Results of Operations during the year ended
We had$629,097 of sales revenue for the year endedDecember 31, 2019 compared to sales revenue of$631,117 for the year endedDecember 31, 2018 , a decrease in sales revenue of$2,020 or approximately a 0.32% decrease from the prior year. We generate revenues through subscription fees received in connection with
our DL Manager and InfoServices. We had total costs of sales for the year endedDecember 31, 2019 of$192,044 compared to total costs of sales of$178,198 for the year endedDecember 31, 2018 , or an increase of$13,846 or about 7.8% of which resulted in a gross margin of$437,053 for the year endedDecember 31, 2019 or 69.5%, compared to a gross margin of$452,919 or 71.8% for the year endedDecember 31, 2018 , an decrease in gross margin of$15,866 from the prior year, our decrease in gross margin was due to our increase cost. Cost of sales as a percentage of sales was 31.0 % for the year endedDecember 31, 2019 , compared to 28.2% for the year endedDecember 31, 2018 . As we gain more customers and enter into more service agreements, we anticipate our cost of sales will decrease as we expect to take advantage of applicable economies of scale. Our operational expenses decreased to$425,076 for the year endedDecember 31, 2019 , compared to expenses of$466,450 for the year endedDecember 31, 2018 , a decrease in expenses of$41,374 from the prior period. The decrease in expenses for the year of 2019 was due to the company's ongoing efforts to expand its business opportunities in the most cost effective and efficient means while reducing costs and the cost of stock issued. We had a net income of$6,465 for the year endedDecember 31, 2019 , compared to a net loss of$18,988 for the year endedDecember 31, 2018 . While there can be no assurance regarding our operating results in 2020 we believe that we will experience a significant reduction in non-cash expense as well as increased operating revenues which should result in profitable operations. 14
Liquidity and Capital Resources
We had current assets of
We had total assets of$118,986 as ofDecember 31, 2019 , compared to$125,436 as ofDecember 31, 2018 or a decrease of$6,450 , which consisted of current assets of$115,211 , total property and equipment (net of accumulated depreciation) of$2,975 , which included high end flat screen televisions, computers and software equipment responsible for running our DL Manager InfoCall Services and ourImage Library which are stored in ourFriendswood office and other off site locations; and other assets of$800 , which included our deposit on ourFriendswood office space. We had total liabilities of$62,727 as ofDecember 31, 2019 , compared to$80,695 as ofDecember 31, 2018 , a increase of$17,968 primarily consisting of accounts payable of$23,841 accrued expenses of$350 short-term accrual of interest of$23,616 , short term note of$10,000 and a note of$4,985 . We had positive working capital of$52,344 and an accumulated deficit of$9,965,049 as ofDecember 31, 2019 . Operating activities provided$11,559 of cash for the year endedDecember 31, 2019 , which was mainly due to a net profit of$6,465 , common stock and options expense of$5,053 , increase in depreciation expense of$2,246 decrease in accounts receivables of$7,149 , decrease in prepaid expenses of$1,578 , increase in accounts payable of$985 decrease in accrued expenses of$344 and change in deferred revenue of$12,261 .We had investing activities for the year endedDecember 31, 2019 of$0.0 for capital expenditures for equipment and investing activities of$0 for the year ended 2019. We had financing activities of$7,036 primarily for the pay down of borrowings from related party during 2019 as compared to 2018 we had financing activity of$7,036 for the pay down of borrowings from related party.
Off-Balance Sheet Arrangements
As of
Contractual Obligations and Commitments
As of
Critical Accounting Policies
Our significant accounting policies are described in the notes to our financial
statements for the years ended
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Table of Contents
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Table of Contents
Report of Independent Registered Public Accounting Firm 17 Balance Sheets -December 31, 2019 and 2018 18 Statements of Operations -Years endedDecember 31, 2019 and 2018 19
Statement of Stockholders' Equity - Years ended
Statements of Cash Flows - Years endedDecember 31, 2019 and 2018 21 Notes to Financial Statements 22 16 Report of Independent Registered Public Accounting Firm Table of Contents
To the Board of Directors and Stockholders ofData Call Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets ofData Call Technologies, Inc. (the Company) as ofDecember 31, 2019 and 2018 and the related statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period endingDecember 31, 2019 and 2018 and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2019 and 2018 and the results of its operations and its cash flows, in conformity with accounting principles generally accepted inthe United States of America . Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/M&K CPAS, PLLC
We have served as the Company's auditor since 2013.
Houston, TX March 27, 2020 17 Data Call Technologies, Inc. Balance Sheets December 31, 2019 and 2018 Table of Contents 2019 2018 Assets Current assets: Cash$ 27,529 $ 23,006 Accounts receivable 74,282 81,431 Prepaid expenses 13,400 14,978 Total current assets 115,211 119,415 Property and equipment 145,836 145,836
Less accumulated depreciation and amortization 142,861
140,615 Net property and equipment 2,975 5,221 Other assets 800 800 Total assets$ 118,986 $ 125,436
Liabilities and Stockholders' Equity
Current liabilities: Accounts payable$ 20,368 $
14,640
Accounts payable - related party 3,473
8,216
Accrued Expenses- related party 350
506
Accrued Interest - related party 23,616
23,116
Convertible short-term note payable to related party 10,000
10,000
Deferred revenue - current -
12,261
Short-term note payable to related party 4,920
11,956 Total current liabilities 62,727 80,695 Total liabilities 62,727 80,695 Stockholders' equity: Preferred stock,$0.001 par value. Authorized 10,000,000 shares: Series A 12% Convertible - 800,000 shares issued and outstanding atDecember 31, 2019 and 2018 800
800
Preferred stock,
10
10
Common stock,$0.001 par value. Authorized 490,000,000 shares: 156,498,515 and 155,997,103 shares issued and outstanding atDecember 31, 2019 and 2018, respectively. 156,498 155,997 Additional paid-in capital 9,864,000 9,859,448 Accumulated deficit (9,965,049 ) (9,971,514 ) Total stockholders' equity 56,259 44,741
Total liabilities and stockholders' equity$ 118,986 $
125,436
The accompanying notes are an integral part of these financial statements.
18 Data Call Technologies, Inc. Statements of Operations Years ended December 31, 2019 and 2018 Table of Contents 2019 2018 Revenues: Sales$ 629,097 $ 631,117 Cost of sales 192,044 178,198 Gross margin 437,053 452,919
Selling, general and administrative expenses 422,830 462,486 Depreciation and amortization expense
2,246 3,964 Total operating expenses 425,076 466,450 Other (income) expenses: Interest income (3 ) (7 ) Interest expense 5, 515 5,464 Total expenses 430,588 471,907 Net Income (loss) before income taxes 6,465 (18,988 ) Provision for income taxes - - Net Income (loss)$ 6,465 $ (18,988 ) Net Income (loss) per common share - basic$ (0.00 ) $ (0.00 ) Net Income (loss) per common shareholders$ (0.00 ) $ (0.00 ) Weighted average common shares: Basic 156,498,515 152,384,838 Diluted 164,695,787 152,384,838
The accompanying notes are an integral part of these financial statements. 19 Data Call Technologies, Inc. Statement of Stockholders' Equity (Deficit) Years ended December 31, 2019 and 2018 Table of Contents Additional Stockholders' Preferred Stock A Preferred Stock B Common Stock paid-in Accumulated equity shares amount shares amount shares amount capital deficit (deficit) Balance year ended December 31, 2017 800,000$ 800 10,000$ 10 145,484,165$ 145,484 $ 9,851,042 $ (9,952,526 ) $ 44,810 Shares issued for services - - - - 6,012,938 6,013 12,776 - 18,789 Options Exercised - - - - 4,500,000 4,500 (4,500 ) - Fair value of options granted 130 130 Net loss - - - - - - - (18,988 ) (18,988 ) Balance year ended December 31, 2018 800,000$ 800 10,000$ 10 155,997,103$ 155,997 $ 9,859,448 $ (9,971,514 ) $ 44,741 Shares issued for services - - - - 501,412 501 4,552 - 5,053 Net loss - - - - - - - 6,465 6,465 Balance year ended December 31, 2019 800,000$ 800 10,000$ 10 156,498,515$ 156,498 $ 9,864,000 $ (9,965,049 ) $ 56,259
The accompanying notes are an integral part of these financial statements.
20 Data Call Technologies, Inc. Statements of Cash Flows Years ended December 31, 2019 and 2018 Table of Contents 2019 2018 Cash flows from operating activities: Net income (loss)$ 6,465 $ (18,988 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Shares issued for services 5,053
18,789
Options expense -
130
Depreciation and amortization of property and equipment 2,246
3,964
(Increase) decrease in operating assets: Accounts receivable 7,149 (8,045 ) Prepaid expenses 1,578 (8,878 ) Accounts payable 5,728 (3,482 )
Accounts payable - related party (4,743 )
4,512
Accrued expenses - related party (156 )
22
Accrued interest - related party 500
500
Deferred revenue (12,261 ) (2,185 ) Net cash provided by (used in) operating activities 11,559
(13,661 )
Cash flows from investing activities Capital expenditure for equipment - (887 ) Net cash (used in) investing activities -
(887 )
Cash flows from financing activities: Principal payment on debt - related party (7,036 ) (7,036 ) Net cash (used in) financing activities (7,036 )
(7,036 )
Net increase (decrease) in cash 4,523
(21,584 ) Cash at beginning of year 23,006 44,590 Cash at end of year$ 27,529 $ 23,006
Non Cash Investing and Financing Activities
Cashless exercise of Options -
4,500
Supplemental Cash Flow Information: Cash paid for interest$ 4,964 $ 4,964 Cash paid for taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
21Data Call Technologies, Inc. Notes to Financial StatementsDecember 31, 2019 Table of Contents
Note 1. Summary of Significant Accounting Policies.
Organization, Ownership and Business
Data Call Technologies, Inc. (the "Company") was incorporated under the laws of theState of Nevada in 2002. The Company's mission is to integrate cutting-edge information delivery solutions that are currently deployed by the media, and put them within the control of retail and commercial enterprises. The Company's software and services put its clients in control of real-time advertising, news, and other content, including emergency alerts, within one building or 10,000, local or thousands of miles away. The Company's financial statements are presented in accordance with accounting principles generally accepted (GAAP) inthe United States . In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and result of operations for the periods presented have been reflected herein. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investment instruments purchased with original maturities of three months or less to be cash equivalents. There were no cash equivalents as ofDecember 31, 2019 or 2018. Revenue Recognition OnJanuary 1, 2018 , we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning afterJanuary 1, 2018 are presented under Topic 606. The impact of adopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings onJanuary 1, 2018 .
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
? identification of the contract, or contracts, with a customer; ? identification of the performance obligations in the contract; ? determination of the transaction price; ? allocation of the transaction price to the performance obligations in the
contract; and ? recognition of revenue when, or as, we satisfy a performance obligation.
Company recognizes revenues based on monthly fees for services provided to customers. Some customers prepay for annual services and the Company defers such amounts and amortizes them into revenues as the service is provided.
Accounts Receivable Accounts receivable consist primarily of trade receivables. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer's trade accounts receivable. The allowance for doubtful trade receivables was$0 as ofDecember 31, 2019 and 2018 as we believe all of our receivables are fully collectable. 22
Property, Equipment and Depreciation
Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense. Depreciation is computed over the estimated useful lives of the assets (3-7 years) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Maintenance and repairs are charged to operations
as incurred. Advertising Costs
The cost of advertising is expensed as incurred.
Research and Development
Research and development costs are expensed as incurred.
Product Development Costs
Product development costs consist of cost incurred to develop the Company's website and software for internal and external use. All product development costs are expensed as incurred.
Income Taxes The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Use of Estimates The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
Beneficial Conversion Feature
Convertible debt includes conversion terms that are considered in the money compared to the market price of the stock on the date of the related agreement. The Company calculates the beneficial conversion feature and records a debt discount with the amount being amortized to interest expense over the term
of the note.
Management's Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates. 23 Earnings (Loss) Per Share
The basic net income per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities using the treasury stock method. For the years endedDecember 31, 2019 and 2018, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net loss per common share. These securities include options and warrants to purchase shares of common stock. Under the treasury stock method, an increase in the fair market value of the Company's common stock results in a greater dilutive effect from outstanding options, restricted stock awards and common stock warrants. In years with a net loss, potentially dilutive securities are not included because their effect is anti-dilutive. Years Ended December 31, 2019 2018 Net Income (loss)$ 6,465 $ (18,988 ) Net Income (loss) per common share: Basic$ (0.00 ) $ (0.00 ) Diluted$ (0.00 ) $ (0.00 ) Weighted average number of common shares outstanding: Basic 156,498,515 152,384,838 Diluted 164,695,787 152,384,838
The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted loss per share attributable to common stockholders (in common stock equivalent shares):
December 31, 2019 December 31, 2018 Convertible Notes Payable 8,510,638 8,403,361 Stock-based Compensation We account for stock-based compensation in accordance with "FASB ASC 718-10." Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the Company's common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.
Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company estimates of fair value are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumption and/or estimation methodologies may have a material effect on the estimated fair value amounts. The interest rates payable by the Company on its notes payable approximate market rates. The Company believes that the fair value of its financial instruments comprising accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts. 24
OnJanuary 1, 2009 , the Company adopted an accounting standard for applying fair value measurements to certain assets, liabilities and transactions that are periodically measured at fair value. The adoption did not have a material effect on the Company's financial position, results of operations or cash flows. InAugust 2009 , the FASB issued an amendment to the accounting standards related to the measurement of liabilities that are routinely recognized or disclosed at fair value. This standard clarifies how a company should measure the fair value of liabilities, and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard became effective for the Company onOctober 1, 2009 . The adoption of this standard did not have a material impact on the Company's financial statements. The fair value accounting standard creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The following table presents the Company's assets and liabilities within the fair value hierarchy utilized to measure fair value on a recurring basis as ofDecember 31, 2019 and 2018: (Level 1) (Level 1) (Level 3) 2019 $ 0 $ 0 $ 0 2018 $ 0 $ 0 $ 0
Recent Accounting Pronouncements
InJuly 2018 , the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, lease with the exception of short-term leases, a lease liability, which is a lessee's obligation to make payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning afterDecember 15, 2019 , with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. During the year endedDecember 31, 2019 the Company assessed the impact this guidance had on its financial statements and concluded that at present ASU No. 2018-10 has no impact on its financial statements due to not having any commitment to stay in our property longer than a year OnJanuary 1, 2018 , we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning afterJanuary 1, 2018 are presented under Topic 606. The impact of adopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings onJanuary 1, 2018 .
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
25
We determine revenue recognition through the following steps:
? identification of the contract, or contracts, with a customer; ? identification of the performance obligations in the contract; ? determination of the transaction price; ? allocation of the transaction price to the performance obligations in the
contract; and ? recognition of revenue when, or as, we satisfy a performance obligation.
Company recognizes revenues based on monthly fees for services provided to customers. Some customers prepay for annual services and the Company defers such amounts and amortizes them into revenues as the service is provided.
InMay 2014 , theFinancial Accounting Standards Board (FASB) issued Topic 606, which supersedes the revenue recognition requirements in Topic 605. We adopted Topic 606 as ofJanuary 1, 2018 . InFebruary 2018 , the FASB issued Accounting Standards Update No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The new standard is effective beginningJanuary 1, 2019 , with early adoption permitted. Tax effects are not anticipated as a result of this standard InMay 2017 , the FASB issued Accounting Standard Update ("ASU") No. 2017-9, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU2017-9"), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Per ASU 2017-9, an entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-9. ASU 2017-9 is effective for public business entities for annual and interim periods in fiscal years beginning afterDecember 15, 2017 . Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company early adopted ASU 2017-9 and adoption did not have a material impact on the Company's financial statements or related disclosures. In March, 2017, the FASB issued Update 2017-08-Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization onPurchased Callable Debt Securities . For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2018 . For all other entities, the amendments are effective for fiscal years beginning afterDecember 15, 2019 , and interim periods within fiscal years beginning afterDecember 15, 2020 . Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company evaluated this FASB and determined that it did not have a material impact on the Company's financial statements or related disclosures. InMarch 2017 , the FASB issued Update 2017-07 - Compensation -Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Effective for public business entities for annual periods beginning afterDecember 15, 2017 , including interim periods within those annual periods. For other entities, the amendments in this Update are effective for annual periods beginning afterDecember 15, 2018 , and interim periods within annual periods beginning afterDecember 15, 2019 . Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The Company evaluated this FASB and determined that it did not have a material impact on the Company's financial statements or related disclosures. The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information. 26
Note 2. Related Party Transactions.
During the second quarter of 2018, the Company issued unregistered shares as follows: (i) 3,500,000 restricted shares toTim Vance , the Company's CEO, in connection with the execution of a new 5 year employment agreement; and 2,000,000 restricted shares toGary Woerz , the Company's CFO, in connection with the execution of a new 5 year employment agreement. The restricted shares were valued at$0.0034 per share using the closing price of the stock on the date of grant. Total expense associated with the issuances is calculated at$18,700 to be recognized over the 5-year term of the agreements. The expense recognized in the year endedDecember 31, 2019 was$3,548 (2018:$2,104 ). TheApril 30, 2018 employment agreements calls for a 5-year term endingApril 30, 2023 , annual compensation of$98,000 per year for services as CEO, annual compensation of$57,200 per year for services as CFO. During 2009, the Company received cash in the sum of$50,000 from a shareholder for a Convertible Note Payable at a 10% interest rate. OnJuly 30, 2015 , the Company entered into an amendment agreement for the previously convertible note. The amendment removed the prior conversion feature of the note and amended the due date toDecember 31, 2016 . The remaining balance of the note as of December, 31, 2019 andDecember 31, 2018 was$4,920 and$11,956 , respectively. The interest for the note payable has been calculated annually and has been paid for the years endedDecember 31, 2019 andDecember 31, 2018 . As ofDecember 31, 2019 , andDecember 31, 2018 , convertible notes payable to related party had a balance of$10,000 . The note is past due. The interest for the note payable has been calculated annually for the year endedDecember 31, 2019 and 2018.
During the years ended
As of
As of
During the second quarter of 2018, the CEO and CFO exercised all warrants
previously granted under the 2013 employment agreements. The CEO received
2,500,000. The options were fully expensed during the period from
Note 3. Prepaid Expenses.
As of
27
Note 4. Property and Equipment.
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
December 31 Years 2019 2018 Equipment 3-5$ 113,499 $ 113,499 Office furniture 7 21,681 21,681 Leasehold improvements 3 10,656 10,656 145,836 145,836 Less accumulated depreciation and amortization (142,861 ) (140,615 ) Net property and equipment$ 2,975 $ 5,221 Note 5. Income Taxes. December 31 2019 2018 Tax expense/(benefit) computed at statutory rate for continuing operations$ 2,419 $
432,523
Tax effect (benefit) of operating loss carryforwards (2,419 ) (432,523 ) Tax expense/(benefit) for continuing operations $ - $
- The Company has current net operating loss carryforwards in excess of$3,078,107 as ofDecember 31, 2019 , to offset future taxable income, which expire beginning 2029. Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The components of deferred income tax assets are as follows: December 31 2019 2018 Deferred tax assets: $ $
Net operating loss 646,402 648,821 Valuation allowance (646,402 ) (648,821 ) Net deferred asset $ - $ -
AtDecember 31, 2019 , the Company provided a 100% valuation allowance for the deferred tax asset because it could not be determined whether it was more likely than not that the deferred tax asset/(liability) would be realized.
Note 6. Capital Stock, Options and Warrants
During the first quarter of 2013, the Company issued unregistered shares as follows: (i) 7,500,000 restricted shares toTim Vance , the Company's CEO, in connection with the execution of a new 5 year employment agreement; and 7,500,000 restricted shares toGary Woerz , the Company's newly designated CFO, in connection with the execution of a new 5 year employment agreement. The restricted shares were valued at$0.06 per share using the closing price of the stock on the date of grant. Total expense associated with the issuances is calculated at$900,000 to be recognized over the 5-year term of the agreements. The expense recognized in 2019 was $(Nil) and in 2018 the recognized expense was$16,110 . During the second quarter of 2018, the Company issued unregistered shares as follows: (i) 3,500,000 restricted shares toTim Vance , the Company's CEO, in connection with the execution of a new 5 year employment agreement; and 2,000,000 restricted shares toGary Woerz , the Company's CFO, in connection with the execution of a new 5 year employment agreement. The restricted shares were valued at$0.0034 per share using the closing price of the stock on the date of grant. Total expense associated with the issuances is calculated at$18,700 to be recognized over the 5-year term of the agreements. The expense recognized in the year endedDecember 31, 2019 was$3,548 (2018:$2,104 ). TheApril 30, 2018 employment agreements calls for a 5-year term endingApril 30, 2023 , annual compensation of$98,000 per year for services as CEO, annual compensation of$57,200 per year for services as CFO. 28
During the second quarter of 2018, the CEO and CFO exercised all warrants
previously granted under the 2013 Employment Agreements. The CEO received
2,500,000 shares of common stock and the CFO received 2,000,000 shares of common
stock as a result of the cashless exercise. The options were fully expensed
during the period from
During the year endedDecember 31, 2018 the Company granted 512,938 shares of common stock to two consultants for services provided. The stock was valued using the grant date closing price for the Company's stock for a total compensation expense of$1,481 of which$575 was expensed during 2018 during the year 2019 the company expensed$906 . The Company is authorized to issue up to 10,000,000 shares of Series A Preferred Stock,$0.001 par value per share, of which 800,000 are outstanding as ofDecember 31, 2019 and 2018. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights
and sinking fund provisions. Each share of Series A Preferred Stock shall bear a preferential dividend of twelve percent (12%) per year and is convertible into a number shares of the Company's common stock, par value$0.001 per share ("Common Stock") based upon Fifty (50%) percent of the average closing bid price of the Common Stock During the ten (10) day period prior to the conversion. The Company has not declared or accrued any dividends as ofDecember 31, 2019 or 2018. Unaccrued and undeclared dividends were$4,800 as ofDecember 31, 2019 and 2018, respectively. During the year endedDecember 31, 2019 the Company granted 501,412 shares of common stock to two consultants for services provided. The stock was valued using the grant date closing price for the Company's stock for a total compensation expense of$2,003 of which$599 was expensed during the year endedDecember 31, 2019 . The Company is authorized to issue up to 490,000,000 shares of Common Stock, of which 156,498,515 shares were issued and outstanding as ofDecember 31, 2019 (2018: 155,997,103).
Note 7. Commitments and Contingencies.
The Company conducted its operations from a facility located inFriendswood Texas during FY 2019 and 2018. The following is a schedule of future minimum rental payments required under the above operating lease as ofDecember 31, 2019 : Year Amount 2020 $ - 2021 $ - 2022 $ - 2023 $ -
Rent expense in 2019 and 2018 under the terms of the
Note 8. Concentrations.
Concentration of Major Customers
As of
For the year endedDecember 31, 2019 the Company received approximately 73% of its revenue from two customers. The specific concentrations were Customer A, 52%, and Customer B, 21%. For the year endedDecember 31, 2018 the Company received approximately 74% of its revenue from two customers. 29
Concentration of Supplier Risk
The Company had 5 vendors that accounted for approximately 68% of purchases during the year endedDecember 31, 2019 related to operations. Specific concentrations were Vendor A 16%, Vendor B 15%, Vendor C 14%, Vendor D 12%, and Vendor E 11%. For the year endedDecember 31, 2018 the Company had 6 vendors that accounted for approximately 82% of purchases.
Note 9. Convertible Shareholder Notes Payable.
During 2009, the Company received cash in the sum of$50,000 from a shareholder for a note payable at a 10% interest rate. The interest for the note payable has been calculated annually and has been paid for 2019 and 2018. During 2013, the note payable agreement was amended to include a conversion feature to the Company's common stock at$0.0001 per share. Under ASC 470-50, the amendment adds a substantive conversion option which causes the amended note to be evaluated as a new debt issuance. As the conversion term is considered in the money a beneficial conversion feature was present with a debt discount calculated at$50,000 . The debt discount was amortized to interest expense during 2013 due to the note being due at the time of the amendment. During 2013, the creditor sold a portion of his note for$8,900 . At the request of the new creditors the Company issued 89,000,000 shares of common stock at$0.0001 in terms with the amended agreement. No gain or loss was recorded on the conversion of debt to equity during the period endingDecember 31, 2013 as it was converted within the terms of the agreement. OnJuly 30, 2015 , the Company entered into an amendment agreement for the previously convertible note. The amendment removed the prior conversion feature of the note and amended the due date toJune 30, 2016 . The remaining balance due under this note was$4,920 as ofDecember 31, 2019 and$11,956 as ofDecember 31, 2018 . During the years ending 2019 and 2018 the Company made principal payments on debt -related party of$7,036 and$7,036 . During the quarter endedSeptember 30, 2011 , the Company issued a short-term convertible note to a shareholder in the amount of$10,000 . The convertible note is due in one year and bears interest of 12%. The interest for the convertible note has been calculated annually and has been accrued for 2016 and 2015. As ofDecember 31, 2017 , the convertible note contains a conversion feature at a 50% discount of the 10 day average closing price prior to notice. The note holder agreed that the conversion would not force the Company to issue more shares than allowed under the current capitalization which eliminates the existence of a derivative. The beneficial conversion feature included in the discounted share price of the conversion was found to be immaterial for the years endedDecember 31, 2019 and 2018. As the note is past its due date ofJune 2, 2012 , the note was extended in 2019 and is no longer considered in default. Note 10. Subsequent Events. The Company has evaluated subsequent events from the date on the balance sheet through the date these financial statements are being filed with theSecurities and Exchange Commission .
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