following:
| 2015 | 2014 | |||||||
| Net operating loss carry forward | $ | 2,279,219 | $ | 1,687,889 | ||||
| Valuation allowance | (2,279,219 | ) | (1,687,889 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
A reconciliation of income taxes computed at the statutory rate is as follows:
| 2015 | 2014 | |||||||
| Computed federal income tax expense at statutory rate of 40.75% and 35% | $ | (1,491,995 | ) | $ | (1,248,852 | ) | ||
| Stock issued for services | 205,578 | 289,913 | ||||||
| Amortization of deferred loan costs | 42,127 | 85,096 | ||||||
| Amortization of debt discount | 272,552 | 347,944 | ||||||
| Depreciation and amortization | 4,067 | 2,493 | ||||||
| Change in derivative liability | 212,885 | 45,139 | ||||||
| Stock issued for legal settlement | 8,108 | 123,922 | ||||||
| Stock issued for penalties | 8,726 | 32,696 | ||||||
| Excess derivative liability charged to interest | 236,167 | 38,224 | ||||||
| Gain on extinguishment of debt | (69,362 | ) | - | |||||
| Non-deductible penalties | 13,991 | - | ||||||
| Increase in convertible notes outstanding for default penalties | 56,279 | - | ||||||
| Non-deductible change in paid time off accrual | 2,351 | - | ||||||
| Change in valuation allowance | 591,330 | 283,425 | ||||||
| Income tax expense | $ | 92,804 | $ | - | ||||
The net federal operating loss carry forward will expire in 2031. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.
NOTE 16 – SUBSEQUENT EVENTS
On January 20, 2016, the Company issued a total of 103,292,475 common shares as the conversion of $5,165 of principal on an existing convertible note payable.
On January 21, 2016, the Company issued a total of 124,000,000 common shares as the conversion of $660 of principal on an existing convertible note payable.
On October 27, 2016, the Company issued a total of 140,000,000 common shares as the conversion of $770 of principal on an existing convertible note payable.
On February 2, 2017, the Company issued a total of 140,000,000 common shares as the conversion of $7,546 of principal on an existing convertible note payable.
On March 16, 2017, the Company issued a total of 160,000,000 common shares as the conversion of $8,712 of principal on an existing convertible note payable.
On March 20, 2017, the Company issued a total of 160,000,000 common shares as the conversion of $8,712 of principal on an existing convertible note payable.
On January 22, 2016, the Company entered into a note payable for $42,215 of which $5,000 is considered an original issue discount resulting in cash proceeds to the Company of $37,215. The note carries interest at 8% per annum and is due on June 22, 2016.
On March 16, 2016, the Company entered into a note payable for $43,500 of which $13,500 is considered an original issue discount resulting in cash proceeds to the Company of $30,000. The note carries interest at 19% per annum. The Company has the option, but not the obligation, to repay the note within 60 days of issuance at a fixed amount of $39,000.
On November 3, 2016, the Company entered into a convertible note payable for $47,725 or which $7,725 was withheld as debt issue costs resulting in cash proceeds to the Company of $40,000. The note bears interest at 12% per annum and is due on November 3, 2017. The noteholder has the right to convert the outstanding principal and accrued but unpaid interest to shares of common stock at a rate equal to 50% of the average of the lowest three trading prices of the Company’s common stock during the twenty days immediately prior to conversion.
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 requires 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 quarterly payments of $152,693.
As part of the transaction, the Company entered into a revolving credit facility to borrow up to $5,000,000 of which $1,5000,000 as advanced to the company upon closing. Of the $1,500,000 advanced to the Company, $631,855 was paid for the seller and financier’s closing costs resulting in net cash to the Company of $868,145. The credit line carries an interest rate of 12% per annum and requires repayment based on cash collected from clients which are required to be sent to a lockbox maintained by the financier of which the net receipts after required payments to the financier under the credit facility agreement will be provided to the Company.
| F-28 |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective to ensure that: (1) information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our CEO and Interim CFO have determined and concluded that, as of December 31, 2015, the Company’s internal control over financial reporting was not effective.
As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that result in a more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of December 31, 2015:
| (1) | Lack of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee it has no independent directors. Further, we have not identified an audit committee financial expert on our board of directors. These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management. | |
| (2) | We do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience that is necessary for adequate controls and procedures. |
| 12 |
Our management determined that these deficiencies constituted material weaknesses.
Due to our small size, we were not able to immediately take any action to remediate these material weaknesses but plan to address these items in the near future. Notwithstanding the assessment that our Internal Controls over Financial Reporting was not effective and that there were material weaknesses identified herein, we believe that our consolidated financial statements contained in this Annual Report fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm as we are a smaller reporting company and not required to provide the report.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None
| 13 |
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the name and age of officers and director as of December ____, 2016.
| Name | Age | Position | ||
| David D. Singer | 66 | President, Chief Technology Officer and Director | ||
| Devon Jones | 37 | Chief Executive Officer and Director | ||
| Philip Kirkland | 51 | Chief Financial Officer, Chief Operating Officer and Director |
Set forth below is a brief description of the background and business experience of our executive officer and director for the past five years.
David D. Singer is the President and Chief Technology Officer (CTO) of the Intelligent Highway Solutions, Inc. From 2009 to 2011, he served as the CEO of American Control Technologies, a privately held company. From 2007 to 2009 he was President of Homeland Security Corporation (OTC: HSCC). From 2004 to 2007, he served as the COO of Tarallax, a privately held company. Mr. Singer’s service as President of Homeland Security Corporation has given him the requisite experience needed to serve as an officer and director of the Company.
Devon Jones is the Chief Executive Officer (CEO) of the Company. From June 2002 to November 2006, Mr. Jones served as the CEO of Connect One Communications, a telecom provider. He has a variety of electrical service certifications and has the requisite knowledge and skill in the electrical service industry which led to the conclusion that he should serve as a director of the Company.
Philip Kirkland is the Chief Operating Officer (COO) and Chief Financial Officer (CFO) of the Company. He founded Kid Conduit, Inc., a privately held business in 1996. He has a variety of electrical service certifications including an electrical contractor’s license which led to the conclusion that he should serve as a director of the Company.
Family Relationships
There are no family relationships among any of our officers or directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; | |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; | |
| ● | been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
| 14 |
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Code of Ethics
We do not have a code of ethics that applies to our officers, employees and directors.
Corporate Governance
The business and affairs of the company are managed under the direction of our board. In addition to the contact information in this annual report, each stockholder will be given specific information on how he/she can direct communications to the officers and directors of the corporation at our annual stockholders meetings. All communications from stockholders are relayed to the members of the board of directors.
Role in Risk Oversight
Our board of directors is primarily responsible for overseeing our risk management processes. The board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the United States Securities and Exchange Commission.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that as of the date of this report, our executive officers, directors and greater than 10 percent beneficial owners complied on a timely basis with all Section 16(a) filing requirements.
Item 11. Executive Compensation.
The following executives of the Company received compensation in the amounts set forth in the chart below for the fiscal years ended December 31, 2015 and 2014. No other item of compensation was paid to any officer or director of the Company other than reimbursement of expenses.
Summary Compensation Table
| Name
and Principal Position | Year | Salary | Bonus | Stock Awards ($) | Option Awards | Non- Qualified Deferred Compensation Earnings | All
Other Compensation | Totals ($) | ||||||||||||||||||||||||
| David D. Singer | 2014 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,500 | $ | 2,500 | |||||||||||||||||
| President and Chief Technology Officer | 2015 | $ | 0 | $ | 0 | $ | 100 | $ | 0 | $ | 0 | $ | 6,909 | (1) | $ | 7,009 | ||||||||||||||||
| Devon Jones | 2014 | $ | 50,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 150,000 | (2) | $ | 200,000 | ||||||||||||||||
| Chief Executive Officer | 2015 | $ | 50,000 | $ | 0 | $ | 165,200 | $ | 0 | $ | 0 | $ | 150,000 | (3) | $ | 365,200 | ||||||||||||||||
| Philip Kirkland | 2014 | $ | 50,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 150,000 | (4) | $ | 200,000 | ||||||||||||||||
| COO and Chief Financial Officer | 2015 | $ | 50,000 | $ | 0 | $ | 165,200 | $ | 0 | $ | 0 | $ | 150,000 | (5) | $ | 365,200 | ||||||||||||||||
| (1) | This amount is for consulting services that were paid to Mr. Singer’s entity AWS Services, Inc. | |
| (2) | This amount includes the following: (i) $120,000 pursuant to Mr. Jones’ consulting agreement and (ii) $30,000 for his yearly car allowance. | |
| (3) | This amount includes the following: (i) $120,000 pursuant to Mr. Jones’ consulting agreement and (ii) $30,000 for his yearly car allowance. From January 1, 2014 through December 31, 2015, compensation due to Mr. Jones in the amount of $109,270 has accrued, but has not been paid. | |
| (4) | This amount includes the following: (i) $120,000 pursuant to Mr. Kirkland’s consulting agreement and (ii) $30,000 for his yearly car allowance. | |
| (5) | This amount includes the following: (i) $120,000 pursuant to Mr. Kirkland’s consulting agreement and (ii) $30,000 for his yearly car allowance. From January 1, 2014 through December 31, 2015, compensation due to Mr. Kirkland in the amount of $156,636 has accrued, but has not been paid. |
| 15 |
Outstanding Equity Awards at Fiscal Year-End Table
There were no outstanding equity awards for the year ended December 31, 2015.
Compensation of Directors
The Company has not compensated any of its directors for service on the Board of Directors. Management directors are not compensated for their service as directors; however they may receive compensation for their services as employees of the Company. The compensation received by our management directors is shown in the “Summary Compensation Table” above.
Employment Agreements
On January 1, 2012, we entered into an employment agreement with our Chief Financial Officer, Philip Kirkland. Pursuant to the agreement, Mr. Kirkland’s employment will be for a term of three (3) years, unless removed earlier, and be compensated with an annual base salary of $50,000 plus a $30,000 yearly car allowance.
On January 1, 2012, we entered into an employment agreement with our Chief Executive Officer, Devon Jones. Pursuant to the agreement, Mr. Jones’s employment will be for a term of three (3) years, unless removed earlier, and be compensated with an annual base salary of $50,000 plus a $30,000 yearly car allowance.
Consulting Agreements
On April 22, 2011, we entered into a consulting agreement with Philip Kirkland to provide advisory, consulting and other services in relation to the Company’s operations. Pursuant to the agreement, Mr. Kirkland was paid a monthly consulting fee of $10,560, which continued until the termination of the agreement on December 31, 2012. The agreement was renewed on January 1, 2013 to extend through December 31, 2013. On January 1, 2014, the Company entered into a separate consulting agreement with Philip Kirkland to provide advisory, consulting and other services in relation to the Company’s operations which required total annual compensation of $120,000.
On April 22, 2011, we entered into a consulting agreement with Devon Jones to provide advisory, consulting and other services in relation to the Company’s operations. Pursuant to the agreement, Mr. Jones was paid a monthly consulting fee of $9,685, which continued until the termination of the agreement on December 31, 2012. The agreement was renewed on January 1, 2013 to extend through December 31, 2013. On January 1, 2014, the Company entered into a separate consulting agreement with Devon Jones to provide advisory, consulting and other services in relation to the Company’s operations which required total annual compensation of $120,000.
From January 1, 2014 through December 31, 2015, compensation due to Mr. Jones in the amount of $109,270 has accrued, but has not been paid.
From January 1, 2014 through December 31, 2015, compensation due to Mr. Kirkland in the amount of $156,636 has accrued, but has not been paid.
We do not have any other employment agreements with our officers or directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding our shares of common stock beneficially owned as of April 14, 2016, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of April 14, 2016. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of April 16, 2016 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise specified, the address of each of the persons set forth below is care of the company at the address of: 9516 Rossport Way, Ell Grove, CA 95624.
| Name of Beneficial Owner | Amount
and Nature of Beneficial Ownership of Common Stock | Percent
of Common Stock (1) | ||||||
| 5% Shareholders | ||||||||
| SCS, LLC | 34,040,000 | (2) | 1.2 | % | ||||
| LRK Holdings, LLC | 34,090,000 | (3) | 1.2 | % | ||||
| Directors and Executive Officers | ||||||||
| David D. Singer | 774,900 | 0.1 | % | |||||
| Devon Jones | 34,040,000 | 1.2 | % | |||||
| Philip Kirkland | 34,090,000 | 1.2 | % | |||||
| All directors and officers as a group (3 people) | 68,904,900 | 2.5 | % | |||||
| (1) | Based on 2,775,651,670 shares of common stock outstanding as of December ___, 2016. | |
| (2) | The beneficial owner of SCS, LLC is Devon Jones. | |
| (3) | The beneficial owner of LRK Holdings, LLC is Philip Kirkland. | |
| (4) | The beneficial owner of AWS Services, Inc. is David D. Singer. |
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
We have engaged an entity controlled by the director of the Company to perform consulting services related to the development of new technologies. Payments to this party totaled $6,909 and $2,500 during the year ended December 31, 2015 and 2014, respectively.
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 $8,000 due as of December 31, 2015 and 2014.
During the year ended December 31, 2014, the Company received an interest free $2,000 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 $2,000 due as of December 31, 2015 and 2014.
During the year ended December 31, 2014, the Company received a $10,000 loan from a related party to fund operations. The loan plus fixed interest of $1,000 was repaid in December 2014.
During the year ended December 31, 2015, the Company received three separate $3,000 loans from a related party to fund operations. Each loan was entered into by the lender paying expenses on behalf of the company. The loans plus fixed interest of $500 were repaid during the year ended December 31, 2015.
During the year ended December 31, 2015, the Company issued a total of 75,000,000 common shares as bonuses to officers at a total value of $481,500. The Company also issued a total of 2,500,00 series A preferred shares as bonuses to officers and directors at a total value of $500.
Director Independence
We do not have any independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | the director is, or at any time during the past three years was, an employee of the company; |
| ● | the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
| ● | a family member of the director is, or at any time during the past three years was, an executive officer of the company; |
| ● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
| ● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or |
| ● | the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
Messrs. Jones, Singer, and Kirkland are not considered independent because they are employees of the Company.
We do not currently have a separately designated audit, nominating or compensation committee.
Item 14. Principal Accounting Fees and Services.
The following presents aggregate fees for professional services rendered by our independent registered public accounting firm, Anton & Chia LLP (for the year ended December 31, 2015) and Sadler Gibb and Associates, LLC, for the audit of our annual consolidated financial statements during the year ended December 31, 2014.
Audit Fees
For the Company’s fiscal years ended December 31, 2015 (Anton & Chia LLP) and 2014, we were billed approximately $60,000 and $47,000 (Sadler Gibb & Associates) for professional services rendered for the audit and review of our financial statements.
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Audit Related Fees
There were $1,500 of total fees for audit related services for the years ended December 31, 2015 and $0 during the year ended December 31, 2014.
Tax Fees
There were no fees billed during each of the years ended December 31, 2015 and 2014 for tax compliance, advice and filings.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2015 and 2014.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
| - | approved by our audit committee; or |
| - | entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. |
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements and Report of Independent Registered Public Accounting Firm, which are set forth in the index to Consolidated Financial Statements on pages F-1 through F-22 of this report.
(2) Financial Statement Schedule: None.
(3) Exhibits
| EXHIBIT NUMBER |
DESCRIPTION | |
| 3.1 | Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on June 25, 2012. | |
| 3.2 | By-Laws, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on June 25, 2012. | |
| 4.1 | Promissory Note dated June 17, 2011, with three addendums, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on October 18, 2012. | |
| 4.2 | Promissory Note dated April 29, 2011 with Addendum, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on May 15, 2012. | |
| 4.3 | Promissory Note dated November 21, 2011, for Byrd & Company, LLC, incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on October 18, 2012. | |
| 4.4 | Promissory Note dated December 15, 2011, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on May 15, 2012. | |
| 4.5 | Promissory Note dated December 15, 2011 Addendums, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on October 18, 2012. | |
| 4.6 | Promissory Note dated April 29, 2011 Addendum, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on May 15, 2012. |
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| 4.7 | Promissory Note dated April 29, 2011 Second and Third Addendum, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on November 9, 2012. | |
| 4.8 | Convertible Debenture dated October 19, 2012, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on November 9, 2012. | |
| 4.9* | Convertible Promissory Note Issued to KBM Worldwide, Inc., dated November 13, 2014. | |
| 10.1 | Copy of Intelligent Highways Solutions, Inc. C-10 Electrical Contractor License, incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on June 25, 2012. | |
| 10.2 | Copy of Standard Industrial/Commercial Multi-Tenant Lease, incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on June 25, 2012. | |
| 10.3 | Copy of California Small Business, incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on September 17, 2012. | |
| 10.4 | Copy of Philip Kirkland Employment Agreement, incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on September 17, 2012. | |
| 10.5 | Copy of Devon Jones Employment Agreement, incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on September 17, 2012. | |
| 10.6 | Copy of Philip Kirkland Consulting Agreement, incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on September 17, 2012. | |
| 10.7 | Copy of Devon Jones Consulting Agreement, incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1/A, filed with the Securities and Exchange Commission on September 17, 2012. | |
| 10.8 | Distribution Agreement between SCS Lighting Solutions Inc. and Intelligent Highway Solutions, Inc. dated August 22, 2013 incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 11, 2013. | |
| 10.9* | Purchase Agreement, dated November 13, 2014, by and between Intelligent Highway Solutions, Inc. and KBM Worldwide, Inc. | |
| 10.10* | Management Consulting Extension Agreement with Devon Jones, dated January 1, 2014. | |
| 10.11* | Management Consulting Extension Agreement with Philip Kirkland, dated January 1, 2014. | |
| 21.1 | List of Subsidiaries – None. | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1+ | Certification of Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2+ | Certification of Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Schema | |
| 101.CAL* | XBRL Taxonomy Calculation Linkbase | |
| 101.DEF* | XBRL Taxonomy Definition Linkbase | |
| 101.LAB* | XBRL Taxonomy Label Linkbase | |
| 101.PRE* | XBRL Taxonomy Presentation Linkbase |
* Filed herewith.
+ In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INTELLIGENT HIGHWAY SOLUTIONS, INC. | ||
| Date: May 11, 2017 | By: | /s/ Devon Jones |
| Devon Jones | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 11, 2017 | By: | /s/ Philip Kirkland |
| Philip Kirkland | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Devon Jones | Chief Executive Officer and Director | May 11, 2017 | ||
| Devon Jones | (Principal Executive Officer) | |||
| /s/ David D. Singer | President and Director | May 11, 2017 | ||
| David D. Singer | ||||
| /s/ Philip Kirkland | Chief Financial Officer, Chief Operating Officer and Director | May 11, 2017 | ||
| Philip Kirkland | (Principal Financial and Accounting Officer) |
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